15 Techniques Of Inventory Control You Need to Know

It's not simple to choose the ideal inventory control way for your business. The more quickly your business expands, the more challenging inventory control gets. That is why laying a strong foundation from the beginning is so important. Let's go through 15 techniques of inventory control, processes, and best practices with us in this article straight away.

Large shipments 

This inventory technique is built on the concept that purchasing and transporting products in large quantities is often inexpensive. Bulk transportation is one of the most widely utilized methods in the industry, and it can be applied for items with high consumer demands. The drawback of this technique is that you will have to pay extra money on storage, while it is often offset by the amount saved by purchasing high quantities of items and distributing them rapidly. 

- See more: Order Management System: Definition, Process, And Value 

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Pros

• Highest profitability potential
• Decrease transportation expenses as a result of very few shipments
• Suitable for products with a stable demand as well as a long shelf life.

Cons

• Capital risk possibility at its highest
• Storage expenses have risen as a result of the increased holding charges
• Hard to adjust promptly when demand fluctuates.

ABC inventory management system

ABC inventory management is the system for sorting commodities in order of priority with the concept: A is by far the most valuable and C is the least. Not everything is made equal, and more attention should be paid to more popular items. Despite no strict and quick rules, ABC analysis focuses on annual consumption counts, inventory value, as well as cost importance. 

When selective financial allocation, inventory control technique, and human resources are needed, the solution is to operate each group independently. 

Pros

• Analyze a product's popularity over time to aid demand forecasts
• Enable better resource allocation as well as time management
• Contribute to the creation of a multi-tiered customer service approach
• Make sure your inventory is accurate
• Motivate strategic pricing.

Cons

• Could overlook things that are just starting to rise in popularity
• Sometimes dispute with other inventory strategies
• Need time and human resources.

Back-ordering Strategy

The technique of back-ordering mentions to a business's decision to handle orders for products that are out of stock and take payment for them. For most companies, this is a good thing, but it can also become a logistical nightmare if you're not well-prepared. If there's an only one unavailable commodity, creating a new purchase order for that goods and notifying the shopper once the back ordered product will come is all required. 

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When you're handling tens, if not hundreds, of various sales each day, problems start to occur. Enabling backorders, on the other hand, generates profits, so it was a fine balance that many businesses are willing to do. Overstocking may not be a solution for small companies. In this situation, the item's "Buy now" button may be labeled "Pre-order" or "Get yours when it comes back in stock." Customers will have a realistic expectation that it will take a little longer to arrive as a result of this. 

Alternatively, several companies use a "no-stock" method, in which they only accept backorders until they've made enough sales to place a huge bulk order with a supplier. 

Pros

• Improve sales and cash flow
• More choices and flexibility for small retailers
• Lesser storage costs and a lower risk of overstocking.

Cons

• Higher potential customer dissatisfaction
• Longer fulfillment durations.

Just-in-Time (JIT) Technique - One of the best inventory management techniques

JIT (Just In Time) management reduces the number of stock levels that business keeps on hand. Since you only purchase inventory a few days before it's needed for delivery or sale, it's deemed a risky approach. By maintaining inventory level minimal, as well as preventing several situations where deadstock (basically frozen capital) sits on shelves for months, JIT lowers inventory holding expenses. 

Organizations, on the other hand, should be exceedingly adaptable and able of tolerating some far faster manufacturing cycles. If you're thinking about implementing a Just-in-Time inventory management system, examine the following questions:

• Are my vendors trustworthy enough to deliver things on schedule every time?
• Do I have a firm grasp of client demand, sales cycles, and seasonal variations?
• Is my order fulfillment system capable of delivering orders on time to customers?
• Is my inventory management system flexible enough to allow me to manage and adjust stock levels on the fly?

Pros

• Reduce inventory holding expenses
• Enhance cash flow
• Less deadstock.

Cons

• Orders aren't being filled on time
• There is very little space for error
• Stockouts are a risk.

Consignment 

A wholesaler places merchandise on consignment with a retailer but retains ownership of the goods until it is sold, at which stage the retailer buys back the spent stock. From the business's standpoint, selling on consignment entails a high amount of demand unpredictability, as well as a large sense of trust from the wholesaler's view. Selling on consignment has various advantages for retailers, including the possibility to:

• Customers will be able to choose from a wider choice of products without having to spend more money
• Reduce the amount of time it takes to refill inventory
• Return any unsold items for free.

While the wholesaler bears the majority of the risk in selling on consignment, there are still a number of possible benefits for the vendor:

• Test new items
• Distribute marketing to retailers.
• Obtain vital information regarding the performance of the product.

If you're planning on selling on consignment as a retailer or wholesaler, be sure to spell out the following terms:

• Return policies, freight policies, and insurance plans
• When, how, and with whom customer data is shared
• As a sales commission, the store will take a percentage of the purchase price.

Dropshipping and cross-docking

This inventory control method completely removes the cost of storing inventory. You can directly pass customer orders and delivery information to your manufacturer or wholesaler, who will subsequently ship the items if you have a dropshipping relationship.

Cross-docking is a procedure similar to dropshipping in which commodities are unloaded directly onto outbound trucks, trailers, or rail cars from incoming semi-trailer vehicles or railroad cars. Basically, it means that products are transferred immediately from one transport vehicle to another with no or little warehousing. 

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It's possible that you'll need staging spaces where inbound items are sorted and stored until the outbound delivery is done. 

For cross-docking to function, you'll also need a large fleet and network of transport vehicles. Of course, you can still keep tracking your shipments on your partner's system if they have it.

Inventory Cycle Counting

Counting little levels of stock on a certain day without having to undertake a full manual stocktake is known as cycle counting. It's a form of sampling that lets you check how closely your inventory records match what you actually have on hand.

This strategy is used in many firms' inventory control methods since it ensures that consumers get what they want. When they want it while keeping inventory holding expenses to a minimum. 

Pros

• It takes less time and money to undertake a partial inventory than it does to do a full stocktake
• It is possible to complete without affecting operations
• Inventory holding costs are kept to a minimum.

Cons

• A partial stocktake is less thorough and accurate than a full stocktake
• Seasonality may not be taken into account.

Material Requirements Planning (MRP) Method

Material Requirements Planning (MRP) is a strategy of inventory control in which producers order goods based on sales projections. 

The MRP system combines data from many areas of the organization that have inventory. The manager would carefully make an order for fresh inventory with the material suppliers based on the data and market demand. MRP allows companies to see the inventory they need to satisfy demand, allowing them to manage the inventory level and production schedules. Companies with low visibility and response lack this insight, which can result in:

• Overordering inventory, raising carrying costs, and locks up more cash in inventory overhead that might be put to better use
• Lack of raw resources causes the inability to meet demand, resulting in lost sales, terminated contracts, and out-of-stocks
• Disruptions in the manufacturing cycle - one of the inventory management challenges, resulting in higher production costs and lower output, by delaying sub-assembly builds.

Manufacturers depend heavily on MRP as a supply planning system for planning and tracking inventory, scheduling, and production, but MRP is also used to balance supply and demand in a variety of other industries. 

Pros

• Allows for efficient planning and scheduling of production, ensuring that materials go through the work order swiftly and that client orders are fulfilled on time
• Reduce manual processes such as retrieving previous sales and existing inventories
• Allows seeing all of the parts that go into each sub-assembly and how long it takes to finish each step, reducing production cycle delays and increasing yield.

Cons

• It's only as good as the data you provide. The better understood and documented a business's processes are, the better an MRP system can serve them.

Businesses must ensure to enter the right inventory availability, time to perform a subassembly, waste calculations, and vendor lead times. Otherwise, the production schedule will be inaccurate—if the data isn't provided in the inventory record, bill of materials, and master production schedule, an MRP won't be able to specify the production build timetable and materials necessary.

Economic Order Quantity (EOQ) Model

The Economic Order Quantity (EOQ) method involves determining how much inventory the business should order at any given time and when the order should be placed. Ordering too much can result in excessive holding costs and divert resources away from other business operations, such as marketing or R&D.

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EOQ is a key metric for businesses' sustainability to grow sales or cut costs. When the inventory reaches a minimal level, the store manager will reorder it. The EOQ model aids in the reduction of ordering and carrying costs incurred throughout the order placement process. The EOQ model allows the business to place the correct amount of inventory. 

Pros

• Order fulfillment has improved
• Prevent overordering and locking up too much cash in inventory
• Reduce outmoded inventory, especially for organizations with perishable inventory that could lead to dead stock
• Reduce real estate, utility, security, and insurance expenditures, among other costs
• Allow you to take advantage of your vendors' best bulk order or quantity discounts.

Cons

• Manual or spreadsheet-based systems may generate inaccurate calculations due to poor quality or outdated data.
• Old and obsolete systems may contain incomplete data, resulting in missed savings opportunities.
• Using EOQ to manage inventory can lead to inventory shortages in a fast-growing organization.
• This method often generates smaller orders. If you're too cautious with your calculations, you can end up ordering too little.
• Seasonality might make EOQ more difficult because consumer demand can fluctuate dramatically throughout the year.

Tracking Minimum Safety Inventory

A firm's minimum safety stocks are the number of inventory kept on hand to avoid a stock-out situation. For instance, if an organization's total inventory is 18,000 units, it will place a new order when the inventory reaches 15,000 units. As a result, the 3,000 inventory units will be included in the minimum safety stock level.

VED (Vital Essential and Desirable) Analysis

Vital Essential and Desirable (VED) is mostly used by enterprises to keep track of inventory spare parts. For example, crucial parts that are both expensive and necessary for production demand a larger amount of inventory. Others are critical spare parts whose absence could cause the manufacturing process to slow down. As a result, such inventory must be maintained. Similarly, an organization can keep a modest quantity of inventory on hand for desired items that aren't used frequently in manufacturing.

Fast, Slow & Non-moving (FSN) Method

The Fast, Slow & Non-moving (FSN) method of inventory control is quite effective in preventing obsolescence. All of the inventory isn't used in the same order; some are needed regularly, while others aren't. As a result, inventory is divided into three categories: fast-moving inventory, slow-moving inventory, and non-moving inventory, according to this method. The usage of inventory is used to make an order for new inventory. 

Pros

• Identify deadstock so you don't end up stacking things that don't have much of a market need.
• Allow you to set a budget for a specific product and the quantity that should be purchased in order to prevent putting money into slow-moving or non-moving goods.
• Assists you in analyzing market trends that are changing.
• Keep fast-moving commodities close to you in a readily accessible warehouse.
• Assist with proper space management

Cons

• It's entirely based on the formulas and the information you've collected about a commodity. If the data is incorrect, the FSN analysis will be inaccurate and flawed as a result.
• Rapid market trend shifts can also impact your FSN analysis.

Permanent Inventory System

After each buying, sale, withdrawal, or other activity, a perpetual inventory system maintains a constant and updated record of inventories. A perpetual inventory system is one that automatically updates inventory levels on a regular basis. This system is heavily dependent on automation to track purchases and sales in real-time and update inventory records. As a result, this method enables companies to maintain a real-time inventory count. 

Pros

• Records are updated in real-time.
• Management of many locations
• Allow for a better understanding of buying patterns and assistance with SCM.
• Because the stock count is easily available, it aids in the creation of financial statements more quickly.

Cons

• The cost of acquiring and updating this technology is high. The expense of training staff in this strategy is higher.
• Any inventory breakage would go unnoticed by management until a physical inventory count was performed.

Lean Producing 

Lean manufacturing is a bundle of controlling techniques that may be implemented in any business. Its purpose is to increase efficiency by removing waste and non-value-adding operations from day-to-day business.

Pros

• Fewer raw materials and completed goods on hand
• Optimized workspace, materials, and inventory tools and techniques
• The production can be done more engaging and motivating for employees
• Cross-train to keep employee numbers down and overhead costs down
• Reduced time to market for finished goods
• Shorten the process to align manufacturing with customer expectations.

Cons

• The emphasis on efficient operations provides little room for mistakes
• There is little place for forecasting changes or implementing new tactics with such a strong focus on the present
• All staff must "buy-in" to the lean method for output to be affected
• Due to a scarcity of spare parts, economies of scale are nearly impossible to achieve
• To perform properly, a business-wide upgrade of manufacturing systems is required.

Lean Six Sigma

Lean Six Sigma improves on Six Sigma's tools but focuses more on boosting word consistency and business flow. 

Pros

• Lean makes complicated processes easier to follow. Organizations can use lean techniques to enhance processes instead of employing a large number of highly skilled individuals to complete a task.
• Speeds up the process. Lean can help you cut down on delays and keep your customers satisfied.
• Lean is a wonderful approach to keeping inventories under control
• Lean is effective at reducing or eliminating errors in the manufacturing process.
• To streamline specific operations and dramatically eliminate bottlenecks, lean technologies are available.

Cons

• There are no statistical tools available. There are no statistical lean inventory control techniques to control process variances.
• Has a lack of adaptability. Lean is slow to respond to new situations or conditions.
• Congestion. Lean's delivery creates bottlenecks in the supply chain, resulting in delays, pollution, and a human resource deficit.
• Has a limited range of applications. Lean isn't applicable to every industry.

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Conclusion

Because inventory is your business's most valuable asset, you should safeguard it and nurture it in the right direction in order to optimize cost and make money. You'll never get ahead if you don't use techniques of inventory control. As a result, businesses should take all necessary precautions to ensure that inventory control systems are always up to date. You've found this article so helpful? Let's forget to follow our Fanpage and website to get many interesting articles!