Inventory control refers to the processes and procedures involved in overseeing your organization’s inventory. Inventory control is just one element of your broader inventory management system. Sometimes also referred to as stock control, inventory control specifically concerns aspects of inventory management like monitoring stock levels, tracking inventory movements, and optimizing inventory turnover.
In short, your organization’s inventory control program is meant to ensure that the right items are available and accessible in the necessary quantities when your maintenance team needs them. Inventory control best practices can play a crucial role in minimizing maintenance costs, preventing stockouts, and improving overall operational efficiency across a wide variety of industries.
Why inventory control is critical for your maintenance team
For instance, inventory control in the manufacturing sector may involve keeping oversight of stock levels for raw materials, monitoring movement of spare parts between facilities, and reassessing inventory levels after the delivery of finished goods. In retail, inventory control may be focused on tracking stock levels across multiple locations, calculating the impact of sales trends on those levels, and establishing reorder points based on customer demand.
In any industry, the ability of your business to effectively control your inventory will have a direct impact on your maintenance team’s ability to manage your physical assets, prevent prolonged downtime, and maximize your organization’s productivity. Businesses that struggle with inventory control risk facing costly operational issues. In fact, according to an article from Reliant Funding, inventory failures such as shrinkage, stockouts and overstock are costing businesses an estimated $1.1 trillion globally every year.
The value of an effective inventory control program cannot be overstated. Below, we’ll discuss some of the key components of inventory control, including the challenges involved in effective inventory control, some popular inventory optimization techniques, and the role emerging inventory control software now plays in streamlining inventory management processes for many businesses.
But first, let’s define some key terms.
Inventory control vs. inventory management
Inventory control and inventory management techniques are closely related, but there are some important distinctions. The most important distinction is the scope of these related concepts. Inventory control is a dimension of inventory management. Whereas inventory management refers comprehensively to the systems, strategies, and processes surrounding your organization’s inventory, inventory control refers more specifically to the aspects of inventory management related to monitoring in-house stock levels, tracking stock movement in your facilities, and identifying reorder points.
Below, we take a deeper look at some of the key distinctions between the concepts of inventory control and inventory management.
- Focus: Inventory control focuses on the tactical, day-to-day aspects of inventory management including tracking stock levels, monitoring inventory movements, and optimizing utilization of materials; whereas inventory management encompasses overarching strategic and operational aspects such as inventory planning, procurement, storage, and distribution.
- Objective: Inventory control techniques are meant to ensure that your organization has access to the required materials, in the proper quantities, at all times in order to meet customer demand and maximize efficiency; whereas the objective of inventory management to pursue optimization across the inventory lifecycle from procurement and price negotiation through process optimization and delivery of final product, or liquidation of assets.
- Processes: Some of the key processes involved in inventory control include auditing current inventory levels, implementing reorder points, and setting optimal reorder quantities to minimize stockouts and overstock; whereas inventory management includes strategic processes such demand forecasting, procurement planning, supply chain management, and logistical planning.
- Professionals: Inventory control typically falls under the purview of operations and logistics professionals, particularly in industries with high inventory turnover rates, such as retail, manufacturing, and distribution; whereas inventory management is typically overseen by supply chain managers, procurement professionals, and senior-level executives with strategic decision-making authority.
The benefits of inventory control
The benefits of developing an effective inventory control program are considerable, particularly when it comes to the efficiency and effectiveness of your organization’s maintenance operations. Below, we take a closer look at some of the proven benefits of developing a robust inventory control program.
- Loss prevention: First and foremost, a robust inventory control program with measures like regularly scheduled audits, clear security protocols, and movement tracking using state-of-the-art inventory control software can significantly reduce the risk and occurrence of inventory shrinkage due to theft, damage, spoilage, misplacement, or mismanagement.
- Cost saving: Accurate inventory tracking can minimize overstock carrying costs related to storage, handling, and spoilage, and reduce stockout costs related to equipment downtime, lost production, and expedited shipping, all of which can improve your bottom line.
- Improved cash flow: Reducing overstock issues can lower holding costs and free up working capital for investment in other areas of your business
- Enhanced operational efficiency: Streamlining aspects of inventory control such as movement tracking and reorder points ensures that maintenance teams have access to the right tools, materials, and spare parts as needed, which minimizes disruption, downtime and missed order fulfillment.
- Accurate financial reporting: Inventory control plays a critical role in your broader inventory management program, with stock audits and inventory tracking helping to ensure accurate recording and valuation of inventory, both of which are necessary for producing accurate financial statements and remaining compliant with accounting standards and regulations.
Inventory control challenges
Inventory control carries a number of clear benefits. But there are also several challenges to implementing and maintaining an effective inventory control management program. Your organization must overcome several practical hurdles on the way to an effective inventory control program including optimizing inventory levels, developing an effective tracking system, and onboarding your personnel and maintenance teams.
Fortunately, you do have access to a number of valuable inventory management tools, including an increasingly powerful set of Computerized Maintenance Management System (CMMS) solutions. Below, we take a deeper look at some of the challenges your organization may face in implementing and managing a robust inventory control program.
- Forecasting demand accurately: External factors like macroeconomic changes and shifts in consumer behavior can make it difficult to anticipate future demand for products, which can heighten the risk of both overstocking and stockouts. The inventory control software included with many CMMS platforms can help businesses respond to this challenge by using historical sales data, current market trends, and advanced analytics to deliver improved demand forecasting models and stronger assurances that your storage room is always carrying the right amount of inventory.
- Inventory tracking and management: Most large-scale manufacturing operations must track and monitor inventory movement across multiple locations. The risk that items may be lost, misplaced, or damaged is often magnified as they move between warehouses or facilities. Today, many operations use sophisticated barcode scanning technology to ensure that all items can be tracked in real time, and that their physical location is always visible through a user-friendly inventory management software system.
- Inventory data integrity: Inventory control errors often occur as a consequence of outdated, duplicate, missing, or inaccurate data. These discrepancies can cause inventory distortions, which lead to overstock, stockouts, and inventory loss. Organizations can take steps to reduce and prevent data errors by standardizing a number of inventory control procedures such as conducting regular stock audits, and integrating software solutions with comprehensive inventory management functionality.
- Employee training and buy-in: Your employees will play a key role in determining the effectiveness of your inventory control program. Codifying procedures such as stock auditing and use of inventory control software both require total organizational buy-in. Resistance among personnel can derail implementation and generally diminish the effectiveness of any inventory management program. Your organization can overcome this challenge with comprehensive training programs, particularly for employees involved in inventory management. Be sure to also retain open lines of communication with personnel by cultivating positive feedback loops, and by placing an emphasis on continuous improvement.
- Optimizing inventory levels: In order to optimize your inventory levels, you must take into account a variety of factors including delivery lead time, the seasonality of demand, and the possibility of supply chain disruptions. Businesses are solving this complex equation by using a variety of software-based inventory control techniques such as ABC analysis, Economic Order Quantity (EOQ), First In First Out (FIFO), and Just-in-Time (JIT) inventory management.
Types of inventory control systems
There are a number of different inventory control systems that have proven effective in real-world settings. The right inventory control system for your business will depend on a number of factors including your production processes, supply chain dynamics, demand patterns and, of course, the sector in which your business operates.
In most cases, your inventory control program system will be shaped by your broader inventory management strategy. Below, we take a closer look at three notable inventory control systems approaches.
- Spreadsheet to control inventory: This method is often utilized by smaller businesses with modest stock levels and less diverse inventory types. Spreadsheet-based inventory refers to the actual manual entry of inventory data by human operators. This method may be more cost-effective than some software-based solutions, but it is also labor intensive, vulnerable to human error, and ultimately, impractical for businesses with growing inventory needs.
- Periodic inventory system: This system relies on physical inventory counts conducted at regular intervals. The implementation of this system is straightforward and the math is relatively simple (i.e. Cost of Goods Sold (COGS) = (Beginning Inventory + Purchases) – Closing Inventory). However, this approach is also labor intensive, time-consuming, and impractical for businesses with large inventories and frequently moving stock. This approach can lead to outdated information and, consequently, inventory delays.
- Perpetual inventory system: This system updates data on stock levels in real-time at the point of transaction. Perpetual inventory systems are rooted in software-based solutions, and typically provide better visibility into inventory levels as compared to spreadsheet-based or periodic methods. Perpetual systems are also more likely to be compatible with other management systems such as ERPs.
Popular inventory control strategies and techniques
Organizations manage some of the inventory control challenges cited above by implementing proven inventory control strategies and techniques. There are a number of well-established techniques with demonstrated success at lowering inventory costs, improving demand forecasting, ensuring data accuracy and more.
Below, we take a closer look at three leading inventory control methods as well as the business contexts in which they are commonly used.
- Just-in-Time (JIT) Inventory Management: The objective of JIT inventory management is to keep inventory carrying costs to a minimum by closely coordinating inventory levels with customer demand, and therefore replenishing inventory only when needed.
This technique is a “lean production” approach commonly used in manufacturing operations with rapid production turnover such as the automotive or electronics manufacturing industries. This approach to inventory management can result in lower storage costs and a reduced risk of overstock while still ensuring that critical materials are never out of stock.
- ABC analysis: This approach to inventory management bases its inventory control procedures on a hierarchy of priorities. With ABC analysis, your organization will segment inventory needs into three categories based on their value and importance.
- Items in the “A” category are those with high value and low reorder frequency.
- Items in the “B” category are those with moderate value and moderate reorder frequency.
- Items in the “C” category are those with low value and high reorder frequency.
The ABC method is widely used in business sectors that must allocate resources based on demand patterns such as the retail, E-commerce, and manufacturing industries.
- Economic Order Quantity (EOQ): This method of inventory management is driven by advanced analytical modeling. The EOQ approach uses historical data, cost analysis, and market trends in order to calculate the optimal order quantity for minimizing both ordering and carrying costs. The EOQ method is used widely in businesses that must find a balance between cost-control and on-time replenishment, such as the food services industry.
Best practices for effective inventory control
Businesses looking for ways to streamline inventory management processes can begin by adopting some of the best practices outlined here below.
- Establish clear Inventory policies and procedures: Outline roles, responsibilities, and workflows for inventory control activities; and document standard operating procedures (SOPs) for inventory management tasks such as receiving, storage, and replenishment.
- Regularly monitor and update inventory levels: Monitor inventory levels and customer demand patterns to ensure optimal stock levels; and leverage inventory control software for automated alerts for events like low stock levels, reorder points, and upcoming stock expiration dates.
- Utilize barcoding and RFID technology: Track inventory items accurately, efficiently, and in real time by integrating barcode scanners or RFID labeling with your inventory management software solution.
- Implement ABC analysis: Conduct ABC analysis to prioritize inventory items based on value, importance, and reorder frequency, taking into consideration correlated factors such as demand variability, delivery lead time, and the diversity of available suppliers.
- Optimize warehouse layout and organization: Make sure your physical space is as well organized as your digital inventory control solutions. Organize your warehouse layout and optimize storage based on usage frequency and the need for accessibility. Create digital warehouse maps in order to mirror your well-organized physical space within your inventory management software environment.
- Train employees and foster accountability: As noted above, employee resistance can stand in the way of implementing a good inventory control program. Preempt this resistance with comprehensive training around proper procedures, use of inventory management software, and on inventory control best practices in your industry. Set clear expectations, establish performance metrics for monitoring inventory control, and foster an environment where feedback is encouraged.
- Continuously improve processes and adapt to changes: Use the metrics and feedback loop cited above to promote continuous improvement of processes. Conduct regular reviews and analysis of inventory control processes in order to identify areas for improvement. Likewise, remain adaptable to changes in demand, shifts in market trends, and technology advancements. Seize these opportunities to refine and enhance your inventory control program.
- Invest in leading edge inventory management software: Most of the best practices described directly above are rooted in effective utilization of today’s leading inventory control and management software solutions. In particular, the industry’s top CMMS platforms typically come with sophisticated inbuilt inventory control features such as multi-facility inventory tracking, barcode scanning, automated reorder points, low stock alerts, and more.
To learn more about CMMS platforms and to find out how the right software solution can help you streamline, automate and enhance your organization’s inventory control program, jump to our comprehensive CMMS Buyer’s Guide.
