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What is Inventory Control? Types, Functions and Methods

For any retail business, the most valuable asset is its inventory. The way you buy, store, sell, and distribute your goods determines the success of your firm. This is why it is critical for retailers and manufacturers to improve their organization’s inventory control to achieve long-term success.

What is Inventory Control

Inventory control, also known as stock control, refers to the tracking and accounting of commodities, raw materials, and components that a corporation sells or uses in production.

Inventory control aids in determining how much inventory or stock to store at what moment as well as fulfilling client demand while reducing expenses at the same time.

Inventory Control Example:

Suppose that an inventory control manager discovers a batch of products that are not 

being purchased at all. This deadstock takes up a lot of unnecessary storage space in the stockpile and is reaching the decline stage.

The manager has to develop a strategy to turn over these products and minimise waste in such a case. They can use the “kitting” technique to combine those items with more in-demand commodities in a subscription box feature to facilitate their quick sale.

Inventory Control and Inventory Management Difference:

Inventory control and management are similar functions, but they have slightly varying aims. In fact, inventory control is a component of inventory management that deals with the current stock.

The main distinction is that inventory control is a way of controlling and managing the stock levels in a firm’s warehouse. Inventory management, on the other hand, relates to the process of estimating demand and ordering, handling, restocking goods, which 

focuses on when to buy stock, the quantity to order, and the seller or manufacturer to 

purchase from.

With inventory control, you keep a record of whatever commodities or resources you have and in what amounts; you also keep track of a product’s condition and status. Inventory management helps you focus on what customers want to buy in the future and order supplies accordingly.

Types of Inventory Control

There are two main types of inventory control:

  1. Periodic Inventory System

The periodic system uses a physical count of products on board at regular intervals to keep an accurate track of inventory and cost of goods sold (COGS). It basically refers to recording the item’s details as they move in and out of stock. This count is measured with the help of the following formula:

Cost of Goods Sold = Beginning Inventory Balance + Inventory Purchases Costs – Ending Inventory Cost.

The periodic inventory check is a highly time-consuming system and can shift managers’ focus from other necessary operations to get it done.

  1. Perpetual Inventory System

In a perpetual inventory control system, all stock levels are tracked and maintained in real-time, updated instantly anytime a product arrives or is delivered. The system utilises digital technologies, and changes are shared electronically with central databases.

Thus, purchases and returns are reflected in the inventory account right away. As each sale is made, the CGOS account is updated as well.

Importance of Inventory Control System

Overstocking and backorders can occur if a company does not keep track of its inventory. Both are equally harmful to a company’s financial performance and consumer loyalty.

Overstocking results in excess of unsold items, which blocks cash flow and turns into deadstock that must be cancelled or sold. Backorders or understocking lead to consumer disappointments because you, as a supplier, cannot provide them with the needed items on time. This ultimately leads to a loss of sales.

Implementing a highly effective inventory management system enables companies and businesses to streamline supply chain activities by lowering logistics, storage, and commuting expenses. It will help them purchase the proper amount of inventory at the right time and have complete control over it to make the most of it.

Functions of Inventory Control

  1. Determining the inventory level 

It is essential for the production team to maintain a positive relationship with the sales and marketing teams to develop policies, plans, and standards for determining inventory levels, such as maximum and minimum limitations. 

Also, before production begins, a business owner establishes whether or not raw materials will become obsolete. This aids them in stocking up on rare raw materials so that completed goods may be produced quickly.

  1. Planning Re-order levels

As client tastes and preferences change, there can be an increasing demand for a product that a company needs to supply. Producing the ideal quantity to meet demand necessitates advanced strategic and operational decisions. The restocking of raw materials has to be planned within a specified time frame to produce the finished product for consumers.

  1. Choosing A Reliable Strategy

A company’s chosen strategy assists it in determining the reorder quantity at any 

given time. Businesses can use any of the popular inventory control methods, including the EOQ (Economic Order Quantity) method, the ABC analysis method, the JIT (Just In Time) method, the Safety Stock method, and the FSN (Fast, Slow, and Non-Moving classification) methods of inventory control. 

Inventory Control Methods

  1. EOQ Method

The term “EOQ” (economic order quantity) refers to a formula for determining the best stock quantity that a corporation should purchase, taking into account a variety of factors such as demand rate, total manufacturing expenses, and so on.

Most businesses benefit from this method because it frees up any locked money in stock while also lowering their costs directly.

  1. ABC Analysis Method

It incorporates classifying stock into “A items,” “B items,” and “C items” categories based on how important they are to the company’s revenue. Since each group contains high-value items, only minimal stock levels are maintained. 

‘A’ group consists of the most costly items, and therefore a small inventory is maintained for this. Average-priced stock with a medium selling rate falls into the B group. Compared to groups A or B, the C group stocks have a low price but a rapid sales volume frequency and need less stock management.

  1. JIT Method

JIT (just in time) method of reducing inventory costs ensures only the desired quantities required currently for production are kept – nothing more or less. 

There will be no surplus inventory stored beyond what is required for production, so there will be no deadstock in the organisation.

  1. Safety Stocks Method

This method makes up for underestimated demand, wherein businesses order excess inventory to use as buffer stock if demand exceeds expectations. 

  1. FSN Method

FSN, which stands for fast, slow, and non-moving, is a method that entails categorising inventory as fast-moving, slow-moving, and non-moving categories to determine how quickly a company can place an order.

Objectives of Inventory Control

Customer Service Standard

Goods are manufactured to be sold for a profit, and there are numerous manufacturers in a free market who will be creating the same products as you. To stand out and attract your target buyers, you must provide excellent customer service. 

This entails having the right goods in the right quantity at the right location at the right time. This can only be accomplished if your company follows effective inventory control procedures.

Expenses for Holding Inventories

Another goal of inventory management is to reduce the cost of buying and maintaining inventory. 

Basically, the overall goal of inventory control is to provide the best level of customer service while keeping stock prices within manageable ranges. 

To keep the entire cost of selling as minimal as possible, the costs of buying and holding stocks in the manufacturing industry is equally important.

Advantages of Inventory Control

Increased Customer Satisfaction

If the business holds a sufficient inventory of finished items, it can meet increased client demand. As a result, inventory control aids an organisation in delivering items on time as requested by customers. After completing on-time deliveries, the business can provide additional services to its clients.

Helps Deal With Demand Fluctuation 

On countless occasions, a product’s demand estimate is inaccurate. When comparing estimated and real demand, there can be a significant gap between estimates and actual market demand. Consequently, there is always the possibility of variations or fluctuations in a material’s demand. 

If there is enough stock in the inventory, these variations can be controlled. That is how proper inventory control protects organisations from demand changes.

Decrease The Risk Of Loss

Inventory control can assist in limiting the risk of losing items due to expiration, outdatedness, or degradation. This involves performing routine testing on all products and distributing slow-moving products on schedule and at the right price levels. 

It keeps the appropriate inventory on hand at all times; consequently, the likelihood of any product becoming obsolete is lowered.


Inventory control can make or break a company. If you want to be successful, it is vital to keep track of your products from time to time and have the necessary tools in place to manage your inventory efficiently.

Slate brings a set of inventory management features that are perfect for maintaining safety stock and cycle counts, as well as tracking inventory in several locations and setting reorder points. 

With all the features, you can maintain the proper balance between demand and supply across your company, whether it’s a start-up, small or medium business or a large-scale enterprise.



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