How to Choose the Right Type of Inventory Control System

Strong inventory control is the cornerstone of any successful wholesale distribution business. As your business grows, it becomes more and more challenging to deploy inventory controls. But, this necessary practice is well worth it as it will have far-reaching effects on the customer experience and your profitability.

What is Inventory Control?

Inventory control is defined as the tools that are used that help you manage and run an efficient warehouse. Inventory controls are the systems in place that help you receive, store and ship goods. It is every process that helps you serve your customer when it comes to storing and shipping inventory in your warehouse.

Keep in mind there are several key inventory control methods that can be utilized to optimize your inventory and help you run an efficient warehouse. In this post, we’ll outline the different types of inventory controls in order to help you select the ones that fit your current stage of business.

10 Inventory Control Methods & Best Practices

1. Use a Perpetual Inventory Control System

A perpetual inventory system is one that requires businesses to continually update inventory levels as stock is sold. This method does require time and dedication, depending on the size of your inventory. But, this method ensures that you’re able to quickly find any discrepancies that can affect your inventory accuracy. However, if you have inventory management software, this task becomes much easier as a result of the fact that inventory levels are automatically updated as stock is sold.

2. Use Periodic Inventory Counting

Periodic inventory counting is exactly what it sounds like. Physically count inventory periodically, such as once a quarter. If you feel a need to move to more frequent inventory counts, due to regularly occurring discrepancies, switch to a perpetual inventory counting system.

3. Calculate Your Reorder Point

In order to avoid being out of stock, calculate and establish a reorder point, especially for fast moving products. A reorder point is the minimum stock level that is maintained for a product or product family. Be sure to establish a reorder point, or minimum stock level, that takes into account the lead time required to get new inventory. In essence, your reorder point should help you ship orders to customers without interruption, which is a factor in your customer repurchase rate. You can calculate your reorder point by multiplying the average lead time (in days) by your average daily usage of that item. Add what safety stock you have available to that number and you have your reorder point. Ideally, you have a wholesale inventory management software in place that helps you automate this. For example, set an alert in your inventory management software to notify warehouse management that inventory has reached a predefined minimum. Once they approve the order that is needed and recognize that inventory is low, your software should automatically issue a purchase order to your supplier so that you never run out of stock.

4. Use Barcodes

Barcodes are used to automatically update inventory in your warehouse. Your inventory is automatically updated when an employee scans the barcode during the pick, pack and ship process. Benefits of using barcodes appropriately include always accurate inventory counts and a speedy pick, pack and ship process, just to name a few.

5. Use an RFID (Radio Frequency Identification) System

An RFID system utilizes fixed tag readers that are located throughout your warehouse. The RFID system includes a reader that recognizes tagged products when in movement in your warehouse. While this type of inventory control can be expensive, it can be extremely valuable for companies that maintain a great deal of inventory or that continually have fast-moving inventory that needs to be tracked in real time.

6. Implement Inventory Forecasting

This method requires a look back into the past—specifically product trends— and the future. By reviewing which items move the fastest and slowest, combined with historical or seasonal trends, one can determine how products or product families should be stocked. For items that move quickly year-round, you’ll want to maintain a healthy minimum stock level and place orders regularly with that supplier. The more accurate your forecasts, the better your inventory turn ratio will be.

7. ABC Inventory Counting

The ABC approach requires that you label products in your warehouse as one of three categories: A, B or C. A products are your most valuable. These products are your best sellers. B products have a medium consumption value. C products are purchased and consumed the least. You can calculate what the annual consumption value of a product is by multiplying the annual demand by the item cost per unit. Products designated as A should never be out of stock, since these are your most frequently ordered, in-demand products.

8. Improve and Optimize Your Receiving Process

Use your inventory management software to issue digitized purchase orders and receive goods as quickly as they arrive. Scan barcodes and apply the appropriate labeling to get them stocked quickly. Don’t let receivables sit days at a time. Get them scanned and shelved right away. If it’s a highly popular item, you run the risk of losing that customer simply because it took your team too long to receive and shelve it.

9. Perform Random Pick, Pack and Ship Checks

To ensure that shipments are being accurately prepared to go out the door, warehouse managers should randomly check prepared shipments to ensure there are no human errors. This is especially important with new employees. Until an employee has reached 90 days of tenure, for example, it’s a great idea to randomly check their work.  

10. Inventory Management KPIs

Key Performance Indicators (KPIs) are a quantifiable way to measure how well you’re doing when it comes to inventory controls. One of the most important KPIs to manage as a wholesale distributor is inventory turnover ratio. This number reflects how often inventory is sold and replaced within a given time period. Divide the cost of goods sold (COGS) or net sales by your average inventory. The resulting number indicates how many times your company has sold and replaced that inventory within the time period you selected. It basically helps you measure how fast you’re selling inventory. Compare your average with the industry average and you’ll be able to tell if there’s room for improvement. If you’re moving inventory faster than the industry average, then you’ll likely outpace your competitors in terms of sales and profitability in that category.

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