Stock & Inventory Management

Stock control, also known as inventory control , is used to show how much inventory you have at a certain time and how to track it.

It applies to any item you use to make a product or provide a service, from raw materials to finished goods. This covers stock at every stage of the production process, from purchase and delivery to use and replenishment of stock.

Effective inventory control allows you to hold the right amount of stock in the right place at the right time. This ensures that capital is not tied up unnecessarily and protects production if problems arise with the supply chain.

Everything you use to make your products, provide your services, and run your business is part of your inventory.

There are four main types of inventory:

  • raw materials and components – ready to use in production
  • work in progress – inventories of unfinished goods in production
  • finished goods ready for sale
  • consumables – for example, fuel and stationery
  • The type of stock can influence how much you need to keep; see the page in this guide on how much stock you should keep.

Inventory value

You can classify stocks in more detail, based on their value. For example, you could categorize items into low value, medium value, and high value categories. If your inventory levels are capital constrained, this will help you plan expenses for new and replacement inventory.

You can choose to concentrate resources in areas of greatest value.

However, low cost items can be crucial to your production process and should not be overlooked.

How much inventory should you keep?

The decision on how much stock to keep depends on the size and nature of your business, as well as the type of stock involved. If you are short on space, you may be able to buy stock in bulk and then pay your supplier a fee to store it, and you can request it as needed.

Advantages of buying in bulk

  • Efficient and flexible – you only have what you need, when you need it
  • Lower warehousing costs
  • You can stay up to date and create new products without wasting stock
  • Easy to manage
  • Lower management costs
  • Less likely to be ‘cut short’
  • Buying in bulk can be cheaper

Disadvantages of buying in bulk

  • Meeting inventory needs can get complicated and expensive
  • You could run out of stock if a problem occurs in the system
  • You depend on the efficiency of your suppliers
  • Higher storage and insurance costs
  • Some goods may perish
  • Stocks may become obsolete before they are used
  • Your capital is locked in

Buying ‘on the go’ – this might suit your business if it is in a fast-moving environment where products grow rapidly, the cost of buying and storing inventory is high, items are perishable, or inventory replenishment is quick and simple. 

Buying in bulk – this might suit your business if sales are hard to predict (and it’s hard to gauge how much inventory you need and when you’ll need it), if you can store a lot of inventory on a short costs, if the components or materials you purchase are unlikely to undergo rapid development or if it takes a long time to reorder them.

Deciding on type of inventory:
Ask yourself a few key questions to help you decide how much inventory you should keep:

  • Is the supply reliable and are other sources available?
  • Are the components produced or delivered in batches?
  • Can you forecast demand?
  • Is the price stable?
  • Do you get discounts if you buy in bulk?
  • Work in progress – inventories of unfinished goods

Holding inventories of unfinished goods can be a useful way to protect production in the event of problems down the line with other supplies.

You might keep inventory of unfinished goods when:

  • demand is assured
  • the goods are produced in batches
  • you are responding to an important order
  • Consumables

For example, fuel and stationery. The amount of inventory you keep will depend on factors such as:

  • reliability of supply
  • price increase forecasts
  • the stable nature of demand
  • discounts for bulk purchases

Methods of inventory control 

There are several methods of inventory control, all intended to provide an efficient system for deciding what to order, when and how much to order.

You can opt for one method or a mix of two or more methods if you have different types of stocks:

  • Minimum stock level – you identify a minimum stock level and re-order when stocks reach that level. This is known as the reorder level.
  • Stock reviews – you periodically perform stock reviews. During each review, you place an order so that stocks reach a predetermined level.
  • Just-in-time – this aims to reduce costs by keeping inventory to a minimum. Items are delivered when needed and used immediately. You run the risk of running out of stock; you are confident that your suppliers can deliver on demand.

These methods can be used in conjunction with other processes to refine the inventory control system. For instance :

  • New Order Lead Time – allocates time between placing an order and receiving it.
  • Economic Order Quantity (EOQ) – a standard formula used to strike a balance between keeping too much or too little stock. This is a rather complex calculation, and you might find it easier to use inventory control software.
  • Batch control – manage the production of goods in batches. You need to make sure you have the right number of components to cover your needs until the next batch.

If your needs are predictable, you can order a fixed amount of inventory each time you place an order, or order at fixed intervals, say weekly or monthly. In effect, you are placing a standing order, so you need to keep an eye on quantities and prices.

First in, first out – a system to ensure that perishable stock is used efficiently so that it does not deteriorate. Stock is identified by the date it is received and moves through each stage of production in strict order.

Inventory control systems – manual tracking

Physical inventory counting involves taking inventory , or listing inventory, and noting its location and value. This is often an annual exercise, a sort of audit to assess the value of inventory as part of the accounting process.

Codes , including barcodes, can make the process much easier, but it can still be quite time consuming. More frequent checking of stock, a permanent inventory, avoids a massive annual exercise, but requires constant attention throughout the year. Radio Frequency Identification (RFID) tagging using handheld readers can be a simple and effective way to perform constant inventory verification. See the page in this guide on using RFID for inventory control, stock security, and quality management.

Any inventory control system should allow you to:

  • track inventory levels
  • place orders
  • distribute inventory
The simplest manual system is the inventory ledger , which is suitable for small businesses with few inventory items. It allows you to keep a log of stocks received and distributed.

It can be used in conjunction with a simple replenishment system . For example, the two compartment method works by having two containers of inventory items. When one is empty, it’s time to use the second locker and order more inventory to fill the empty one.

Stock cards are used for more complex systems. Each type of stock is associated with a card, containing information such as:

  • the description
  • the value
  • the location
  • reorder levels, quantities and lead times (if this method is used)
  • supplier information
  • information about the history of old stocks

More complex manual systems incorporate coding to classify items. Codes can indicate inventory value, location, and which batch it came from, which is helpful in quality control.

Inventory control systems – computerized tracking

Computerized inventory control systems work the same way as manual systems, but they are more flexible and information is easier to retrieve. You can quickly get a stock valuation or find out how a particular stock item is moving.

A computerized system is a good choice for businesses dealing with many types of inventory. Other useful features include:

  • Integration of inventory and pricing data with accounting and billing systems. All systems rely on the same set of data, so you only have to enter data once. Purchase order processing and purchase order processing can be integrated into the system so that stock balances and statistics are automatically updated as orders are processed.
  • Automatic stock monitoring, triggering orders when the new order level is reached.
  • Automatic batch control if you produce goods in batches.
  • The identification of the cheapest and fastest suppliers.
  • Barcode systems that speed up processing and registration. The software will print and read barcodes from your computer.

Radio Frequency Identification (RFID) which allows individual components or products to be tracked through the supply chain.

The system will only be as good as the data that is entered into it. Do a thorough inventory before it goes into service to ensure accurate numbers. It’s best to run the old system alongside the new one for a while, giving you a backup and allowing you to check the new system and fix any problems.

Choose a system

There are a large number of software systems available. Talk to others in your industry about the software they use, or contact your trade association for advice.

Write a list of your requirements. For example, your needs may include:

  • multiple prices for items
  • prices in various currencies
  • an automatic update, the selection of groups of articles to be updated, the update of a single article
  • the use of more than one warehouse
  • the ability to adapt to your changing needs
  • quality control and batch tracking
  • integration with other software packages
  • multiple users at the same time

Avoid choosing software that is too complicated for your needs, as it will be a waste of time and money.

Using RFID for inventory control, stock security and quality management

Radio Frequency Identification (RFID) allows a company to identify individual products and components and track them throughout the supply chain, from production to point of sale.

An IRPF tag is a tiny chip, plus a small antenna, which can contain a range of digital information regarding the given item. Tags are encapsulated in plastic, paper or similar material, and are attached to the product or its packaging, to a pallet or container or even to a van or delivery truck.

The tag is interrogated by an IRF reader which transmits and receives radio signals from and to the tag. Readers can range in size from a hand-held device to a “portal” through which multiple tagged devices can be passed at the same time, e.g. e.g., on a pallet. The information the reader collects is collated and processed using special computer software. Readers can be placed in different positions within a warehouse to show when goods are being moved, providing constant inventory control.

Using RFID tagging for inventory control offers several advantages over other methods such as barcodes:

  • tags can be read from a distance, often from a distance of several meters
  • multiple tags can be read at the same time allowing a full pallet load of products to be checked simultaneously
  • labels can be given unique identification codes, so that individual products can be tracked
  • certain types of tags can be edited, allowing information about items to be updated, e.g. e.g., when moved from one part of the plant to another

RFID tagging can be used:

  • to avoid overstocking or understocking of a product or component
  • for stock security, by positioning tag readers at high-risk points, such as exits, and having them trigger alarms
  • for quality control, especially if you manufacture or stock items with a limited lifespan

Costs associated with RFID tagging have dropped over the past few years, and continue to drop, so the process is within reach of more businesses. The benefits of more efficient inventory control and improved security make it particularly attractive to retailers, wholesalers or distributors who stock a wide range of items, and to manufacturers who manufacture large quantities of products for different customers.

Stock security

To keep stock safe, you need to know what you have, where it is located and how much it is worth; good records are therefore essential. Stock that is portable, does not have a company logo, or is easy to sell is particularly at risk.

Thieves and shoplifters

A thief from outside is an obvious threat. Check the security around your premises to ensure that the risk is minimal. In a store, thieves may rob in groups, some creating a diversion while others seize goods. Teach your staff to be vigilant and recognize such behavior. Establish a clear policy and ensure staff are trained in dealing with thieves.

Offering to help a customer if you have doubts will often prevent a theft. Avoid using confrontational words like “steal” if you must approach someone suspected of theft, and avoid putting yourself in a dangerous situation.

Protect your inventory

  • Identify and tag expensive portable equipment (such as computers). If possible, equip valuable stock with security tags, such as radio frequency identification tags, that will sound an alarm if moved.
  • Do not leave equipment lying around after delivery. Put it in a safe place, save it and store the packaging. It’s a good idea to dispose of the packaging safely. Leaving boxes in plain sight can be advertising for thieves.
  • Perform inventories periodically.
  • Place CCTV in parking lots and other key locations.

Staff theft

Employee theft can sometimes be a problem. In order to avoid this:

  • Train staff on your security systems and your disciplinary policies and procedures. Education regarding the cost of inventory theft will help, as many people are unaware of the implications for company turnover and job security.
  • Develop procedures to prevent theft. Staff with financial responsibilities should not be responsible for inventory records.
  • Limit access to sales depots, warehouses and stationery cabinets.
  • Periodically rotate inventory control personnel to avoid collusion or bad practices.
  • Check the quality of your stock

Quality control is a vital aspect of inventory control, particularly as it can influence customer safety or the quality of the finished product.

Effective inventory control should include inventory tracking and lot tracking . This means being able to trace a particular item back or forth from source to finished product and identify other items in the batch.

Goods should be systematically checked for quality, faults should be identified and the affected lot should be removed. This will allow you to raise any issues with your supplier and at the same time demonstrate the safety and quality of your product.

With a good computerized inventory control system, this kind of tracking is relatively simple. Manual inventory control methods may also use codes to systematize tracking and facilitate tracing of particular lots.

Radio Frequency Identification (RFID) can be used to store information regarding the date of manufacture of a product or component to ensure it is sold or processed in a timely manner. The system can also be used to trace defective products quickly and efficiently. See the page in this guide on using RFID for inventory control, stock security, and quality management.

Inventory control management

There are a large number of administrative tasks associated with inventory control. Depending on the size and complexity of your business, they may be performed as part of the duties of a manager, or by a dedicated inventory controller .

For security reasons, it is good practice to have different employees responsible for finance and inventory.

Typical documents that need to be processed include:

  • delivery and vendor notes for incoming goods
  • vouchers, receipts and credit notes
  • the return notes
  • requisitions and issue notes for outgoing goods
  • Inventory can tie up a large portion of your business’s capital, so accurate information about inventory levels and values is essential for your business accounting.

Figures should be checked systematically either through a normal check, physical stock count , or an ongoing stock check program, perpetual stock count .

If the numbers don’t match, you need to investigate, as there could be inventory security issues or a system failure.

Health and security

The health and safety aspects of stock control are related to the nature of the stock itself. Issues such as where and how items are stored, how they are moved, and who moves them can be important, depending on the items.

You may have hazardous equipment on your premises, property that deteriorates over time, or items that are very heavy or bulky.

Eleanore Frinqois

Eleanore Frinqois, Lead Editor at is a business leader with over 30 years in both start-up and enterprise level organisations. Previously Operations Directer at a £1.8BN media group, alongside setting-up and later selling 3 digital brands - Eleanore has expertise across all aspects of business growth.

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