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Inventory control: Top 7 methods to maximize profits


What is inventory control? Inventory control is the process of managing stock levels to ensure you have the right products in the right quantities at the right time. It focuses on tracking and optimizing inventory within your storage facilities or in transit to prevent stockouts, overstocking, and shrinkage.


Inventory control is the practice of maintaining optimal stock levels at all times. This ensures companies can satisfy customer demand without overspending on excess inventory. 


Keeping tabs on inventory levels may seem complicated, but it can mean the difference between profitability and costly stockouts—especially when you have systems to automate the process.


This guide will get you up to speed on inventory control systems, tactics, and best practices to boost your bottom line.

Graphic showing balanced stock levels with inventory control

Understanding inventory control

Inventory control (also called stock control) tracks and manages stock levels, ensuring the company carries the right amount of every item. This process tracks inventory from when it arrives at a storage facility to when it arrives at its final destination.


Inventory control aims to maximize profits while minimizing the amount of inventory sitting around in storage facilities. The goal is to do this without compromising customer satisfaction.


Inventory control is essential for any company that sells physical products such as retailers, wholesalers, manufacturers, and distributors. Accurately tracking merchandise is the foundation of a functional supply chain.


The difference between inventory control and inventory replenishment

Inventory replenishment is part of inventory control, but these two terms aren’t interchangeable. Both ultimately aim to make sure a business has enough stock to meet customer demand.


Inventory replenishment is how items move along the supply chain, from a manufacturer to storage to a shipment location. This is one process that helps businesses avoid overstocking (or understocking). 


On the other hand, inventory control refers to a company’s entire system of optimizing inventory levels, from warehouse management strategies to inventory count techniques.


note icon Collaborate with suppliers
Establish strong communication channels with your suppliers to improve your inventory control. By sharing sales forecasts and stock levels, you improve coordination, reducing the risk of stockouts or overstocking.


7 inventory control methods

Inventory control isn’t an exact science; there are several tactics you can mix and match to suit your goals and needs. Let’s look at the most tried and true methods.


1. FIFO and LIFO

First in, first out (FIFO) method is an inventory valuation method that assumes that the oldest inventory is sold first. Conversely, the last in, first out (LIFO) method assumes that the most recent inventory purchased is sold. Which is better when comparing FIFO vs. LIFO


FIFO is better suited for businesses aiming to reduce the impact of rising costs on their cost of goods sold. LIFO may be better for businesses that want to minimize taxable income during periods of inflation. 


2. Just in time inventory

The JIT strategy syncs purchase orders with production schedules to deliver inventory “just in time” to meet production needs. This allows companies to run lean and reduce the amount of inventory on hand.


3. Vendor-managed inventory (VMI)

In a vendor-managed inventory system, the supplier or manufacturer (the vendor) takes responsibility for all aspects of their customer’s inventory, including ordering, delivery, and replenishment. Outsourcing these tasks frees up time for the customer to focus on other aspects of their business.


4. Always better control (ABC) inventory

ABC is a common inventory categorization method companies use to prioritize high-value items. It works by sorting inventory into three buckets:


  • A items: inventory with the highest consumption value
  • B items: inventory that sells frequently but not as much as A items
  • C items: inventory that doesn’t sell much and comprises the bulk of holding costs


Conducting an ABC analysis enables accurate demand forecasting and helps companies make better decisions.


5. Reorder point (ROP) formula

The ROP formula determines the minimum number of SKUs a company needs to carry to meet demand or production targets. Once inventory reaches that specified point, it triggers a purchase order to replenish the stock. Here’s the formula:


Reorder Point = (Average Daily Usage x Average Lead Time in Days) + Safety Stock


6. Barcoding and radio frequency identification (RFID) 

A barcoding system lets companies quickly track inventory by scanning barcode labels on inventory items. Then, the data is transferred to a computer or inventory management system in real time. 


RFID is a more advanced inventory tracking system that uses tags containing more data than barcodes, such as when the item arrived and its expiration date. An RFID reader is then used to identify and update the inventory levels.


7. Inventory forecasting

Inventory forecasting is predicting how much inventory a company needs to keep up with production demands. It factors in market research, historical data, and trends to gauge how much of any given item they need to order. 


Whether a company forecasts for a product launch, a seasonal trend, or just to improve its operations, it’s a valuable way to stay competitive in uncertain times.

Inventory control vs. inventory management: What’s the difference?

Inventory control and inventory management might seem interchangeable, but there are key differences between these two terms.


Inventory control is about keeping track of stock already in a company’s storage facility or en route. On the other hand, inventory management is a broader term that involves every stage of the supply chain, including sourcing raw materials, transportation, and order fulfillment.


Put simply, improving your inventory control helps improve your inventory management.

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Types of inventory control systems

There are two general approaches to monitoring and controlling inventory: periodic and perpetual systems. Let’s take a look at both.


Periodic inventory system

In this system, inventory counts are done manually, and data is updated periodically, hence the name. As you might expect, this approach is time-intensive. But it’s serviceable for small businesses that don’t ship a lot of inventory or have a small product catalog.


Periodic systems require minimal information and no sophisticated inventory management software, but the tradeoffs are more manual labor and inaccuracies.


Perpetual inventory system

The defining characteristic of perpetual inventory systems is tracking stock levels in real time. Implementing this system comes at a higher cost than the periodic system, but it’s a far more efficient way to prevent stockouts, minimize human error, and save money in the long run.


Since this approach involves high levels of automation, it makes it easier to use the following inventory control techniques.



Select the best inventory management software

Choosing the right inventory management software starts with assessing your needs. Consider your business size, product catalog, and future growth plans. Look for features like real-time tracking, automated reordering, and robust reporting tools. 


Scalable software can grow with your business, ensuring long-term efficiency and cost savings. QuickBooks inventory control software is a solution that doesn’t just track inventory—it transforms how you manage it.

Common inventory control challenges

Inventory control can be a juggling act, especially for small businesses with limited resources. Here are some common challenges you might encounter and how to stay one step ahead:


Inaccurate data: Manual tracking can lead to errors, causing overstocks or stockouts. Invest in inventory management software to automate tracking and ensure accuracy.


Demand fluctuations: Predicting customer demand can be tricky, leading to excess inventory or missed sales opportunities. Analyze sales data and trends to anticipate demand and adjust inventory levels accordingly.


Lost or damaged stock: Theft, damage, and spoilage can eat into your profits. Implement regular inventory checks, security measures,  and proper storage practices to minimize losses.


Limited visibility: Not knowing what's in stock or where it's located can lead to delays and missed sales. Use technology like barcodes or RFID tags to track inventory in real time and improve visibility.


Supplier issues: Delays in deliveries or unexpected price increases can disrupt your inventory flow. Establish strong relationships with reliable suppliers and have backup plans in place.


Overstocking or understocking: Both scenarios can be costly. Overstocking ties up cash and leads to storage costs, while understocking results in missed sales and dissatisfied customers. Use inventory forecasting tools to find the right balance.

Best practices for inventory control

Keep these tips in mind to maximize the effectiveness of your inventory control strategy.


Develop standard operating procedures (SOPs)

SOPs are detailed instructions that ensure the entire organization is aligned with its responsibilities. 


Here are a few items to address in SOPs:


  • How often will you conduct cycle counts?
  • What kind of equipment, software, or apps will the team have access to?
  • What is your annual inventory budget?
  • What are your security and fraud prevention policies?
  • How often will you audit your inventory control process?


Automate reporting

Inventory control yields lots of data that is nearly impossible to track and analyze with spreadsheets. Many growing businesses utilize inventory management software to run automated reports.


For instance, QuickBooks Enterprise puts industry-specific data right at your fingertips, like inventory valuation summaries, stock by item, open purchase orders, and more. No number-crunching is required.


Automating inventory control streamlines tracking, reordering, and inventory reporting, saving you time and reducing human error. With the right software, you can set reorder points, track stock levels in real time, and generate accurate reports. 


Automation eliminates guesswork, helps you avoid phantom inventory, stockouts, or overstocking, and ensures your inventory aligns with demand. For growing businesses, this efficiency is a game changer.



Optimize your warehouse management

A warehouse management system (WMS) is software that puts tedious inventory tasks on autopilot. The main purpose of a WMS is to make warehousing operations more efficient. 


Key features of a WMS:


  • Labeling and tracking inventory by bin location or serial number
  • Streamline warehouse layout
  • Automating invoices and notifications
  • Tracking inventory analysis metrics


Conduct regular audits

Conducting regular inventory audits can identify discrepancies, prevent shrinkage, and ensure the accuracy of your inventory data. This entails physically counting your stock and comparing it to your recorded inventory levels.


Assess risk

Determine potential risks to your inventory, such as theft, damage, or obsolescence. Develop strategies to mitigate these risks, such as implementing security measures, improving storage conditions, or adjusting your purchasing practices.


Establish supplier relationships

Building strong relationships with your suppliers is essential for maintaining a consistent flow of goods and avoiding disruptions in your supply chain. Communicate regularly with your suppliers, establish clear expectations, and negotiate favorable terms.


Forecast and plan

Leverage historical sales data and market trends to forecast future demand accurately. By analyzing patterns and seasonal trends, you can make data-driven decisions about inventory levels. 


This proactive approach helps you avoid overstocking or understocking, ensuring you meet customer demand while optimizing storage costs and reducing waste.


note icon Implement buffer stock strategically: Maintain safety stock for high-demand or seasonal items to handle unexpected surges without overstocking.


10 strategies for inventory control

Why is inventory control important?

Inventory control is about understanding the flow of goods in and out of your business. This knowledge is essential for maintaining a healthy bottom line and delivering on customer expectations.



Improves cash flow and reduces carrying costs

Poor inventory management can tie up your cash in excess stock or leave you scrambling to fulfill orders when you run out. According to the US Census Bureau, manufacturers and retailers are sitting on approximately $1.33 of inventory for every $1 in sales. 


Effective inventory control ensures you have the right amount of stock at the right time, keeping your cash flowing smoothly.



Gives fewer stockouts and happier customers

Nothing frustrates customers more than being unable to get what they want when they want it. Poor inventory visibility can lead to unexpected stockouts that tarnish relationships with current and prospective customers. 


Inventory control provides accurate, timely insights into what’s selling so you can avoid stockouts, fulfill orders promptly, and keep your customers happy and loyal.



Reduces costs and better quality control

Holding excess inventory incurs storage costs, and stock that sits too long can become obsolete, damaged, or spoiled. The worldwide cost of inventory distortion—dead stock, overstock, and spoilage—exceeds $1 trillion, according to IHL Group


Inventory control helps minimize these costs by optimizing stock levels and spotting discrepancies early before they disrupt your supply chain or bottom line.



Supports data-driven decisions

By tracking your inventory levels and sales data, you can identify trends, forecast demand, and make informed purchasing, production, and pricing decisions. This data-driven approach ensures your inventory strategy is aligned with your business goals, boosting profitability and efficiency.

ways inventory control can improve your business

Take control of your inventory today

US retailers have an average level of inventory accuracy of about 65%. That means that the company can’t locate an item more than one out of three times and might not even know if they have it in stock.


That statistic is troubling, but it’s also an opportunity.


Investing in inventory control is a path to peace of mind. Incorporating tools like inventory tracking software with QuickBooks can simplify the process, reduce errors, and save time—enabling you to focus on higher-level tasks. A marginal improvement to your inventory control can be a significant advantage—especially in today’s competitive climate.

Inventory control FAQ


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