Inventory control is not just for 3PLs; it applies across every warehouse type and supply chain stage. During every step in the supply chain, effective inventory control is imperative for keeping storage costs down, reducing waste, and optimizing operations. Warehouse managers can improve inventory control processes with a custom approach tailored to their business.
What is inventory control?
Inventory control encompasses all processes involved in working with the stock you have on hand to maximize profits and reduce waste and storage costs. Optimizing inventory control requires maintaining the right-sized stock levels, assuring proper quality control, decreasing spoilage, and improving your in-house fulfillment systems.
The mechanisms behind peak inventory control can be separated into two parts: tools and processes. To improve inventory control in your warehouse, evaluate which inventory control systems (processes) work best for each product type, then pair them with advanced technology (tools) like warehouse and inventory management software for enhanced stock tracking.
How does inventory control differ from inventory management?
Inventory management covers all processes related to the inventory life cycle, including ordering, storing, using, selling, and determining product obsolescence. Inventory control is an element of these broader management principles, focused solely on how you handle the inventory you already have in stock.
Broader inventory management deals with all elements of inventory control, along with parts of the acquisition process that control does not touch, such as receiving inventory, forecasting, par level tracking, and product reordering.
The importance of inventory control
Optimizing inventory control procedures helps you streamline warehouse operations and make them more profitable to stay competitive. Here’s how inventory control achieves this:
- Increases profit margins: Enhances your sales potential while reducing warehousing costs and waste
- Improves inventory management: Helps you streamline and perfect supply chain management processes
- Ensures right-sized inventory: Stocks the specific products customers want, in the right quantities, at the right time, enhancing customer satisfaction
- Optimizes workflows: Reduces human error and increases efficiency by removing some of the steps for getting your product to customers
On the other hand, a poorly controlled inventory system presents obstacles to inventory visibility. Without control, you may repeatedly experience overstocks or stockouts, rendering your business unable to compete with larger operators in your industry.
Types of inventory control systems
There are two core methods used today to account for inventory levels in mid- to large-sized businesses: perpetual and periodic. While some small businesses may still use a third method, manual counting, it is less effective and not sustainable for long-term growth.
Manual inventory system
When using a manual inventory process, a person completes and documents a physical inventory count. This is the least accurate method of inventory control because it is subject to human error. It also takes the longest and requires the most labor.
Perpetual inventory system
Many businesses use a perpetual inventory system to optimize inventory tracking. The perpetual framework entails consistently updating your records to enable real-time tracking.
Establishing a perpetual stock control system involves connecting your inventory-quantity database to IoT devices, such as barcode scanners, to enable continuous updates. Your database will then automatically account for additions and subtractions when you receive stock, make sales, fulfill orders, move inventory, or dispose of outdated or spoiled products.
Periodic inventory system
Instead of constant stock tracking, when using a periodic inventory system, businesses calculate product levels only at the beginning and end of a specific time period. They track inventory through an automated system and by physical means, then compare the two. The physical component introduces human error into the process, which is not optimal for inventory control.
Discover inventory control with Logiwa IO
Core of inventory control methods
Many different methods and formulas exist for inventory tracking across warehouse and supply chain environments, such as:
- FIFO (First In, First Out): Warehouses should fulfill orders using the oldest stock. This is useful for perishable products, such as food or cosmetics.
- LIFO (Last In, First Out): The opposite of FIFO; warehouses should fulfill orders using the newest stock. This is often used in industries with high inflation or rising costs.
- ABC analysis: Businesses that sell some products that are much more high-value than others can prioritize tight, real-time, and high-frequency control for their highest-value “A” items, focus a little less on mid-value “B” items, and use simpler, automated, or bulk-ordering methods on their lowest-value “C” items.
- Cycle counting: Companies can count a small subset of inventory on a regular, rotating basis instead of all at once to enhance accuracy. This works well alongside ABC analysis.
- Just-in-time (JIT): Businesses looking to reduce inventory holding expenses use this strategy to align raw-material orders from suppliers directly with production schedules, receiving what they need, in exact quantities, right when they need it.
- Days in inventory formula: Calculate the average time you keep your inventory before it is sold by dividing the average cost of your inventory by the cost of goods sold, then multiplying that by the period length.
- Average inventory formula: Calculate your average inventory levels over two periods by adding the inventory counts at the end of each period, then dividing by the number of periods you’re looking at.
Best practices for inventory control management
Across warehouse types and industries, businesses can transition from reactive stock management into effective inventory control through best-in-class operational habits, including:
- Conducting regular inventory audits: Find out where your current systems are working and failing, then identify and fix inventory discrepancies.
- Tailoring inventory control methods: Pick the best-fit option for each product type, like FIFO, LIFO, ABC analysis, or JIT.
- Automating real-time data collection: Use barcode scanning and RFID tags to store and access details about each SKU, including inventory levels and locations.
- Conducting regular cycle counts: Enhance inventory accuracy through automated inventory tracking, rather than relying on annual physical counts.
- Implementing advanced technology: Use warehouse inventory management software to gain control of your DTC process and increase volume.
These best practices can significantly increase your profit margin. This is even more true when you pair optimized inventory control processes with broader stock management strategies, such as setting reorder points and safety stock levels to prevent stockouts, setting clear receiving procedures, and forecasting demand accurately.
Logiwa’s WMS software automates cumbersome manual processes, increasing productivity and visibility throughout your warehouse. For high-volume fulfillment centers and 3PLs, the AI-powered Logiwa I/O delivers rapid time-to-value through its full-scale fulfillment management system (FMS).
To learn more about how Logiwa can measurably and sustainably improve your inventory control procedures, request a demo today.
FAQs on inventory control for fulfillment operations
What is the difference between inventory control, inventory management, and inventory optimization?
- Inventory Control focuses strictly on supervising the physical stock already residing inside the warehouse to maximize near-term profitability, maintain accuracy, and minimize storage waste.
- Inventory Management is broader, governing the entire product life cycle across an organization, including product acquisition, demand forecasting, supplier ordering, and handling product obsolescence.
- Inventory Optimization introduces advanced mathematical models and predictive analytics to balance the financial trade-offs between carrying costs and customer service levels, ensuring the absolute minimum amount of capital is tied up in stock across an entire multi-location supply chain.
How do AI and machine learning enhance modern inventory control systems?
Modern AI-driven inventory control shifts warehouse operations from a reactive state of recording historical transactions to a proactive state of real-time execution.
- Dynamic AI Slotting: Algorithms analyze live operational data, including historical item velocity, order frequency, and product relationships, to continuously recommend optimal physical storage locations. This minimizes warehouse travel and picking search times.
- Proactive Defect & Variance Capture: Combined with warehouse scanners, AI vision tools look at unstructured data (like product images and real-time floor changes) to identify defective packaging or misplaced items before they disrupt order accuracy.
How do fulfillment operations maintain accurate inventory control across omnichannel networks?
Omnichannel network control relies on real-time cloud synchronization and continuous tracking at the point of work to prevent overselling.
- Eliminating Batch Updates: Relying on end-of-day or delayed reconciliation leaves warehouses vulnerable to mismatched stock counts and frequent stockouts. Cloud-based warehouse management platforms unify multi-channel data simultaneously.
- Transaction-Level Visibility: Enforcing mobile barcode or RFID scanning at every single operational touchpoint—from immediate receiving through to production and final shipping—ensures the digital database mirrors physical stock counts across all distributed fulfillment hubs and retail stores.
What are the primary causes of inventory control discrepancies, and how are they fixed?
The most frequent disruptions to inventory control accuracy include:
- Inventory Shrinkage: Loss from administrative entry errors, structural damage, or warehouse theft directly damages profit margins. It requires robust digital security boundaries and automated tracking alerts.
- Obsolete Stock: Seasonal items or products that sit past their shelf life tie up valuable warehouse real estate. Operations solve this by enforcing strict FIFO (First In, First Out) rules or executing aggressive, data-driven dynamic pricing and liquidation strategies before the items lose market value.
- Data Discrepancies: Manual inventory recording processes introduce a heavy layer of human error. Transitioning to automated, rotating cycle counts instead of relying on massive, disruptive annual physical counts ensures ongoing systemic health.
How do autonomous warehouse robotics affect physical stock control?
Automated Mobile Robots (AMRs) improve physical inventory control by bridging the gap between digital database tracking and physical execution:
- Dynamic Navigation: Unlike legacy Automated Guided Vehicles (AGVs) that operate on fixed routes via physical wires or magnetic tape, AMRs utilize built-in AI, sensors, and onboard cameras to navigate changing warehouse environments safely alongside human workers.
- Enhanced Count Efficiency: Paired with barcode scanners and WMS integrations, AMRs significantly reduce physical search time during picking and replenishment processes. They can perform automated, ongoing bin-level structural audits on the move to catch misplaced inventory instantly.
