- What stock control is
- The methods of stock control
- How to implement stock control
It is crucial for suppliers to integrate stock control into their systems to maintain an effective business. Doing so can be an effective way to plan out inventory.
Defining stock control is a basic necessity for any inventory control. Stock control is essential to know because it informs as to how much stock a supplier has available at any given time.
What is stock control?
What is stock control, and what is inventory control? The truth is, the two terms are synonymous. Stock control, or inventory control, is when a business ensures the proper amount of stock.
Ideally, a supplier will meet the customer’s demand without any delays and without paying for holding fees of excess stock. While it can be hard to find the perfect balance, maintaining stock control can help suppliers get to a place where they are as close to this ideal balance as possible.
Why is stock control important?
Stock control is an essential aspect of any business that handles a physical product because suppliers must have enough products to be readily available to their customers. In the same regard, it is equally essential that the business is not holding onto too much excess stock, increasing unnecessary holding costs.
In theory, stock control seems like a very basic system. However, some variables are not within the supplier’s control that can impact proper stock control. Some of these variables include:
- Bad weather
- Economic downturns
- Union activity
All businesses have the same concept that increasing profitability is the ultimate goal. In maintaining proper stock control, a supplier can minimize costs and increase profitability through each sale. Ultimately, it can be the difference between significant profits or losses.
What are the methods of stock control?
There are a few different methods of stock control for a supplier’s business.
Just-in-time, or JIT, stock control helps to minimize the quantity in a supplier’s warehouse. The concept of JIT works to match the stock levels precisely to production levels or general customer fulfillment.
|Pros of just-in-time||Cons of just-in-time|
|Minimizes warehouse space||Creates more vulnerability to supply shocks|
|Reduces waste||Increases risk in price shocks|
|Smaller investment needed||Very complex system|
First-in, first-out (FIFO)
First-in, first-out, or FIFO, stock control handles inventory precisely as the name explains. The first inventory that comes in will be the first product that leaves the shelves. This method helps to avoid dead stock inventory in the warehouse.
|Pros of FIFO||Cons of FIFO|
|More realistic inventory system||May not have the most accurate cost depiction|
|Minimizes the risk of dead stock or spoilage||Higher taxes for valuation|
|Beneficial for forecasting||Decreases cash flow|
Economic order quantity (EOQ)
Economic order quantity, or EOQ, works to find the proper amount of inventory a business should aim to purchase to minimize total inventory costs.
|Pros of EOQ||Cons of EOQ|
|Minimizes holding costs||Involves constant monitoring|
|Reduces operational costs||Issues with immediate availability of supplier product|
|Generally, a better stock control system||Impossible to accurately forecast demand|
Vendor managed inventory (VMI)
Vendor managed inventory, or VMI, involves suppliers taking care of a retailer’s stock.
|Pros of VMI||Cons of VMI|
|Anticipates customer inventory needs||Requires giving up some level of control|
|Improved forecasting for production and transportation||Must partner with an experienced supplier|
|Reduction in inventory without sacrificing service||The customer would ultimately feel the effects of supplier ineptitudes|
As it sounds, batch control requires the separation of stock management of a supplier into different batches. This system can be helpful to companies to reduce some of the complexities of stock control.
|Pros of batch control||Cons of batch control|
|Minimizes complexities of stock control||Creates idle downtime during batch testing|
|Meets short-term production targets||Increased storage costs for larger batches|
|Reduces costs by requiring raw materials only||Minimal job variety for employees|
How to implement stock control
Since it is vital to have enough stock to meet customer demand, implementing a proper stock control system is essential for any business handling physical products. To implement stock control, follow these simple steps.
Review current stock levels
Reviewing current stock levels is the first step in implementing stock control within a supplier’s supply chain. To effectively check current levels, follow these steps:
1. Count your current stock levels
Counting current stock levels allows the supplier to look at value as well. The supplier can track this individually or use stock control software.
2. Review sales records
Taking a look at sales records will help the supplier to identify good sellers from the bad. Suppliers will want to look at the big picture and get an idea of seasonal movements of inventory.
3. Find the products with the largest gross margin
Suppliers can find the gross margin in the percentage of sales revenue after removing direct costs. By reviewing current stock and finding the products with the highest gross margin, suppliers can focus on these items to improve profits.
4. Identify the slow-moving products
As suppliers go through current stock, they should identify the slow-moving products and figure out a plan to eliminate them. Suppliers should remember that even if they sell the slow-moving products for less than their cost, that is still a better idea than hanging onto the dead stock.
5. Consider donating
Suppliers may want to consider donating to a charity if they’re unsure what to do with dead stock or slow-moving products. If a supplier decides to donate, the supplier must ensure to let its customers know it is giving back.
6. Update stock records
Suppliers need to ensure everything in the stock records is up to date and create a policy to track all product movement.
Establish stock control policy
Suppliers should then figure out which stock control method to implement and stick with it. Suppliers need to ensure inventory levels are appropriate based on the chosen system and continue to replenish as needed.
Identify areas impacted by stock control
While looking at stock control and working to implement a system, there are other areas of the business to keep in mind, including:
- Improving delivery schedules
- Marketing and promo impacts
- Back-up plan for excess stock
- Sales policies
- Customer delivery process
Calculate stock turn rate
The stock turn rate is the calculation used to check the effectiveness of stock control. A low stock turn rate tells suppliers that they are not moving the product quickly enough, which yields increased holding costs. A high stock turn rate could identify areas to fulfill stock to meet customer demand better.
How to calculate stock turn rate
To calculate your stock turn rate, suppliers will need to know their cost of goods sold (COGS) and stock on hand. Once you have both of those numbers, use this formula:
Stock control is an essential part of any business that handles physical products. If you do not currently have a stock control method in place, it is time to consider implementing one as soon as possible.
If you have a stock control method that you currently use, it is never a bad idea to look at it to see if it is still useful and see if there are alternative options that might be better fitting to your business.
See your instocks
SupplyPike’s Retail Intelligence software features actionable insights into instocks and stock trends to help you make better decisions. Features like sales trends, instock performance, and store maps help you decide where your inventory needs to go.