Inventory Control

Inventory Control

According to business link in an article, an organisation has an efficient inventory control only when they have the “right amount of stock in the right place and at the right time” (Business link, 2006). Inefficient Inventory control can leads slower sales and disappointed customers.

Inventory control basically deals with reducing the total cost of inventory. Inventory control is very relevant for businesses, especially those with a large number or variety of merchandise products.” Inventory management or control is also used in warehouses to track orders and shipments and for automated order processing” (Arsham, 2006). Other important applications of inventory management systems are in manufacturing, shipping, and receiving. As stated by Arsham, there are three main factors in inventory control decision making process (Arsham, 2006).

1. The cost of holding the stock: this is the cost associated carrying inventory over time and involves having items in storage. This includes interest, taxes, insurance, spoilage, breakage and warehousing cost like light, rent.

2. The cost of placing an order: this is the cost of ordering and receiving inventory which include shipping cost, preparing invoices, determine how much is needed and moving goods.

3. The cost of shortage: this cost involves what is lost if the stock is insufficient to meet all demand. This normally happens when demand exceeds the supply of inventory on hand.

MerchantOS argued that “the easiest way to manage inventory is with a computer inventory management system” (Merchant, 2010). The systems below help to reduce the time spent in managing inventory:

* Point-of-sale terminals: this system updates stock level automatically and provide a more error free sales transaction

* Barcodes and barcode readers which proved a way to effectively input inventory and “stock takes” faster into the system

* Job costing and inventory systems which are systems that also automatically update stock counts as orders are being made.

* Electronic Supplier product catalogs: allows the use of electronic devices like CD/DVDs to record inventory data.

These systems ensure accurate inventory records through th use of electronic and wireless technologies that provide error free data. These systems are very efficient in that they:

* Keep only up-to-date records of items and remove all sold items from the system

* It is possible to Review stock reports periodically to check the products status and identify low demand products.

* Periodically check record to ensure the level of accuracy of the system and to check against physical stock quantities.

Methods of Inventory Control

There are several method of inventory control which include (Hedrick, 2003):

* Visual control: this is used to determine if additional inventory is required through visual examination. This method is mostly used in small businesses and may not require any records.

* Tickler control: this is the physical counting of small portion of the inventory on a regular basis.

* Click Sheet Control: this involves the recording of items as they are used on a sheet of paper and used for reorder purposes

* Stub control: mostly used by retailers and allow managers have certain

Today, the growth of businesses has provided a necessity to develop a more complicated and highly analytical form of inventory management. The above inventory management systems became difficult and inefficient. As a result, computer systems to control inventory was introduced. These systems include:

* Point-of-sale terminals: this stores information of each item that is used or sold.

* Off-line point-of-sale terminals: this transmits sales information directly to the supplier's computer system. The supplier then uses this information to ship necessary items automatically to the retailers

The last method for inventory control is carried out by an external agency. As sited by Floyd Hedrick, it involves removal of unwanted products from stock which can be returned to the manufacture. This however has to occur after an agreement and frequent scheduled visit by the manufacturer's representative to the large retailer in order to record stock count and writes the reorder (Hedrick, 2010).

The main aim of the above systems was to provide a more efficient system that will be able to identify the cost of each inventory (Hedrick, 2010). According to the report, two main control values are used:

1. The Economic order quantity (EOQ) that is the size of the order

2. The reorder point which is the lowest quantity that a stock or an item can be before more quantity is ordered.

The Economic Order Quantity (EOQ) is a formula that is used mainly for calculating the annual cost for ordering an item. It is widely used by most businesses and involves the actual cost of placing an order, the cost of carrying inventory as well as the annual sales rate. (Hedrick, 2010).


An Inventory management system “consists of a set of hardware and software based tools that automate the process of tracking inventory”. The types of inventory tracked with an inventory management system includes almost any type of quantifiable products like food, clothing, books, equipment and any other items that wholesalers, retailers or customers purchase(Barcodes inc, 2010 ). These inventory management systems can influence the overall efficiency of a company's performance resulting in profits.

Through the end of 1980's, sales and accounting related modules were the main focus of majority of software solution for retailer, manufacturers, and wholesalers. During the early 1990's, many distributors began to notice the relevance of an effective way of controlling and managing their largest investment of corporate assets which is inventory. This lead to the development of comprehensive inventory management modules and systems by several software companies (Schreibfeder, 2009).

Presently, many businesses rely on modern inventory management systems to automate and integrate all aspects their business operations from order management, shipping management, billing systems, to inventory control all in one software package (Schreibfeder, 2009).

Tim Cosby reported that, inventory management systems must have ability to “track sales and availability, communicate with suppliers in near real-time and receive and incorporate other data like seasonal demand” (Cosby, 2007). This means that the system must tell the storeowner for example when its stock level is low so as to reorder and how much to purchase.

Information technology is a key enabler in the transformation of purchasing into a strategic business function. The challenge is to find a way to put these technologies to use and create value and competitive advantage this can be down through inventory management systems. (Stylus Systems, 2008)

Modern inventory management systems now depend on barcodes, and potentially RFID tags to provide automatic identification of inventory objects. According to a case study at Wal-Mart, for products selling between 1 and 15 units a day, RFID was able to reduced Out of Stocks by up to 30% (Mathieu, 2007).

In order to record an inventory transaction accurately, “the inventory management system uses abarcode scanneror RFID reader to automatically identify the inventory object, and then collects additional information from the operators via fixedwireless terminals, or mobile computers” (Mathieu, 2007). Mathieu defined RFID (RadioFrequencyIdentification) as” a data collection technology that uses electronic tags also known as electronic label to store data and can be used to identify items just like bar codes”.

The main difference between RFID and bar codes is that RFID uses wireless technology to transmit information into the system and can be inserted within packages and does not have to be close to the scanner. On the other hand, barcodes require line of sight and closure to the scanner for information to be read.

As stated by Mathieu, RFID tagged cartons rolling on a conveyer belt can be read many times faster than bar-coded boxes (Mathieu, 2007).

Large software companies like IBM, Microsoft, SAP, and Oracle have already designed enterprise level inventory (or supply chain) management platforms for large businesses. These software solutions cost thousands to millions of dollars. They have now turned to focus on smaller businesses. Some of the popular inventory (supply chain) management systems produced by Microsoft include Great Plains and Solomon, which are now joined together and called Microsoft Dynamics GP (Quittner, 2008).

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