The inventory gives life to small businesses because having the right products on the shelves and optimum quantity in the warehouse prevent interruption in sales and grow profits. Inventory control is the process of tracking the amount of stock entering the store, the amount leaving the store and the amount available in the warehouses or online retail facilities.
Inventory control methods vary according to business size or products. For example, the methods suitable for slow-moving industrial products like Bulldozers, Cranes and Excavators could fail for fast-moving consumables like Milo, Coca-cola and Bread. Therefore, businesses adopt the methods that will enhance efficient stock level, better customer service and revenue growth.
Small businesses can use several inventory control methods to drive growth. We shall explain those methods in the following chapter.
The visual inventory control method
Small businesses with few stocks or big companies that sell just a handful of industrial items can monitor their inventory level by simply counting. The few items make the process simple.
In extreme cases, counting will not be necessary. For example, the seller of customised cars who sells when a customer places an order might have less or nothing to count.
The two-bin inventory control method
This method also applies to small enterprises. Using this method, the business keeps two bins filled with inventories, sells off from one of the bins, places an order to refill the bin and starts selling from the second bin.
This method ensures that the business does not face stock out. Thus, it is effective for meeting customers’ needs at all times and growing sales.
The tick-sheet inventory control method
In applying this method, the business keeps a list of all its inventories, indicates the reorder level against each category, records the new stock level for each category it sells stock from, then places an order for any category that reaches the reorder point.
This method is manual but scientific since it depends on established rules. Nevertheless, the record keeper must keep a complete and accurate record at all times to avoid misrepresentation.
The dropshipping inventory control method
In Dropshipping method, the business has preordered products it maintains with its supplier (a manufacturer, a wholesaler or a retailer) through its eCommerce storefront.
If a buyer places an order, the business processes it and sends the details to the supplier. And, the supplier ships the physical goods to the buyer on behalf of the business.
Therefore, the business neither keeps physical inventories nor ships to the customer.
The business avoids the costs of renting shops or warehousing stock. It only maintains virtual stock via its eCommerce storefront on the business website or other platforms like eBay, Shopify and Amazon.
Dropshipping is easy to set up and manage using dropshipping applications like Oberlo, Zoho and AliDropship.
ABC inventory control method
In applying this method, the business classifies its inventories into three groups according to their values or monetary worth and pays attention to them accordingly. Category ‘A’ represents items of the highest values, followed by category ‘B’, then ‘C’.
A business with 3 units of a product named ‘XXX’ costing N200,000 each, 5 units of a product named ‘XXZ’ costing N67,000 each and 50 units of a product named ‘XYZ’ costing N250 each will rank the categories based on their values as follow:
Category ‘A’ is ‘XXX’ [ N200,000 x 3 = N600,000]
Category ‘B’ is ‘XXZ’ [ N67,000 x 5 = N335,000]
Category ‘C’ is ‘XYZ’ [ N250 x 50 = N12,500]
Accordingly, product ‘XXX’ gets the business closest attention, followed by ‘XXZ’, then ‘XYZ’.
First-in, first-out (FIFO) inventory control method
The business sells its stock according to its dates of arrival or purchase. So, it sells products that have stayed the longest before the later arrivals.
This method fits businesses that deal in perishable items and goods that have expiry dates.
Just-in-time (JIT) inventory control method
Manufacturing businesses use this method a lot, but small businesses that experience seasonal or periodic orders use it too. The business stocks up close to the time of demand.
The JIT method removes the need to keep a large inventory and reduces the cost of storage. However, the business must make accurate forecasts to avoid loss of sales due to poor forecasts.
Minimum order quantity inventory control method
In using this method, the business buys only the minimum order quantity from the supplier. The business purchases as little stock as possible to avoid overstocking and risking too many new products that customers have not tried.
The business reduces loss on new and untested products and the cost of storage with this method.
Bulk ordering inventory control method
Businesses that enjoy high turnover in certain products, order such products in high volume from suppliers at a discount.
The businesses offset the cost of storage arising from large stock and make profits due to the discount.
However, the businesses need caution because sales might suddenly drop due to external factors beyond their control. For example, a drop in the quality of suppliers' products and better substitutes in the market could erode their sales volume.
Safety stock order inventory control method
This applies where the business orders stock beyond what it considers as its usual sales capacity to avoid stock out. The business does when it anticipates future product scarcity or failure by its supplier.
Again, the business must ensure its forecast is right, as failure could lead to overstocking, storage cost and loss of obsolete inventories.
Physical inventory counting control method
This is for getting accurate details so that the business can make the right decisions. Physical inventory counting exposes the obsolete stock, damaged stock and missing stock for restocking.
Four ways of conducting physical counting exist. They include cycle counting, full counting, manual counting and electronic counting using devices like RFID, scanners and barcode.
Businesses utilize stock control measures to manage their inventory optimally. The inventory control approaches examined will enable businesses to reduce the cost of storage, attend to customers promptly, enhance sales and profitability. In applying the methods, the businesses should ensure that they gather accurate and timely data to avoid mistakes that could lead to customers' dissatisfaction and loss of business.
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