Stock control is one of the most crucial steps of business handling. Getting piles and piles of products into your warehouse to meet the rising needs of your customers is not the only thing you have to do. You must keep track of your stock to better understand your sales and pinpoint which product needs to be restocked sooner or later. All this might seem tempting, but it’s more of a daunting task.
In this comprehensive article, we will shed light on what stock control means, the different stock control methods, the multiple ways to implement a stock system, and the benefits of effective stock control. In short, it’s your ultimate guide on all you should know about stock control. So, without any further delay, let’s get straight into it!
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What is Stock Control?
Before delving deeper, it’s first important to understand what the term stock control means. Stock control is also termed inventory control and provides data about how much stock you have at any time in the warehouse and what methods you have opted for to keep track of it. Effective stock control keeps you alert about the products that need restocking to avoid shortage.
You can use the data obtained from this system to categorize your products as the best-selling and least-selling ones and opt for different strategies to maximize the sales of the second group. Otherwise, they will end up expiring, becoming waste, and leaving you with financial restraints.
Stock control helps complete business orders without delay when keeping the stock holding cost minimal. It won’t be wrong to call this stock management a measure of profit and loss, as when done effectively, it can give you valuable insights, helping you increase profitability with every sale without even the need for raising prices. Isn’t it interesting?
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Different Stock Control Methods
Let’s now have a look at the different stock control methods we can opt for when controlling stocks.
1. First-In, First-Out (FIFO) Method
It’s one of the simplest and easily understandable stock handling methods according to which products purchased or manufactured should be sold first. Meaning when a customer places an order, the oldest current stock of that product will be delivered instead of the newest one.
For instance, a company purchases 1000 items for $100 each and later purchases 1000 more for $150 each. If the company sells 60 items, according to the FIFO method, the cost of each good sold out of 60 items is $100/unit because the first purchased item will be sold first.
Advantages
- Minimal risk of inventory obsolescence
- Easy to apply
- Globally accepted and trusted method
- Ensures a significantly higher net income
- Minimal effect on product prices regardless of the inflated rates in the market
2. Last-In, First-Out (LIFO) Method
This method is only used in the United States, implying that the most recently produced or purchased product in the company’s inventory should be sold first. This method is mainly effective when the cost of goods has risen due to inflation.
For instance, you have purchased ten widgets, 5 of them cost $100 each, and 5 of them cost $200 and were bought two days later. Now, if a customer comes to you, you will first sell the widget costing $200, and the one costing $100 will be sold later.
Advantages
- Helps save on taxes
- Getting around financial analysis
- Reporting lower profits
- Reliance on more current financial data
- Ensures positive customer response
3. Just-In-Time (JIT) Method
This inventory management strategy implies working closely with the supplier and bounding it to deliver the raw materials just when the production of goods is scheduled to begin, no sooner than that. This management method originated in Japan.
For instance, if a company manufactures a car mainly focusing on car assembly and needs to install airbags. The company should not pre-purchase and stock the airbags. Instead, these should be received when the cars reach the assembly line.
Advantages
- Reduce manufacturing time
- Cost-efficient production
- Improved productivity and relationships with the supplier
- Reduced costs of procuring and storing excess raw materials
- Reduced clutter and waste
4. ABC Analysis Method
It involves categorizing goods into A, B, and C – three categories in descending order. The stock in A category will have the highest price, one in B will have a lower price than A, and the one in C will have a lower than both A and B.
For instance, if you purchase 30 different types of dresses and later realize you have over-stocked the product owing to the demand. In such a case, ABC analysis of the best approach to rely on. Make three categories of dresses, mainly based on their pricing and demand.
The most-in-demand product expected to generate maximum revenue should be kept in Category A, lesser expensive products should be placed in Category B, and Category C should have the least expensive dresses or those that aren’t high-value.
Advantages
- It helps drive attention toward the most valuable products
- Reduces waste and improper material utilization
- Saves money and time when storing resources
- Increases the stock turnover ratio
- Gives improved profitability analysis
5. Comparison of Different Stock Control Methods
The FIFO system is suitable for businesses that sell time-sensitive or perishable goods. It focuses on following the natural flow of the inventory, but things go wrong when prices are continuously inflating. In such a situation, businesses need to shift towards the LIFO method. However, any industry suffering from inflated price trends should opt for this method.
The JIT method comes in handy when your sole purpose is to keep prices down and liquidity high when making the most efficient use of working capital. It’s suitable for both major corporations and small businesses. Lastly, the ABC system is mostly used in the manufacturing industries, as its main goal is to improve the reliability of cost data.
Implementing a Stock Control System
Now that you have learned enough about stock control methods let’s look at implementing a stock control system. It’s mainly based on the following three crucial steps:
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1. Assessing Inventory Management Needs and Goals
The first step is to analyze the statistical data you expect from your inventory management system and your associated goals and needs. Evaluate your current inventory status, where it’s lacking, customer demands, and turnover rate. Once you have evaluated your needs, you can work on multiple strategies for enhanced productivity. All this data can also help select the most suitable stock control system.
2. Selecting a Suitable Stock Control System Based on Business Requirements
Evaluating needs and goals helps decide about the stock control system. When choosing one, you must consider certain factors, including cost and budget, customizations, business size, customer support, security, flexibility, real-time tracking, business objectives, and system support. In short, it requires much consideration, and it’s better to consult professional inventory managers.
3. Integrating Stock Control System with Other Business Systems and Processes
For better functioning of the control system, you must integrate it with other business systems and processes. This way, different business sectors can better communicate to reduce manual errors and support informed decision-making about the purchase, relying on up-to-date inventory info. Other benefits of this integration include the seamless flow of data in different business departments and software systems.
Key Benefits of Effective Stock Control
In this section of the article, we will focus on the benefits one can expect to get with effective stock control. Though there are multiple of them, we have highlighted the most important ones; let’s have a look at them!
Improved Inventory Accuracy and Reduced Stockouts
One of the major problems that most businesses face is the products getting out of stock and businesses being unaware of the stats. This leads to quick purchase decisions to ensure customers are not disappointed. With effective stock control, businesses can give insights into the amount of stock stored in the warehouse. This, in turn, helps reduce stockouts, as you will surely restock the products that are out of stock on time.
Cost Savings Through Optimized Stock Levels and Reduced Carrying Costs
In business, cost saving is closely linked to avoiding overstocking and understocking. Over-stocked products would take longer to be sold, and they might even expire in most cases, and for the understocked ones, you will have to make quick purchases, regardless of how high the price is. When the product is understocked, your only concern is to restock it ASAP.
With effective stock management, you can avoid both situations. Also, the carrying costs, mainly stock management and handling cost, insurance, and loss in case products expire, can be reduced.
Enhanced Customer Satisfaction and Fulfillment Efficiency
With efficient stock control, there’s no need to turn any customer disappointed because products are out of stock. The stock control system integration also helps in this regard, as a business could fulfill more orders quickly, increasing the sales turnover. Moreover, it can also eliminate the risk of customers getting irritated by a long time waiting for the order processing. In short, all these factors help you win your customer’s trust, tempting them to return.
For ultimate productivity enhancement due to seamless integration, we suggest relying on the NSS’s Inventory System. With this amazing integration platform, you can manage everything in one place, handling multiple things from your mobile. Some of the tasks you can perform with the NextSmartShip include the following:
- Keep a check on the inventory levels
- Track fulfillment status in real-time
- Auto-sync orders from multiple platforms
- Better manage and track returns
- Send shipping updates and order tracking numbers to your customers
- View shipping rates and the estimated delivery time, etc.
In short, whether you want to integrate with Etsy, Shopify, or any other supported platform, NSS will surely impress you with its services.
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Conclusion
Conclusively, stock management is a crucial need of any business that provides endless benefits and a better approach towards customer dealing. No matter what stock control method best suits you, you can enjoy the most benefits by properly implementing it. Moreover, companies like NSS’s integration power can help you unlock new doors of success, so be sure to check it out!
