Elements of Inventory Control

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Effective inventory control reduces shortages and spoilage.
Effective inventory control reduces shortages and spoilage. (Image: Jupiterimages/Photos.com/Getty Images)

Inventory control, also known as stock control, is used to track and manage inventory levels on a continuous basis. It applies to all items used to manufacture products and provide services. It is used to track materials from purchase to assembly, to stocking on shelves and to customer shipment. Effective inventory control makes companies more efficient and responsive to customer requirements.

Types

The four main types of inventory are raw materials, work-in-process, finished goods and consumables. Raw materials include commodities that are used in production, such as minerals, petroleum, steel and food items. Parts and components purchased from external suppliers are also considered raw materials. The work-in-process inventory consists of raw materials and sub-assemblies that are at various stages of production. The finished goods inventory consists of products stored in warehouses or on store shelves waiting to be purchased by or shipped to customers. Consumables are used in support of the production process, such as lubricants, fuel and office supplies.

Methods

Inventory control methods can be manual or automated. Manual inventory control involves recording the item description, date of purchase, cost, supplier details and physical location of all inventory items in an inventory binder. At the end of the year, companies usually do a physical inventory count to reconcile what’s left with what was sold and purchased. A manual reorder system could use a simple two-bin system -- when one is empty, use the second bin and reorder materials for the first bin. As a business grows, a software inventory control system becomes necessary for easier retrieval of information, integrated sales and purchase order processing, and real-time inventory valuation.

Management

Inventory management involves making decisions on the appropriate level of inventory to keep on hand. Too much inventory can increase storage costs and the chances of spoilage. However, not having enough inventory might mean losing customers to competitors. Manufacturing companies often use just-in-time inventory control where items are ordered only as needed. Businesses use inventory classification, reordering and minimum levels to manage inventory. Classification groups items according to annual sales volume with a priority on controlling the inventory levels of high-sales-volume items. Reordering is done by factoring in the demand and the lead time required to get the order filled. Businesses must maintain a minimum inventory level as a buffer to prevent shortages.

Security

Security involves alarm systems for securing warehouses and real-time tracking of inventory items. Radio frequency identification tags, or RFIDs, can be used to track and protect valuable inventory. RFID tags use radio waves to communicate between embedded radio frequency transmitter microchips and reading devices that track tagged items and raise alarms when security has been breached.

Quality

Inventory quality control involves tracking batches as well as individual items so that if something goes wrong -- for example, a defective part or an assembly line failure -- managers can trace the defect all the way to the source. The inventory should be checked periodically for faults, especially for perishable items, because one rotting item can damage others in the batch. Climate-controlled storage systems and automated tracking can also help with inventory quality control.

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