What is an Inventory Control System: Types, Importance, and How to Choose the Best One


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Table of Content

  1. What is an Inventory Control System?
  2. How Inventory Control Can Improve Your Business
    1. Boosting Cost Efficiency and Cutting Holding Costs
    2. Optimizing Working Capital with Automated Inventory Control
    3. Better Fulfillment with Increasing Customer Satisfaction 
    4. Preventing Inventory Spoilage and Obsolescence
  3. Types of Inventory Control Systems
    1. Periodic Inventory Systems
    2. Perpetual Inventory Systems
  4. Choosing the Right Inventory Control System for Your Business

As an online seller, your success depends on your ability to promptly deliver orders to customers while managing costs and maximizing profits. Imagine one of your products is performing exceptionally well on a popular marketplace, but the highest-selling SKU suddenly goes out of stock. This can lead to customer dissatisfaction and lost revenue for you, ultimately driving customers to your competitors. 

The primary challenge in this situation is the unexpected stock-out of a high-demand product. This shows why having a good inventory control system is important. With an effective system in place, you can easily anticipate demand, maintain optimal stock levels, and ensure that popular products are always available on all the sales channels.

Now what exactly is inventory control and why it is crucial for online sellers? Let’s explore and understand these systems and their benefits!

What is an Inventory Control System?

An inventory control system is a framework employed by businesses to effectively manage their inventory levels, track the movement of goods, and streamline operations related to stock management. At its core, this system ensures that companies maintain optimal levels of inventory without encountering issues like stockouts or excess stock. 

It involves tracking the quantity, location, and status of inventory items in real-time, facilitating efficient order fulfillment and reducing operational costs associated with storage and handling. The concept of inventory control has evolved significantly over the years. 

Initially, businesses relied on manual methods to track inventory, which were often prone to errors and inefficiencies. With technological advancements, automated systems have become the norm, offering greater accuracy and reliability. Today, inventory control systems are an important component of modern e-commerce business operations, enabling seamless management of stock.

How Inventory Control Can Improve Your Business?

Inventory control plays a major role in enhancing your e-commerce operations and the overall profitability of your business. Here are some benefits that your businesses will experience after implementing a successful inventory control system!

1. Boosting Cost Efficiency and Cutting Holding Costs

When you have the real-time status of your inventory levels, you can easily minimize holding costs associated with excess stock. By closely monitoring demand patterns and adjusting stock levels accordingly, businesses can optimize capital allocation and warehouse space. 

Gini & Jony, a leading apparel brand implemented an advanced inventory management system that provided real-time insights into their inventory levels. With this system, Gini & Jony could accurately forecast demand and adjust their stock levels to meet customer needs without overstocking. The SKU management was further simplified with an import feature that allowed them to upload bulk inventory through Excel. 

This feature also offered additional capabilities such as adding, removing, transferring, and replacing inventory, eliminating the need for manual efforts throughout the process. With the help of this inventory import functionality, the brand can effectively manage its inventory at the SKU level, ensuring accurate and efficient inventory control. 

2. Optimizing Working Capital with Automated Inventory Control

Working capital refers to the funds a company uses for its day-to-day operations. Managing working capital is very important for sellers to keep their business in good health. If the inventory is tying up your working capital it can lead to increased holding costs. 

With the help of automated inventory control systems, you can easily ensure inventory levels are aligned with anticipated demand and production schedules, preventing overstocking or stockouts. Moreover, these systems provide you with the ability to set automated thresholds. When inventory levels reach predefined thresholds, the system automatically initiates purchase orders, ensuring timely replenishment and minimizing the risk of excess inventory.

3. Better Fulfillment with Increasing Customer Satisfaction

Customer satisfaction is one of the most crucial aspects of any seller and it is highly impacted by the seamless experience provided by sellers from order placement to product delivery. By maintaining optimal inventory levels and using real-time tracking systems, businesses can ensure products are readily available for prompt order fulfillment. 

Accurate inventory control further minimizes the risk of stockouts, ensuring popular items remain in stock and preventing customer dissatisfaction due to unfulfilled orders. Let’s take an example of an online retailer using an advanced inventory control system. The brand is easily able to track stock levels in real time across multiple warehouses. 

When popular items start running low, the system automatically places an order when the thresholds are crossed. This proactive approach ensures consistent availability of the product and increases customer satisfaction. 

4. Preventing Inventory Spoilage and Obsolescence

One of the critical challenges in inventory management is preventing losses from spoilage or obsolescence. Sellers must carefully manage perishable items or products that are prone to becoming outdated. With the help of robust inventory control systems, businesses can overcome these challenges.

With real-time inventory monitoring, brands can track expiration dates accurately and implement FIFO (first-in, first-out) or FEFO (first-expire, first-out) methods to ensure older stock is sold or used before newer arrivals. These automated systems enable sellers to receive alerts when products are nearing their expiration, enabling timely actions such as discounts or promotions to move inventory before it spoils.

Types of Inventory Control Systems

If you want your inventory to be optimal, you need to employ the right system tailored to your e-commerce business needs. Here’s a detailed look at various types of inventory control systems and how they can streamline operations!

1. Periodic Inventory Systems

Periodic inventory control systems are traditional methods where physical counts of inventory are conducted at regular intervals, such as weekly, monthly, or quarterly. Here’s how they work:

  • Inventory Updates: In periodic systems, inventory levels are updated periodically based on physical counts. Between these updates, the system assumes inventory levels remain constant.
  • Cost Considerations: They are simpler and less costly to implement compared to perpetual systems because they do not require real-time tracking technology.
  • Suitability: Periodic systems are often used for businesses with lower transaction volumes or where real-time inventory tracking is less critical. This includes small retailers, seasonal businesses, and startups aiming to minimize operational costs.

2. Perpetual Inventory Systems

On the other hand, perpetual inventory control systems involve real-time tracking of inventory levels with the help of technology such as barcode scanners and inventory management software. Here are the key aspects:

  • Continuous Tracking: Inventory levels are updated automatically as transactions occur, providing a current and accurate view of stock at any given time.
  • Efficiency and Accuracy: These systems reduce the likelihood of stockouts and overstocks by providing real-time visibility into inventory levels.
  • Suitability: They are well-suited for businesses that require precise inventory management, such as retail and e-commerce, where quick and accurate order processing is crucial.

Choosing the Right Inventory Control System for Your Business!

Choosing and implementing the right inventory control system is very essential for improving your e-commerce operations. You need to carefully consider several key factors to ensure that the system aligns with your operational needs and goals. First, you need to assess your business’s transaction volume and product variety. 

Businesses with high transaction volumes and a diverse product range may require a more robust, real-time tracking system to manage inventory effectively. Also, consider the scale of your operations, including the number of locations and warehouses, as this will influence the complexity of the system needed. 

Cost is another crucial factor; while automated systems with real-time tracking may involve higher initial investments, they often lead to significant long-term savings and efficiency gains. Finally, ensure that the system you choose can integrate seamlessly with your existing technology stack, such as your e-commerce platform, accounting software, and supply chain management tools. 

By thoroughly evaluating these aspects, you can select an inventory control system that enhances operational efficiency, reduces costs, and improves customer satisfaction!

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