What Is Stock Control? Complete Guide For New Businesses

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what is stock control

Stock control also referred to as inventory control is a system which is essential for every business dealing with logistics. Simply put, it is utilised to indicate how much stock you have remaining at any given time. When used correctly, an effective stock management system is used at all points of the production process.

Example: If a start-up business was producing and selling furniture, their stock management system should display how much capital is available in the warehouse. Ensuring the correct level of output is delivered. An efficient stock control system will avoid the issue of ‘wasted stock’.

Throughout this guide, we will talk you through the best methods to utilise when managing your stock control. Depending on the size of the business, the ideal stock control system may vary.

what is stock control

Why Do Businesses Use Stock Control Systems?

Before we get into how stock control works as well as the different methods available, it is essential to understand why businesses use stock control systems as a way of managing their goods.

Stock Management in the Warehouse

Minimising the number of problems arising from the warehouse will ultimately improve your businesses efficiency and output rate. A poorly run warehouse will only lead to fundamental issues throughout the business, therefore, affecting the customer’s experience. This may be through late delivery, poor quality of goods or even incorrect stock statuses before purchase.

When a business demonstrates effective stock management organising and managing the warehouse becomes seamless. For larger companies, this is key as you may be required to organise your goods based on seasonal demand or perhaps by name or brand. Not only will this make your employees’ day-to-day job a lot easier, but it also reduces the amount of time it takes to deliver your customers goods.

Ensuring Customer Retention

Satisfying your customers & ensuring your customers are kept happy can often to be determined by the state of your warehouse stock control system. If your customers understand that your products are always in stock, then this can incentivise the customer to return and therefore purchase more goods.

This can be essential for those businesses who are trying to compete within a competitive market. In order to provide a cutting edge customer experience, your stock control management needs to be able to meet the demands of the customer. Fortunately, with the latest technology, this can be automatically setup.

When one of your products reaches your minimum stock level (often referred to as buffer stock), then you will have complete autonomy over your stock levels. When the minimum stock level is met, an order will be placed for more stock or raw materials.

A business with an efficient stock control system will have a set level of buffer stock. Buffer stock refers to the amount of constituency stock available. This is often used if unexpected orders are processed, and there are delays in from suppliers.

How Does Stock Control Work?

how does stock control work for small businesses

Stock control systems should ultimately serve the role of controlling your inventory through barcodes. We will touch on what system and method to use shortly; however, let’s understand how a stock control system works.

A stock control system must allow you to carry out the following tasks;

  • Track stock levels
  • Make orders
  • Issue stock
  • Set buffer stock levels

As a business, you have two options when implementing your stock control system. You can either opt for a manual stock control system where inventories & stock levels are controlled manually. Annual audits are usually the preferred option for SME business owners.

Alternatively, you can opt for a stock control system operating through computer software. We would strongly recommend choosing software if you are dealing with a large number of products. Computer software also allows for your business to expand and take on more products as well as different variations.

One of the first steps you will need to do is establish an inventory of all the products you are producing and selling to your consumers. If you are offering your products online, then your list should relate closely to your online store. Each product/item should have a monetary value/price attached.

Stock Control Software

For now, we will focus on a stock control system that is supported by computer software. Even though a software stock system shares the same principles as a manual one, day-to-day management becomes a lot easier.

A computerised stock control system is an excellent option with large amounts of stock as well as different product types. We also find that the following features are advantageous;

Regular & accurate stock updates – All functions of your stock control system make use of the same data, allowing you to produce stock control reports as regularly as you wish. Periodically checking stock is very useful for forecasting and generating purchase orders.

Automatic re-ordering – As mentioned previously, a computerised stock system will automatically request/process more stock when your buffer stock is reached — removing the role of manually checking the stock levels.

Finding the most efficient suppliers – When searching for suppliers as a business, you may want to focus on the cheapest and fastest solution. A computerised system will help identify those suppliers.

Economies of scale – As you grow your business, you will need to ensure your exclusive savings of scale increase. By implementing a computerised system, you will see gains in productivity and efficiency from the warehouse to delivery to the consumer.

Bar Coding Systems – A primary benefit of a computer system is the ability to print out barcodes from multiple third-party computers. Ensuring the order is in place, the software then seamlessly prints and reads barcodes.

Radio Frequency Identification (RFD) – Through three important components (antenna, transceiver & transponder).

What are the Different Methods of Stock Control?

how to manage stock control

Depending on the size of your business, you may decide to use different methods for stock control management. Before a stock control method is adopted, it is vital you carefully define the process of production and distribution within your business. The main types of stock control management are as follows; stock reviews, fixed-time/fixed-level re-ordering, just in time (JIT), economic order quantity (EOQ), batch control, first in first out & vendor-managed inventory.

Let’s look into each of these in more detail.

Stock Reviews

If you are a noticeably small business, then you may decide to take manual stock reviews. Manual stock reviews consist of reviewing the amount of stock remaining. Reviewing stock on a manual basis is often accompanied by pre-determined figures that help owners of the business decide on whether or not to order more stock. Companies who usually adopt this method tend to operate at a minimum stock quantity.

Fixed-Time / Fixed-Level Reordering

If you are dealing with suppliers on a contract basis, then this method of stock control may be desired. Fixed-time & fixed-level involves placing an order of stock at either a fixed time or a fixed quantity of capital. For example, you may decide to order 1000 units every Friday from a contracted supplier ready for the following week. If your demand is unstable, then we would avoid using this method as it may result in excess stock levels, making managing stock a much more complicated process.

Just in Time (JIT)

Just in time originated from Japan and has been adopted by a variety of large manufacturers. Including Toyota, Harley Davidson & Dell. Only in time stock control is often applied to eliminate waste and increase stock efficiency. The system relies on delivering stock as and when an order is in place. Not only will this avoid waste, but it will also save space on storage as there is no existing stock.

Economic Order Quantity (EOQ)

Economic Order Quantity commonly referred to as EOQ is a strategic formula that intends to keep an ideal level of stock. Of course, the level of stock depends on the size of the industry and business. See below for the formula;

The square root of [(2 x demand x ordering costs) ÷ carrying costs]

In short, the EOQ is called upon during inventory management when calculating the amount of stock a business should append to its inventory. Each new order of stock should then reduce the total cost of its inventory. You can work out the price of a list by including holding and setup costs. Due to the technicality of the mathematics required, it is often a good idea to consult a specialist who can do this for you.

First in, First out

First in, first-out stock control refers to consistently replacing any stock which is perishable by a specific date. The most obvious example of this is with Grocery stores selling food (especially fresh food). This cost flow solution automatically assumes that the first goods purchased are the goods that are sold first. One of the most significant advantages of this stock control method is that it saves both time and money.

Batch Control

Batch control refers to controlling your stock through the scheduling of production (in batches). Substantially, this minimises any complications through the production process, which will result in keeping the costs down. Businesses often prefer this method as they are only required to purchase raw materials to meet the demands of one single batch.

Vector Managed Inventory (VMI)

VMI is where both the buyer and supplier share the risk of stock control. The buyer sends across all requirements to the supplier regarding the level of stock needed. The supplier then shares the burden of ensuring the stock is delivered to an agreed location (usually the buyer’s point of sale).

How to Master Small Business Stock Control

As a small business, it is incredibly important to master the art of stock control for two key reasons.

  1. Minimise costs and better profitability
  2. Provide the groundwork for business growth

If you are on the verge of starting your brand new business or currently looking for ways to optimise your current stock control model, here are our parting tips for you;

Optimisation of Forecasting

To successfully manage your inventory, you need to ensure your cash flow is as accurate as possible. Financial cash flows are the backbone of your business’s future success, so it needs to be right! An optimised forecasting plan can help manage the number of raw materials/products you purchase at any given time. You can learn more about forecasting for small businesses here.

Pick and Pack Services

If you are a small business who operates within the retail industry then you may want to consider pick and pack services. Pick and pack is the process of individually packing products at a specific moment. For example, if a customer orders 3 items of clothing all of which are different items then the product must be picked from the warehouse. Not only will this reduce costs to your business by eliminating the middle man. But it will also increase customer satisfaction and allow for a diverse range of products.

Using First in, First Out

The best way for small business owners to manage their stock is by opting for the first-in, first-out method of stock control. By selling the stock you purchased first, will allow you to buy brand new raw materials as and when you require them. Not only is this good for perishable goods such as food and flowers. But it is also great for non-perishable goods too. It is never a good idea to have stock sitting around in the warehouse as it may become damaged or lost.

Audit your Stock

Even if you are happy with your current stock management system, it is still a good idea to audit your stock during an annual review. Carrying out an annual report will allow you to see any issues which may be causing problems unknown throughout your inventory. It also provides an opportunity for business owners to optimise and scale the business.

Let’s Summarise

Throughout this article, we have highlighted the importance of stock control for all types of businesses. For any business to grow, they must be a stock control system in place that is efficient and allows the company to run smoothly.

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