The inventory control of a company is a way of organization. Its objective is to guarantee the ordering of the supply and the correct quantities to satisfy the demand.
Currently, inventory control is a key piece in the product trade. Also known as stock management, it documents the entry and exit of products, but in the digital age it offers a great competitive advantage. An example of this is the accelerated growth of companies like and Mercado Libre.
In this article we are going to know the definition of inventory control, its importance in the supply chain, the different types of inventory and methods for inventory control in a company. This will help you to know how to make an inventory, and how to implement it in an e-commerce and avoid the main mistakes when creating an inventory. We are also going to share some tips and tools that will be useful for your business.
In case you need an inventory control template in Excel. Let’s get started!
What is an inventory?
An inventory is a list of goods, merchandise or items in existence that belong to a person, institution or company, which allow it to function or trade. If you need to go deeper into it, I share the following content:
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Types of merchandise in an inventory
An inventory can store three types of goods, which are:
- Raw material: materials for the creation of different products – for industry (on a large scale);
- Semi-finished media: items that fall between raw materials and finished products;
- Products: items for retail trade.
What is inventory control?
Inventory control is the activity of physical or digital registration of all products, raw materials, merchandise, furniture and machinery that a company stores for sale or its operation.
What is inventory control for?
Its main purpose is to organize the items to maximize profits and offer the best customer service by knowing the products in high demand and keeping them in stock always, as well as avoiding inventory overselling.
What are the main types of inventories?
- Initial inventory
- Final inventory
- Inventory of anticipation or forecast
- periodic inventory
- Perpetual or permanent inventory
- Annual inventory
- cyclical or rolling inventory
- Raw material inventory
- Batch or lot size inventory
- Consignment inventory
- Factory supply inventory
- Inventory of products in the manufacturing process or work in process
- Finished Goods Inventory
- Inventory of merchendise
- Inventory in transit
- Safety or reserve inventory
- Forecast or seasonal inventory
- Decoupling inventory
- Stock inventory of a regular or cyclical nature
- Inventory of obsolete, dead or lost stock
- available inventory
- online inventory
- Quarantine inventory
- Physical inventory
- Inventory of highs and lows
- MRO inventories (materials for maintenance, repair and operations
As you can see, there are many types of inventory and they all have different purposes (depending on the purpose, timing, type of merchandise, periodicity, etc.). If you would like a post that talks in more depth about the different types of inventories, tell us on social networks, you can find us on Instagram as .
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Inventory control methods
- PEPS
- UEPS
- Average cost
- just in time
- ABC curve
- Independent lawsuit against dependent
Inventory management for the different types is also governed by different systematization methods.
Below we will describe the top five models in retail.
1. FIFO
FIFO stands for “first in, first out”—also known as FIFO. “first in, first out”— . In other words, you have to give priority to the oldest items in your inventory when making deliveries.
This method is generally applied to perishable goods, such as those in the food and beverage industry. One of the features of this method is that the inventory is updated to the most recent price. In this way, when there is a reduction in price, profits or profits increase and the valuation of inventory can be inflated because the initial costs of sale are preserved. But it is important that you take into account that income taxes will also increase.
2. LIPO
LIFO stands for “last in, first out” or “last in, first out”: LIFO. That is, the newest items must be sold first. Unlike the previous format, this should only be used if the products are non-perishable.
3. Average cost
The average cost, as its name implies, is the sum of the costs of the new and old merchandise, divided by the total quantity of the items.
For example: If you have introduced 10 new products for 100 pesos (= 1,000 pesos) and, in the warehouse, you already had 12 old products for 50 pesos (= 600 pesos), the calculation will be:
$1,000 + $600 = $1,600 / 22 = $72.72
Thus, $72.72 pesos is the average cost of each item you have in inventory. With this value, you can renew the price of your products. Additionally, averaging the cost of older merchandise yields an inventory value that is closer to reality.
Four. just in time
Just in time —”Just in time” in Spanish— is a methodology whose principle is to keep the least amount of products in inventory and avoid waste.
However, for it to really work, it is essential that you find a provider that offers fast delivery times. In addition, inventory control must be permanent.
5.ABC curve
Finally, the ABC curve is the method that classifies products based on their degree of rotation, in which:
- A it is for high-performance products (the star products of an online store);
- B. is for items that have a medium turnover volume and generate a lower return than the type A;
- C it’s for low-performing items.
6. Independent claim against dependent
In this case, inventory control models assume that the demand for one item is independent or dependent on the demand for other items. Its main function is to reduce storage costs and order products. The EOQ method (Economic Order Quantity) or model of the economic quantity to order is one of the best known for the control of inventories for independent demand. It is used when the company has a constant demand and, therefore, requires constant use and renewal of inventories.
Regarding inventory control methods, it should be noted that, in accounting, only the FIFO method and the average cost are considered valid models to account for and demonstrate the values ​​in the .
đź“ŚImportant: all the methodologies presented above contemplate purely management parameters (and not accounting).
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How to make the measurement in a physical inventory and an accounting one?
It is important to distinguish that estimation in inventory management can be done in two ways:
- Physical measurement: sum of the quantities of each type of product and the organization of storage.
- Monetary measurement: individual monetary cost and total value of the merchandise.
Why is it important to make an inventory report in a company?
- Helps control cash flow.
- Increase sales.
- Maintains the company’s reputation.
- It allows generating reports and measuring results.
As we already mentioned, inventory is considered an asset because of its high value and because it helps control cash flow. By organizing a company’s inventory, you have the opportunity to understand more clearly what you should buy, what you can withdraw from the next orders from suppliers, the selling price of your merchandise, among other things. In this way, you avoid product stock-outs and losses, and identify smart investment opportunities to generate working capital. đź’°
By controlling the inventory of your online store, you can get ahead of your competition, especially if they do not carry out this control.
One of the benefits of inventory management is that it allows increase sales. Constantly monitoring supply provides data to determine seasonal sales and anticipate a higher volume of departures. This means that you can buy the products in advance and meet the demand that arises without depleting the stock of your business.
By controlling your inventory and keeping it organized you can attack many indicators of customer service. For example, in an e-commerce your deliveries become more agile. This, as an effect, leads to positive feedback from your clientele, be it via email, product page reviews and/or social media posts (visible to all your brand followers). What reinforces the reputation of your company.
đź“Ś Bottom line: Shipping speed and efficiency = Good reputation
We leave you one to organize your stock:
Last but not least, the generating reports about your inventories can help you plan actions, analyze data and soften the impact of any problem. In this way, all the needs and obligations are clear to the person in charge of each area of ​​the company.
How stock management works in ecommerce
First of all, if your online store does not have an inventory, do not worry, it is never too late to implement an inventory control model. Just like any physical or traditional business, a digital business needs an inventory management method for its correct operation, profit optimization and the main benefits that inventories offer.
First of all, if your online store does not have an inventory, do not worry, it is never too late to implement an inventory control model. Just like any physical or traditional business, a digital business needs an inventory management method for its correct operation, profit optimization and the main benefits that inventories offer.
How to implement inventory control or stock management?
- Organize the physical environment.
- Take inventory.
- Register the products.
- Determine the purchase periods.
- Perform audits.
- Determine your inventory budget.
Many times we have heard about the giant warehouses of the marketplaces like the ones mentioned at the beginning of this post: and Mercado Libre. A business of its own obviously does not need to have warehouses of this magnitude, but it does need one according to its needs, and any of the…
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