In the business world, companies should have control over each process that is conducted in the company. This control is mostly possible with the right analyses, and inventory control methods are some of them. With these analyses, companies analyze the demands of customers and determine the right amount of stock for their products.
Why Should You Use Inventory Control Methods?
Inventory control is beneficial for your company in many ways. In general, you would be ready for any changes that can occur due to different factors. Therefore, you can prevent going over the budget for storage, or you can avoid a lack of stock.
- When you analyze your inventory, you can understand your customer’s purchasing behavior. Besides, you would be able to predict potential sales. Then, you can take precautions and include the right amount of stock. Hence, while you would be ready for the demands of the customer, you also can avoid wasting your money on unnecessary storage.
- Inventory control methods also help your spending strategies in a wider scope. Companies determine a budget for each process monthly and annually. When you know what you will spend for storage, you can manage your monthly and annual budget for other processes better.
- When we go into details, with the right methods, you can establish a more proper warehouse and more proper items for your sales and their shipping.
- You can set and adjust better the duration and time of acquiring products that you can sell faster. Thus, you can increase customer satisfaction because your shipping would be faster.
- Since you will have a more dynamic process in both acquiring products and shipping, you can improve cash flow as well.
Commonly Used Inventory Control Methods
Let’s take a look at the methots that are commonly used for inventory control. Here are the 8 most common and working methods.
ABC Analysis Method
ABC (Always Better Control) means classifying products according to their consumption value. In category A, there would be products that have higher inventory values but less in number. Therefore, they would also be more expensive. The products in category B are more in number than category A. However, they still have a moderate consumption value. Lastly, products in category C have the lowest consumption value, and they are the most in number.
VED Analysis Method
VED (vital, essential, desirable) analysis method is a classification method depending on customers’ demands and experience. It both allows you to understand your customers’ behavior and the importance of the products in stock.
- Vital: Vital products can seem like more demanded products. Hence, you should keep and renew them consistently in stock.
- Essential: Essential products would be lower in number. However, there still should be a minimum supply because their absence can affect your sales.
- Desirable: Desirable products are not required or important much for a company’s sales. Their absence does not affect the company’s profits or budget that much, but they can be in stock anyway.
HML Analysis Method
HML (high cost, medium cost, low cost) analysis method is another classification method that is similar to the ABC analysis method. However, instead of classifying according to consumption values, companies classify products according to their unit price. It is a useful method to control the company’s buying policy and budget.
- High Cost: Products that have the highest unit value in the stock
- Medium Cost: Products that have a medium unit value in the stock
- Low Cost: Products that have the lowest unit value in the stock
EOQ (Economic Order Quantity) method is beneficial to contain the right amount of products and save the ordering cost. With this method, companies determine the right number of products that should be in stocks depending on demands. If there is a product in high demand, companies order the same product when it reaches the minimum level in the stock. Thus, they can have control over time management and demands.
FSN Analysis Method
FSN (fast-moving, slow-moving, non-moving) analysis is a classification method that is helpful for your logistics and strategies in the logistics department. In this kind of classification, consumption rate and quantity are important.
- Fast Moving: Products that have the highest consumption rate
- Slow Moving: Products that have the lowest consumption rate
- Non-moving: Products that are not ordered more than a certain amount of time
SDE Analysis Method
SDE (scarce, difficult, easily available) is another analysis method that is significant for the logistics part. Some products, especially imported ones, may not be available all the time. Therefore, you should take lead times into consideration before taking action. SDE analysis can be helpful for you.
- Scarce: Products that need more lead time, like more than six months
- Difficult: Products that need long need time but usually less than six months
- Easily Available: Products that are already available in your stock
MRP (Material Requirements Planning) method is about examining the market and making predictions. Companies bring together the demands in the market and various places where inventory exists. Then, they can forecast and plan future sales according to demands in the market. It helps companies to avoid and take precautions for unpredictable issues that can slow sales and ordering.
Minimum Safety Stocks Method
In marketing, companies need time to replace the stock-out products. This time may not be advantageous because customers do not like stock-out products, and they may give up on buying your product. To prevent that, companies contain minimum safety stocks before ordering new products. Hence, a stock-out situation can be avoided, and your sales would not be postponed.
FAQs on Inventory Control Methods
Inventory control methods are vital for companies. You would be more planned and in control with them. Therefore, you can see the factors that affect your company budget, how you can minimize the storage expenses, and what you should predict for future sales according to demands in the market.
There are various inventory analysis methods that aim to increase your control over your inventory. The most common ones can seem like ABC, VED, HML, FSN, and SDE analysis methods.
FSN analysis can be helpful even for your warehouse design. For instance, you should place fast-moving products in an easily accessible part of your warehouse. Besides, you can make plans and predictions according to the demands of your customers.
The economic order quantity method can save you from wasting your budget. If you do not analyze the demands in the market, you can face some problems. For example, you ordered an amount of product without considering the demand. Then, your products are sold in a short amount of time. Now, you should order from the same product again. It doubles your transportation expenses.
Probably, it would be wrong to distinguish inventory control methods as the best and the worst. All of them are beneficial in terms of different aspects of your inventory control. As your business grows, things get more complicated. Hence, you should have control in each area.
Inventory Control in Marketing
In businesses, planning and management are crucial in each department. Inventory control is one of the most important ones. Companies should carefully consider and plan their storage and logistic expenses. When it comes to that kind of planning, inventory control methods are beneficial for you. With these methods, you can integrate each variable in storage, such as demands, hardware usage, safety stocks, and budget.
Since each method interests different areas of your inventory, it may be hard to choose. You do not have to use all analysis and control methods. However, you can test and consider each of them to find which ones fit best for your business. After a considerable amount of time and effort, you can get so much benefit from them.
If you liked this article, you may also like our article about lead management through planning & discipline as well.