inventory management, stock control Guide to inventory management & stock control for businesses | Sage

Guide to inventory management & stock control for businesses


Inventory Management

Guide to inventory management & stock control for businesses

‘Stock’ is the word that retail and manufacturing companies use to describe the goods they currently hold which they plan to sell to customers.  

Inventory management and stock control are two interrelated activities which help you make sure that the stock you hold is being organised in the most effective way.

In this article, you’ll learn about the key concepts for understanding stock management, different types of inventory and guidance for inventory management for small business. 

What is inventory management?

Inventory management – also known as stock management – is a process to ensure you have the right amount of stock in the right place at the right time. It involves understanding your customers’ buying patterns and making sure you can precisely meet demand, without over-stocking or under-stocking.

If, for example, you run a small chain of supermarkets, you could end up with a surplus of chicken that you are unable to sell without an efficient stock management process in place. Alternatively, you might end up with too little rice, so you customers go to your competitors instead.

Inventory management is also about planning for fluctuations in demand, so you have extra food available in the run up to the holidays, for instance.

What is inventory control?

Inventory control is about keeping track of where all your goods are physically located at any one time, and therefore, helps you make the best decisions about how you organise and distribute your stock.

Efficient stock control means you can account for all your products, so you can find them whenever you need.

Take our supermarket example again – a good stock control process would mean the store is able to respond to changes in demand. If the store sells out of all its soft drinks over one particularly hot morning, having a good grasp of stock control would mean sending out a delivery driver to pick up more stock from the warehouse.

Types of inventory

For different industries, there are different types of inventory. While inventory management is most often thought about in relation to retail and manufacturing, there are various types of inventory that relate to logistics, catering and even some service organisations.

Here are the major types of inventory that your business may need to manage:

  • Merchandise

For retailers, merchandise inventory involves counting exactly how much of every product you hold.

  • Raw material

Manufacturers should monitor the quantity and value of raw materials they hold, such as metal ore, food, cotton etc.

  • Work in process

Manufacturers want to find out the quantity of stock they have which is in the process of being processed and assembled.

  • Transit inventory

It can take days to move your stock to poorly connected or remote areas – a transit inventory helps you monitor how much property you own which is currently in transit.

  • Maintenance, repair and operations (MRO) goods

If you offer a repair or maintenance service, an MRO inventory means you know how much you hold.

What is the best inventory valuation model for your business?

Inventory valuation help you work out the monetary value for all the stock you hold. It is also essential for accounting purposes. There are two main types of inventory valuation models -  perpetual valuation and periodic valuation - which we’ll look at below. Periodic valuation is often an easier option for smaller businesses or those who sell a limited range of stock, whereas larger companies with a much greater range of goods and locations will benefit from more sophisticated perpetual valuation.

  • Periodic valuation

In a periodic inventory, goods are recorded as you sell them, but your inventory is not updated. Instead, every month, quarter or year, you do a physical stock count, which you then match up against what you have sold.

  • Perpetual valuation

In a perpetual valuation inventory, you would use inventory management software which automatically updates your inventory list each time you make a sale.

What is an inventory management system?

An inventory management system is a comprehensive solution for your business’ stock control and inventory management needs. It is a way of making your processes around stock management more efficient, while helping you make better stock decisions.

Many companies use inventory management software which is customised to the way their business works, while helping them prepare for change in demand based on their specific circumstances.