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Controlling Your Inventory is About More Than Just Cost

by Jason Cockerham on August 5, 2021
 
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Do you want better control over your inventory?

Most organizations with weak inventory control systems don’t have a good grasp of how much inventory they have, or how much they’re spending on it.

Inventory control can help you gain visibility into your inventory and take charge of the items you have.

What is inventory control?

Inventory control is the process by which companies manage the parts and materials they hold in stock at their warehouse facilities. This includes every part of the item’s journey from ordering to storage to usage or disposal.

The ultimate goal of inventory control is to optimize your inventory to eliminate holding onto unused inventory while keeping the optimal amount of used inventory on hand to keep costs low while ensuring your operations have enough inventory to run smoothly. Basically, you want to have the right parts in the right place at the right time for the right price.

Inventory control involves the systems and processes companies put in place to achieve that goal.

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What are the types of inventory control systems?

When it comes to controlling inventory, there are two main systems you can use:

  • Periodic
  • Perpetual

Both systems are useful for managing inventory, but they are very different processes, and determining the best one for your organization will come down to how much inventory you need to manage.

Periodic

Periodic inventory control is when inventory is managed using physical counts on a periodic basis. These systems rely on physical checklists and/or barcodes and barcode scanners to manage and track inventory.

For small businesses, periodic inventory control can be managed with physical paper or spreadsheet checklists and can be performed by a small number of people. For larger companies, some level of automation is recommended or even required to accurately manage inventory.

In this system, personnel perform a physical count of inventory at pre-determined intervals. Each organization is different but most companies using a periodic system will perform these counts quarterly, semi-annually, or annually.

When using a periodic inventory system, the beginning inventory of a cycle count is assumed to be the ending number of the previous count. And as inventory is not counted as it’s used or moved through the company, costs are calculated at the end of each count.

Periodic inventory systems are easy to operate but are generated not recommended for most businesses as there are high labor costs involved and has a greater chance of introducing human errors into the system. If you’re organization only keeps a few large items on hand or does not move a large number of items, you would most likely benefit from the cost savings of a periodic system.

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Perpetual

Perpetual inventory systems rely on a constant stream of data and information. Your inventory database is updated constantly as items enter and leave your warehouse so changes to your stock levels are updated in real-time.

While periodic systems use paper and spreadsheets sometimes paired with barcodes and scanners, perpetual systems use powerful inventory management software to track your items throughout the organization.

Unlike periodic inventory systems, perpetual systems don’t use physical counts to reconcile inventory. The centralized inventory database is updated instantly as parts move throughout your organization. This not only saves you labor costs by the amount of works hours needed to spend counting parts, but it also helps reduce the tendency for human errors.

This doesn’t remove the human element from the equation, however. On the contrary, one of the challenges of perpetual inventory systems is that workers must be diligent to scan every part as they move it through the system.

There are a few disadvantages to the perpetual system as well. Due to the amount of technology required with the barcodes, scanners, sensors, etc., the upfront costs are significant to implement a system like this. Due to its technical nature, there is also a good deal of training involved in bringing employees up to speed on the system.

Companies that would benefit most from a perpetual inventory control system are larger organizations with a significant number of parts and inventory to manage as the benefits of such a system far outweigh the initial costs.

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What are the most common ways to manage inventory?

Once you determine the best inventory control system for your organization, there are three main ways to manage your inventory:

  • Pen and paper checklists
  • Spreadsheets
  • Inventory management software

Each system has its pros and cons and as before, the right one for your organization depends on your needs.

Pen and paper - the old-fashioned way

Many companies still use paper checklists to keep track of their inventory but in most situations, this outdated and inefficient method of managing inventory will end up costing you in the long run. There is a significant chance for human error and the work hours spent counting, recounting, writing down, and double-checking everything takes a large amount of time away from other productive tasks.

While paper is cheap and there is not much training needed to count inventory, except for small companies with very small inventories, this method is not recommended.

Spreadsheets – a bit more modern

Spreadsheets offer more capabilities and a bit more technology to inventory control allowing you to easily store larger amounts of data and quickly make updates when needed. This method still introduces a large potential for human error as all the data needs to be updated and managed manually.

The problems expand when you have multiple people working on managing your inventory. While you may have one file where all your inventory information is stored, once you email that file to someone to provide updates, then one you have is no longer up to date. Now every person who updates the file going forward has to make sure they’re using the most recent, updated version of it.

As your company grows and scales to add more inventory and personnel to your operations, spreadsheets can quickly become cumbersome and inaccurate leading to more errors and more costs.

Inventory management software – a solution for Industry 4.0

Industry 4.0 is here and offers great benefits to companies who implement these connected technologies in their organizations. Inventory management software can help you track every part as it moves through your organization automatically. You can begin tracking your items from the moment you place the purchase order, all the way through until you sell it, use it, or dispose of it.

This system of inventory control uses barcodes and QR codes to track every aspect of your item’s journey. As parts are received, shipped, or allocated to maintenance work orders, everything is instantly updated so you’ll always know exactly what you have and where you have it.

With this software, you can also set safety levels, min/max levels, and par levels to help you better manage your items. Once a certain item reaches its par level, you can be automatically notified based on the estimated lead time from your supplier, so you order more at just the right time. This helps you avoid having to place bulk orders out of fear of running out or to try to take advantage of a discount. You always know exactly how much you need and exactly when you need it.

You can also generate detailed cost reports on your inventory so you know what parts are costing you more to hold in stock then you might need to be paying. In fact, most companies don’t use as much as 90% of the maintenance, repair, and operations (MRO) inventory they hold every year and using inventory management software can show you what parts you’re paying to store that you don’t need to hold on to.inventory 1-3

The best part of inventory management software is that it integrates deeply with other parts of your operations. Integrate it with your maintenance management software to automatically allocate parts to maintenance work orders. Tie it in with your equipment management software to gain greater visibility into how your equipment and inventory work together.

The most robust and fully featured inventory management software will be part of a comprehensive enterprise asset management (EAM) solution that integrates all of these different systems together into one package.

There is some investment needed to fully implement an EAM solution, but for bigger organizations with large amounts of inventory and complex assets and equipment, the benefits far outweigh the costs.

What are the biggest benefits of good inventory control?

The benefits of a robust and efficient inventory control strategy go beyond just saving money. It can help your maintenance team improve equipment uptime by making sure they always have the right parts. More equipment uptime almost always directly results in greater ROI.

You can also discover hidden costs you may not realize you’re spending on your inventory. When you’re holding onto inventory, that’s warehouse space you’re paying for. That in turn means higher insurance costs for your facility. Reducing the amount of warehouse space you need also cuts down on your utility bill, and your labor costs of maintaining all that extra space.

You can also improve your relationships with your suppliers with a proper inventory control system in place. With the data you gather from your inventory management software, you can quickly see what items you need to have on hand and which ones you can hold at your supplier’s location. Holding items with your supplier lets you only order them when needed and helps you identify which of your suppliers are more reliable in getting you parts when you need them.

Next steps

Taking charge of your inventory control systems with inventory management software is easier than you might think. Our experts can walk you through a personalized, one-on-one demo of our ManagerPlus software so show you firsthand how you can begin managing your inventory more efficiently today. Plus, you can ask questions and learn more about the benefits of EAM software. Schedule yours today.

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Executive summary

Inventory control is the system you use to manage the parts and inventory that moves through your organization. Periodic inventory control involves performing physical counts of your items and set times throughout the year. The beginning inventory count is always assumed to be the ending count from the last period. Perpetual inventory control is the process of tracking every item as it moves through your organization in real-time with the use of barcodes and inventory management software.

Perpetual inventory control paired with robust inventory management software helps you:

  • Cut costs
  • Improve equipment uptime
  • Gain visibility into inventory costs and operations
  • Boost ROI

The best inventory management software is part of a comprehensive enterprise asset management solution like ManagerPlus.

Jason Cockerham
About the author

Jason Cockerham

Jason is a storyteller at heart with a career spanning everything from film and TV to iPhones. Just don't expect much before his first cup of coffee.

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