Methods of Stock Control

Stock control methods are the strategies and systems used by businesses to monitor, manage, and maintain optimal inventory levels. These methods help prevent overstocking and stockouts, reduce holding costs, and support smooth production and sales operations. Choosing the right method depends on the nature, size, and complexity of the business.

1. Just-in-Time (JIT)

  • Definition: Inventory is ordered and received only when needed in the production process or for sale.
  • Purpose: Minimize holding costs and reduce inventory waste.
  • Requirements: Accurate forecasting and dependable suppliers.
  • Ideal For: Businesses aiming to operate lean with minimal storage.

2. Economic Order Quantity (EOQ)

  • Definition: A mathematical model used to determine the ideal order quantity that minimizes total inventory costs.
  • Formula: EOQ = √(2DS / H), where D = demand, S = ordering cost, H = holding cost per unit.
  • Benefit: Balances ordering and storage costs for cost-effective stock control.

3. ABC Analysis

  • Definition: Classifies inventory into three categories based on value and importance.
  • ‘A’ Items: High-value, tightly controlled items with low sales frequency.
  • ‘B’ Items: Moderate value and control level.
  • ‘C’ Items: Low-value, high-frequency items with basic control.
  • Benefit: Focuses resources on managing the most critical inventory.

4. First-In, First-Out (FIFO)

  • Definition: The oldest inventory (first-in) is issued or sold first.
  • Ideal For: Perishable or time-sensitive goods like food or medicine.
  • Benefit: Reduces the risk of inventory obsolescence or spoilage.

5. Last-In, First-Out (LIFO)

  • Definition: The most recently purchased inventory (last-in) is used or sold first.
  • Usage: More common in accounting than in physical inventory management.
  • Limitation: Not suitable for perishable goods.

6. Reorder Level System

  • Definition: A reorder point is set, and new stock is ordered when inventory reaches this level.
  • Formula: Reorder Level = Maximum usage × Maximum lead time.
  • Benefit: Prevents stockouts and ensures timely replenishment.

7. Perpetual Inventory System

  • Definition: Continuously updates inventory records with each transaction.
  • Tools: Uses barcode scanners, software, and real-time databases.
  • Benefit: Provides up-to-date inventory data and supports stock audits.

8. Periodic Inventory System

  • Definition: Inventory is physically counted at fixed intervals (e.g., monthly, annually).
  • Usage: Common in smaller businesses without automated systems.
  • Limitation: Less accurate and no real-time tracking.

9. Minimum and Maximum Level Method

  • Definition: Sets minimum and maximum inventory thresholds to guide reordering decisions.
  • Minimum Level: Safety stock level below which replenishment is critical.
  • Maximum Level: Prevents overstocking and excess holding costs.

10. Vendor-Managed Inventory (VMI)

  • Definition: The supplier manages the inventory levels on behalf of the buyer.
  • Benefit: Reduces buyer responsibility and improves supply chain collaboration.
  • Ideal For: Businesses with strategic vendor partnerships.

Choosing the Right Stock Control Method

Each stock control method serves different operational needs. Businesses should select the approach that aligns with their inventory size, industry type, and cost structure. A combination of methods may also be used to maximize efficiency and accuracy in stock management.