Inventory system

Inventory system: methods to control warehouse stock

17 Feb 2022

An inventory system is a basic procedure for all types of businesses, especially those that manage a wide range of products. Knowing the exact location of your SKUs prevents errors and delays in storage and order fulfillment tasks.

With the right inventory system, companies can calculate the products they need to provide service, ensure the distribution of goods by the agreed deadlines, and even cope with unexpected changes in demand.

What’s an inventory system?

An inventory system consists of a set of rules and procedures that companies use to know the exact quantities of products they have in their warehouses.. This process lets them know which items they’re are about to run out of so that they can organise replenishment in advance, thus avoiding possible stockouts.

Businesses that record inflows and outflows of goods from their warehouses can determine the turnover rate for each item and devise an effective procurement strategy to ensure uninterrupted service.

Likewise, stock control helps companies to identify imbalances between their physical inventory — i.e., the actual stock on the racks — and their book inventory, which is recorded in a warehouse management system (WMS), an ERP system, or an Excel document.

An inventory system enables businesses to identify the goods that are essential for daily operations and even to calculate the safety stock required in the face of a possible increase in demand.

An inventory system helps to formulate an effective procurement strategy
An inventory system helps to formulate an effective procurement strategy

What are types of inventory systems?

Each company adapts their inventory system to their particular type of business, products, and workflows. This procedure will depend on factors such as the nature of the goods (whether raw materials or finished products) and the logistics process (whether the items are stored or are moved along the logistics network).

Depending on the frequency with which stock control is carried out in the warehouse, we can differentiate between two kinds of inventory:

  • Periodic inventory. This type of inventory is conducted manually and at certain intervals (e.g., monthly, quarterly, semiannually, or annually).
  • Perpetual inventory. Thanks to digitization, the number of goods a company has is updated in real time, allowing for strict stock control.

Periodic and perpetual inventory systems help companies to monitor the available stock in their warehouses. The choice of one system or another will depend on the size of the business, internal goods flows, available resources, and the quantity of stock in the facility.

How does a periodic inventory system work?

A periodic inventory system consists of knowing what your available stock levels are at a specific time interval. As a general rule, the exact date for the inventory count is established in advance in order to properly organise the work. Companies usually schedule inventory during times of off-peak business activity to avoid interference with other tasks.

One particular feature of a periodic inventory system is that it doesn’t require any computer support to be carried out. Operators walk around the warehouse counting and making a note of the products stored in each location. Additionally, they can visually verify whether the products are in good condition.

Nevertheless, periodic inventory does have its drawbacks: as it’s a manual operation, the risk of error is high. Moreover, this method is time-consuming and forces work in the warehouse to completely or partially stop in order to count the products in each location. The company knows the status of its stock at a specific time but not in real time, which could lead to discrepancies.

Operators go through the warehouse counting the items in each location
Operators go through the warehouse counting the items in each location

How does a perpetual inventory system work?

With a perpetual inventory system, the goods are updated in real time. This process gives businesses control over the stock in their warehouses in real time.

To keep such precise control over their products, companies turn to technology because it provides detailed information on the status of each and every item in stock. One type of technology used to control stock is warehouse management software such as Easy WMS from Mecalux.

To monitor movements of goods, the software records all items received and dispatched while sending operators instructions on what to do with each of them. Using RF scanners connected to the software, warehouse workers identify the items by their labels.

A perpetual inventory system ensures full traceability of the goods. The software monitors the products throughout all the stages they undergo across the supply chain This continuous stocktaking means that companies that use WMSs can avoid stockouts.

The advantages of logistics software for stock control outweigh the initial investment required to implement this technology in the warehouse. Perpetual inventory with a WMS eliminates errors and provides greater flexibility for dealing with market changes. i.e., an increase in order numbers.

Software for a perpetual inventory system

Inventory software is a computer program that facilitates goods management. Companies with very varied stock can leverage this software to automate inventory control and prevent mistakes.

With an inventory management system, businesses can organise tasks such as procurement in advance. This is the case of Gonher, a musical instrument and sound equipment company. Gonher digitized its warehouse in Mexico to maintain tighter control over its goods. The minute the last product of a SKU has been removed from its location and thus has run out, Easy WMS automatically generates the replenishment order.

On the other hand, inventory software is crucial for controlling product traceability. This operation is vital for French company Maison François Cholat, which specializes in plant protection products. With Easy WMS, the company can strictly monitor its goods and track their journey: “We’ve always been concerned with traceability. We needed a WMS that would enable us to find a customer to whom a specific item was sold and that would record relevant information, such as the production date or batch number,” says Morgane Cholat, the company’s Logistics Manager.

An inventory system is much more precise with warehouse management software
An inventory system is much more precise with warehouse management software

Digitization of an inventory system

An inventory system is a key process for ensuring that companies can provide their customers with good service. Knowing which products are available in the logistics facility is the starting point for efficient order fulfillment.

Against a backdrop in which warehouses have more and more SKUs — mainly due to the ecommerce boom — technology can help companies to know the status of all their products in the greatest detail. Want to find out more about how you can automate management of your warehouse? Don't hesitate to contact us. One of our expert consultants will advise you on the best software solution for your company.

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