Stock Management: The Complete Guide to Controlling, Tracking, and Optimizing Inventory

Inefficient stock management can cost a business up to 10% of its annual revenue due to issues with overstocking or understocking. The importance of effective stock and inventory management is evident. It ensures that optimized inventory is always available in the warehouse to meet customer demand. Proper management of stock can reduce wastage and holding costs. It boosts customer satisfaction and drives higher profitability for a business.

What Is Stock Management?

Stock management encompasses the processes of ordering, managing, and tracking stock. The primary goal of stock optimization is to maintain a sufficient inventory in the warehouse facility to meet customer demand while avoiding both overstocking and understocking.

Role Of Stock Management In Supply Chain Efficiency And Business Profitability

Effective stock management ensures a smooth goods flow at every point in the supply chain, i.e., from suppliers to warehouses and then to customers. It increases sales and ultimately boosts revenue.

Stock management ensures the right amount of product is always available to meet customer demands. Thus, it improves customer satisfaction and brand reputation in the market.

It utilizes strategies such as FIFO (First In, First Out) to reduce waste.

Why Stock Management Is Important For Businesses?

Effective stock management is essential for a business for the following reasons.

1. Prevents Overstocking And Stockout Issues

Overstocking can increase a business's storage costs. Many products can get damaged over time. Again, stockout issues can hurt customers. It can even lead to missed sales opportunities. It also prevents problems of overstocking and understocking.

2. Improves Order Fulfillment and Customer Satisfaction

Effective stock management enhances a business's order fulfillment processes. It means it speeds up the process of picking up the ordered product, packaging, and shipping. Thus, it ensures timely product delivery and increases customer satisfaction.

3. Optimizes Cash Flow

Managing stock effectively ensures that the business capital is not tied up in storing excess products in the warehouse. It allows a business to utilize such funds for marketing or product development.

4. Increases Operational Efficiency

Today, most businesses use automation for stock management. It reduces manual errors and increases operational efficiency.

Key Components of Managing Stock

The primary components of stock management are as follows.

• Stock Control: Businesses need to regulate the quantity of stock periodically and ensure there is always sufficient stock to meet customer demand.
• Stock Tracking: It involves tracking stock through advanced tools and techniques, such as barcodes, RFID systems, or inventory management systems.
• Stock Optimization: The business utilizes data analytics and AI to forecast product demand and maintain optimal warehouse stock levels. Optimized warehouse stock reduces holding costs and improves supply chain efficiency.
• Stock Reporting: The Business generates a report on stock levels and inventory turnover. Thai helps a business identify fast-moving and slow-moving items.
• Reordering Management: Reordering management involvement when and how much stock is required to reorder. Businesses need to consider both lead time and reorder time to replenish their warehouse stock.

The Step-by-Step Process Of Stock Management

Here is a step-by-step guide to the stock management process.

• The business needs first to analyze the sales data and study market behavior to predict product demand in the near future. 
• Accurate forecasting enables a business to plan and manage inventory levels effectively, order stock accordingly, and prevent overstocking and out-of-stock issues.
• The business's procurement team orders goods and materials from suppliers.
• Reliable suppliers always provide goods and materials on time. 
• A business then stores the received goods in its warehouse. Many businesses use the FIFO (First-In, First-Out) or LIFO (Last-In, First-Out) method to reduce the risk of spillage.
• A business initiates the recording of stock when the inventory level reaches the reorder point.
• A business conducts a stock audit periodically to verify that the physical inventory matches the records.

Techniques And Strategies For Effective Stock and Inventory Management

A stock management system is advanced software that tracks and manages inventory stored in the warehouse and fulfillment hub. The primary goal of a stock and inventory management system is to provide real-time visibility into products and enable informed decisions about purchasing materials, production, and order processing.

Popular Stock Inventory Management Systems

Several popular inventory management systems simplify inventory operations.

1. Zoho Inventory

It is a cloud-based inventory management software that monitors stock levels in the warehouse and updates inventories in real time. Zoho software can track inventory across multiple warehouses and facilitate electronic invoicing.

2. EasyEcom

It is a cloud-based software that manages stock in multiple warehouse locations. EasyEcom software also easily integrates with the business's accounting or ERP tools.

3. NetSuite

It is the next cloud-based software that seamlessly integrates with various business functions, including finance, accounting, and supply chain management, all in one. Netsuite software even tracks stock across multiple warehouses and updates data in real time.

4. Tally Solutions

It is the next accounting software that tracks inventories in real time. Tally solutions automatically generates reports on stock and tracks inventory across various sales channels.

Features Of A Good Stock Management System

• It should track products and provide real-time inventory visibility across multiple warehouse locations.
• The management system should automatically trigger the purchase order when the stock level falls below the threshold value.
• The advanced software should automatically predict future inventory demand.
• The system should integrate with the existing CRM software and accounting tools of the business.

Techniques And Strategies For Effective Stock Management

A business needs to employ several advanced techniques and strategies to manage its stock effectively.

1. ABC Analysis

ABC analysis categorizes inventory based on its importance and value.

• Class A: They are highly valuable products and require tight control and frequent monitoring.
• Class B items are less valuable than Class A items but still require monitoring.
• Class C items: They are of low value but are present in high volume in the warehouse.

2. Just In Time

This approach focuses on ordering products only when required. The Just-in-Time concept reduces waste and improves a business's cash flow.

3. Economic Order Quantity

It is a mathematical formula that determines the optimal quantity to order at once, preventing overstocking and out-of-stock issues.

EOQ = 2DSH

D = Annual demand

S = Ordering cost per order

H = Holding cost per unit per year.

4. Safety Stock Management

Businesses need to keep safety or buffer stock on hand to meet unexpected market demand for products. It prevents stockouts and order cancellation issues in the business.

5. FIFO And LIFO Methods

FIFO Method: In this method, the oldest inventory is sold out first. It is ideal for pharmaceutical and perishable products.

LIFO Method: Here, the business sells out the new inventory first.

6. Automation And Real-Time Tracking

Modern stock management systems use barcode scanners or RFID tags to track products in real time.

Common Challenges In Stock And Inventory Management

1. Overstocking And Understocking

One of the biggest challenges in stock management is balancing overstocking and understocking. 

Overstocking increases storage costs and raises the risk of obsolescence. Simultaneously, understocking can lead to lost sales opportunities.

2. Inaccurate Demand Forecasting

Inaccurate demand forecasting can lead to incorrect decisions regarding product stocking.

3. Lack Of Real-Time Visibility

A business may struggle to track which inventory is moving slowly or quickly without centralized visibility.

Best Practices To Improve Stock and Inventory Efficiency

• A manual inventory tracking system can lead to human errors and delays in order processing. A business can utilize an automated stock management system to minimize errors and speed up the order fulfillment process.
• Businesses should conduct regular cycle counts to improve data accuracy. Cycle counting involves regularly checking a small portion of stock rather than conducting an annual stock audit at once.
• Businesses should use barcodes or RFID tags to track products stored in their warehouses.
• A business should set reorder points accurately and should restock products at the correct time to avoid out-of-stock issues.
• A business owner should integrate sales, procurement, and warehouse data so that all teams work with the same information.

How To Choose The Right Stock and Inventory Management System For Your Business?

Choosing the right stock management system is highly essential for a business. A business needs to consider several factors when selecting a system.

1. The business should first assess its requirements, determine the stock volume and warehouse locations, and then decide whether it needs a basic or automated system. A small business can benefit from cloud-based tools like Zoho Inventory.
2. A business needs to choose a system that can handle increased stock levels.
3. The system should seamlessly integrate with other business tools, such as accounting software, CRM systems, and warehouse management systems.
4. Look for automation features such as barcode scanning, RFID scanning, and automatic reorder alerts when choosing.

Final Words

Customer expectations have become relatively high when ordering any products from a website. They expect to deliver products as soon as possible. A business can adopt an automated stock management system to expedite order fulfillment processes and minimize errors. This enhances customer satisfaction and strengthens the brand's market reputation.