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1. Small Business»
2. Running a Business»
3. Inventory Control»

Goals & Objectives of an Inventory-Control System

by Neil Kokemuller; Reviewed by Jayne Thompson, LLB, LLM; Updated March 27, 2019

Related Articles

 1Introduction to Inventory Control

 2Problems With Retail & Over-Inventory
 3Goals of Inventory Management
 4Role of Inventory Systems

Companies that manufacture and sell tangible goods, or resell products from other firms, must track
and manage potentially hundreds of thousands of units of inventory. Using systems to control
inventory units can help companies achieve the goal of inventory management. This includes
objectives such as keeping costs controlled, increasing profits, reducing theft, managing cash flow
and ensuring that the end customer always has a way to get their hands on the products they want
and need.
The objective of inventory management is to provide information. Inventory control systems can
consist of simple spreadsheets for small start-ups to elaborate, detailed computer database
programs for gigantic companies. These inventory control systems track millions of units from the
time they're originally purchased until they leave in the hands of a customer.

Reducing Excess Inventory Costs

A company's optimized inventory level walks a fine line between too much and too little. Many
companies strive to avoid holding excess inventory while simultaneously trying to meet customer
demand. This helps prevent having too much money tied up in inventory that sells slowly, and frees
up capital to reinvest in hot-selling items. Many firms have moved to just-in-time inventory systems
and advanced software solutions to achieve these goals.

Carrying too much inventory in distribution centers or retail stores can become costly because of
storage, transportation and other costs, aside from the amount of money locked up in the stock. It
takes up space, employee time and utility costs, and limits floor space for selling. Additionally, if you
carry perishable items, over-stocking can result in having to discard perishable items or products
with expiration dates if you can't sell them.

Methods for Tracking Inventory Systems

As an objective of inventory control and part of a company's goal to record inventory costs correctly,
various methods exist for tracking inventory units to help with properly accounting for them and for
determining how to store them as well. Using an inventory control system makes it possible to track
inventory using either the LIFO (Last-in-First-Out) or FIFO (First-in-First-Out) methods.
Additionally, inventory tracking can help manage warehouse space, by determining which inventory
units need to be stored for quick access, and which items can be held at a warehouse located further
away, or in the same warehouse but at the back or in a more difficult-to-reach location.

Maximize Overall Profit Margin

Well-managed inventory can become an important key in meeting a company's overall profit margin
objectives. A firm's gross profit margin is the difference between revenue earned from sales and the
cost of goods sold. From there, deduct fixed costs including buildings, utilities and labor and you get
to operating margin.

The goal of inventory control is to track and manage inventory items to highlight slow-selling items,
customer favorites, seasonal products, and items that are vulnerable to theft. Using this information
to plan future inventory purchases while meeting other business objectives can make a significant
difference in a company’s ability to earn a healthy profit and grow the business.

Avoiding Stock-Outs and Lost Sales

Making sure that your customers can buy your products when they need or want to underlies one of
the greatest reasons for inventory control. An effective inventory-control system typically includes a
well-planned replenishment system.

For example, when the software detects pre-determined low-inventory levels at a store location, it
can trigger shipments from your distribution center or from a vendor to your store to replenish the
stock. Given the costs, time and effort put into promoting products to attract customer interest, it
makes sense to control inventory so that you have enough units on hand when they come to buy.

Keep Goods Moving Efficiently

Efficiency in inventory means the ability to quickly receive and store products as they come in and
retrieve and ship when they go out. Every extra second spent in these processes adds to the costs of
inventory management. Tracking inventory and moving it efficiently also means that units don't end
up lost, hidden or stolen without the company's knowledge. Efficient distribution also boosts
customer satisfaction. Retailers expect suppliers to meet their promised delivery timetables, and
customers expect retailers to deliver their orders and products on time as well.
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 References (2)
 Sprocket Express: Inventory Management
 Pepperdine University: 5 Inventory Management Techniques to Implement in Your Business
About the Author

Neil Kokemuller has been an active business, finance and education writer and content media
website developer since 2007. He has been a college marketing professor since 2004. Kokemuller
has additional professional experience in marketing, retail and small business. He holds a Master of
Business Administration from Iowa State University.

Photo Credits
 Jupiterimages/Brand X Pictures/Getty Images
Cite this Article

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