Inventory Control System
Introduction
An Inventory Control System (ICS) is a structured approach used by businesses to track, manage, and optimize stock levels across procurement, storage, and sales operations. It ensures that the right products are available at the right time, in the right quantity, while minimizing costs related to overstocking, shortages, and wastage.
In today’s competitive environment—especially in retail, manufacturing, logistics, and distribution—an efficient inventory control system is not optional; it is essential for operational efficiency and profitability.
Objectives of an Inventory Control System
The main objectives of an inventory control system are:
- Maintain optimal stock levels
- Prevent overstocking and stock-outs
- Reduce inventory holding costs
- Improve order fulfillment accuracy
- Enable real-time stock visibility
- Support decision-making and forecasting
- Integrate inventory with sales, purchase, and accounting systems
Key Components of an Inventory Control System
1. Item Master Management
Stores detailed information about each inventory item:
- Item Code
- Item Name & Description
- Category & Brand
- Unit of Measure (UOM)
- Reorder Level & Minimum Stock
- Purchase and Sale Price
2. Stock Inward (Goods Receipt)
Handles inventory entry when goods are received from suppliers:
- Purchase Orders
- GRN (Goods Receipt Note)
- Batch/Lot Numbers
- Expiry Dates (for FMCG/Pharma)
- Barcode/QR scanning
3. Stock Outward (Issue/Sales)
Manages inventory reduction due to:
- Sales Invoices
- Delivery Challans
- Production Consumption
- Sample or Damage Issue
Each transaction updates stock in real time.
4. Stock Ledger
A chronological record of all inventory movements:
- Opening Balance
- Inward Quantity
- Outward Quantity
- Closing Balance
- Transaction Reference (Invoice, GRN, Transfer)
This ensures audit-ready traceability.
5. Reorder & Stock Alerts
Automated alerts notify users when:
- Stock reaches minimum level
- Fast-moving items are depleting
- Dead or slow-moving stock accumulates
This helps in timely procurement planning.
Inventory Control Techniques
1. FIFO (First In, First Out)
Oldest stock is issued first.
- Best for perishable goods
- Prevents expiry losses
2. LIFO (Last In, First Out)
Newest stock is issued first.
- Used in specific accounting scenarios
3. ABC Analysis
Items are classified based on value:
- A – High value, low quantity
- B – Moderate value
- C – Low value, high quantity
Focus is placed where it matters most.
4. EOQ (Economic Order Quantity)
Calculates optimal purchase quantity to minimize:
- Ordering cost
- Holding cost
Types of Inventory Control Systems
1. Manual Inventory System
- Paper-based or spreadsheet driven
- Suitable only for very small businesses
- High risk of errors
2. Periodic Inventory System
- Stock updated at fixed intervals
- Physical counting required
- Limited real-time visibility
3. Perpetual Inventory System
- Real-time stock updates
- Integrated with POS and accounting
- Highly accurate and scalable
Most modern ERP systems use this model.
Technology Used in Modern Inventory Systems
- Barcode & QR Code Scanning
- RFID Tracking
- Cloud-based Inventory Systems
- Mobile Inventory Apps
- Database Systems (SQL Server, MySQL)
- ERP Integration (Sales, Purchase, Accounts)