The global cost of inventory distortion, including overstock, stockouts, and shrinkage, is a staggering $1.1 trillion. This figure is a wake-up call highlighting the critical importance of stock control in supply chain management.
Effective stock management ensures that every part of your business is oxygenated with the right products at the right time. This is where the prowess of stock control comes into play—a skill that, when mastered, can prevent the all-too-common ailments of overstocking and stockouts.
In this blog, we’ll talk about stock optimisation, and different stock control strategies and techniques with examples.
Here are 6 Stock Control Techniques and their Example
1. The Pull Strategy
In warehouse inventory management, the Pull Strategy emerges as a thread, weaving the demand of customers directly into the stock replenishment. This approach is similar to a well-timed process, where each step precisely matches the customer’s demand. This strategy is more or less similar to the just-in-time (JIT) approach, a solution that calls for stock to be pulled through different types of supply chains by real demand rather than pushed by mere forecasts and estimates.
For example, an eCommerce fashion outlet that operates on the JIT principle. Rather than stacking piles of garments in a warehouse based on guesswork, they produce and stock clothing as the trends dictate and order demand.
2. The Push Strategy
Conversely, the Push Strategy is the anticipation of demand, the careful prediction of a future that has yet to unfold. It’s like gazing into patterns of the past to forecast the needs of the future. Businesses use historical sales data to predict what will be needed before the demand wave swells.
For example, an online retailer specialising in holiday decor. By analysing sales data from previous years, they can predict with a reasonable degree of accuracy the surge in demand for festive items. They push the stock into their inventory in anticipation of this seasonal spike, ensuring they’re well-equipped to deck the halls when customers begin their yearly search for holiday cheer.
3. ABC Analysis for Stock Categorisation
ABC Analysis is a cornerstone of inventory management, segregating stock into three pivotal categories. It’s an inventory control technique based on the principle that not all stock is created equal. ‘A’ is the first-tier item, ‘B’ is the moderate tier item, and ‘C’ is the lowest tier item.
For instance, a thriving online electronics store might identify high-end smartphones as their ‘A’ items. These devices are given the utmost priority. ‘B’ items need moderate levels of attention, while ‘C’ items – those that may fill the shelves but don’t significantly impact the bottom line. This tiered approach to stock management ensures that resources are allocated efficiently, focusing on the products that drive the business forward.
4. Economic Order Quantity (EOQ) Model
The Economic Order Quantity (EOQ) model is a mathematical formula. This pivotal stock control technique strategically balances the fine line between ordering too much and too little, striking the perfect equilibrium. To calculate EOQ, one must consider the annual demand, the cost to place an order, and the holding cost per unit per annum.
For example, an online bookstore needs to optimise how many copies of a bestseller to stock. They calculate their EOQ based on their annual sales data, the cost to reorder the books, and the cost of keeping them in stock. By applying the EOQ formula, they can order the optimal number of books to satisfy customer demand without the burden of excess inventory.
5. Vendor Managed Inventory (VMI)
Vendor Managed Inventory (VMI) is where suppliers and eCommerce businesses join forces for mutual success. In a VMI setup, the supplier takes the reins of managing the inventory levels of their products for the eCommerce business. This relationship can lead to reduced inventory costs and improved stock availability.
For example, consider an eCommerce business that specialises in gourmet kitchenware. By allowing the supplier to manage the inventory of high-quality cookware sets, the business ensures it always has the right stock levels to meet customer demands, especially during peak shopping seasons like the holidays.
6. FIFO and LIFO Methods
The FIFO (First-In-First-Out) and LIFO (Last-In-First-Out) methods offer structured approaches to inventory valuation. FIFO is based on the principle that the oldest stock (first-in) gets sold first (first-out), which is particularly beneficial for perishable goods or products with an expiration date.
Conversely, LIFO assumes that the latest items to enter the inventory are sold first. While not as commonly used as FIFO, LIFO can be advantageous for certain types of eCommerce businesses. For example, a company dealing in non-perishable goods like hardware might opt for LIFO, as it can reduce taxable income in times of rising prices by matching recent higher costs against current revenues.
It’s time to turn the spotlight onto your stock control strategies. Are they serving the needs of your dynamic eCommerce business? Do they adapt as swiftly as the market demands? If you grapple with these questions, consider this your clear call. Evaluate your current techniques, measure their efficacy, and embrace the new methodologies we’ve explored.
For effective stock control and to boost your eCommerce logistics, leverage NimbusPost tech-enabled warehouses & fulfillment centers across the globe. With this, your business enables faster same-day delivery, better inventory management, reduced cost, and stock worldwide.