Managing inventory is a constant challenge for retailers, often leading to costly overstocking or frustrating stockouts. In fact, a study from IHL Group estimates that out-of-stocks accounted for a $1.2 trillion loss in 2023.
Without proper stock control, you’re basically gambling with your business’s profitability. Excess inventory ties up capital and risks obsolescence, while understocking means lost sales and disappointed customers.
Ahead, learn how to create a stock control system that improves cash flow and your bottom line.
What is stock control?
Stock control is managing and tracking the inventory your business has on hand. The goal is to keep the right amount of products available—not too much, not too little.
When you have good stock control, you know exactly what items you have, how many of each, and where everything is located. This helps you avoid running out of popular products or ending up with too many items that don’t sell well.
Benefits of stock control
Why invest in improving stock control anyway? Here are three advantages:
- Accurate inventory valuation: Knowing the exact worth of all your inventory helps with financial reporting and compliance. The valuation of your inventory affects both the cost of goods sold (COGS) and profitability, impacting everything from tax liabilities to liquidity management.
- Prevent stockouts and overstock: Out-of-stocks are a trillion-dollar problem, and overstocks contribute to another $562 billion in losses. By maintaining optimal inventory levels, you can avoid these costly issues.
- Improving the production process: Stock control reduces production delays for manufacturers and allows better planning. It can also enhance production with real-time inventory management, predictive analysis, and waste reduction.
Stock control methods
There are many ways to stay on top of your stock. Picking the right one can save you headaches down the road. Here’s a breakdown of the five different stock control methods:
- Economic order quantity (EOQ)
- Vendor-managed inventory (VMI)
- Just in time (JIT)
- First in, first out (FIFO)
- ABC analysis
Economic order quantity (EOQ)
EOQ is a calculation that helps businesses determine the ideal amount of inventory to order. It balances the costs of holding inventory with the costs of placing orders. Retailers with stable, predictable demand for products that don’t expire quickly benefit most from EOQ.
The basic EOQ formula is:
EOQ = sqrt((2DS) / H)
Where:
- D = Annual demand quantity
- S = Fixed cost per order
- H = Annual holding cost per unit
Good things about EOQ
- Cuts down on costs
- Gives you a clear plan for ordering
- Helps avoid running out of stock or having too much
Limitations
- It assumes demand stays the same (which isn’t always true)
- Doesn’t account for quantity discounts
- May not be suitable for items with short shelf lives
Vendor-managed inventory (VMI)
VMI is where the supplier takes full responsibility for maintaining the customer’s agreed inventory level. The vendor has access to the customer’s inventory data and is responsible for generating purchase orders.
With VMI:
- The customer provides vendor with access to inventory data
- The vendor monitors stock levels
- The vendor replenishes inventory as needed
- The customer is billed for consumed inventory
If you have a strong, long-term relationship with suppliers and consistent demand, VMI could be a good option for stock control.
Good things about VMI
- You spend less time managing stock
- You’re less likely to run out of stock
- You don’t tie up as much money in stock
Limitations
- You need to trust your supplier a lot
- It can be tricky to set up
- You might depend too much on one supplier
Just in time (JIT)
JIT is an inventory strategy that involves receiving goods only as they are needed in the production process. The goal is to minimize inventory levels and reduce waste in production.
Good things about JIT
- You spend less on storing stock
- You have more cash available
- You can spot problems faster
Limitations
- If your supplier is late, you might run out of stock
- You need to be good at predicting what you’ll need
- It can cost more to transport small amounts often
First in, first out (FIFO)
Under FIFO, the oldest stock is sold first, which is useful for businesses with perishable goods or where prices are stable or rising. It’s useful when inventory turnover is low and prices are rising, because it inflates profits by recording lower costs against high sales prices.
Good things about FIFO
- It makes sense—old stuff goes out first
- It’s good for things that can go bad
- It often shows higher profits
Limitations
- It can mean paying more taxes when prices are going up
- You need to keep detailed records
ABC analysis
ABC analysis helps you focus on your most important stock. It’s popular for businesses with a wide range of inventory items varying in value and importance, particularly in wholesale, retail, or manufacturing settings with diverse product lines.
Here’s how it works:
- Calculate the annual consumption value for each item (unit cost × annual usage).
- List items in descending order of annual consumption value.
- Calculate cumulative annual consumption value and percentage.
- Assign categories:
- A items: Top 70%–80% of annual consumption value
- B items: Next 15%–25% of annual consumption value
- C items: Remaining 5% of annual consumption value
Good things about ABC analysis
- You pay most attention to important items
- You can save money on managing less important items
- It helps you decide how much of each item to keep
Limitations
- It doesn’t consider how critical an item might be
- You need to update it regularly as things change
How to improve stock control
Whether you’re running your first or fifth retail store, keep the following tips in mind to improve stock control:
- Invest in inventory management software
- Optimize stock levels
- Conduct regular audits
- Partner with reliable suppliers
- Predict future demand
- Improve order management
- Have a safety stock
- Partner with a 3PL
1. Invest in inventory management software
Good inventory management software can help you handle stock more effectively. As products are sold or new shipments arrive, the software updates your inventory automatically. That way, you’ll always know exactly what you have available.
Inventory software can also:
- Set up automatic reorders when supplies get low
- Generate reports on sales trends and stock turnover
- Track items across multiple locations
- Integrate with your sales and accounting systems
For retailers, your point-of-sale (POS) will have inventory management features built-in.
Shopify POS offers a unified inventory management system that provides real-time visibility into stock levels across all channels, warehouses, and retail locations. Centralizing all your data helps improve inventory forecasting, reduces manual work, and minimizes errors in order fulfillment.
It integrates online and in-store sales, supports flexible fulfillment options, and manages returns, so you can maintain inventory accuracy and provide a seamless shopping experience for customers.
2. Optimize stock levels
Finding the right balance of stock is key. You don’t want too much, which ties up your money, or too little, which can lead to shortages. Shopify’s inventory management features can help you maintain optimal stock levels by:
- Tracking the quantity of each product available for sale
- Avoiding selling products that are out of stock
- Identifying when you need to reorder or produce more items
If you have Shopify POS Pro, you can use Stocky to track stock amounts, forecast inventory, and suggest reorder quantities.
If you have a large number of SKUs, take advantage of Shopify’s bulk editing feature or CSV file imports to efficiently manage inventory levels. This way, you can quickly update stock levels across multiple products.
💡 Download the Stocky Shopify app for your store.
3. Conduct regular audits
Regular inventory audits help you spot problems before they become serious. Set aside time, maybe monthly or quarterly, to physically count your stock and compare it to your records.
If you use Shopify POS Pro, you can perform stocktakes to count your inventory and make adjustments. Shopify POS Pro allows you to:
- Do manual stocktakes for smaller inventories
- Use a barcode scanner for larger inventories or quicker counts
- Choose between full stocktakes or partial stocktakes for specific product subsets
- See any changes made during a stocktake automatically reflected in your Shopify inventory
You can also better understand your stock with Shopify’s inventory reports, like:
- Month-end snapshots and daily sales averages help you track overall inventory health
- ABC analysis categorizes products based on their contribution to your revenue
- Sell-through rates and “days of inventory remaining” forecasts help you predict future stock needs
Inventory audits are a great opportunity to clean up your inventory, reorganize storage, and make your records spot-on. With Shopify’s features, this process becomes more manageable and insightful, allowing you to make better inventory decisions for your business.
4. Partner with reliable suppliers
Your suppliers can make or break your stock management efforts. Think of them as teammates rather than just vendors. The right partners will do more than just deliver products, they’ll help your business run smoother and grow faster.
When evaluating suppliers, look for these qualities:
- Consistent on-time deliveries
- Flexibility to adjust orders when your needs change
- Willingness to share information about potential supply chain issues
- Competitive pricing without compromising on quality
Building strong relationships with your suppliers can lead to numerous benefits. They might offer you better payment terms, priority during product shortages, or insights into industry trends.
📚 Read: How To Find a Manufacturer or Supplier for a Product (2024)
5. Predict future demand
Understanding what your customers will want in the future helps maintain optimal stock levels. Shopify’s demand forecasting tools allow you to estimate how many orders your business will receive in the coming weeks or months. This takes into account various factors that can impact your sales, including:
- Upcoming promotions or sales events
- New product launches
- Product discontinuations
- Seasonal trends
By using Shopify’s sales, inventory, and marketing reports, you can track your sales amounts and order trends. These reports provide valuable data such as:
- Sales over time
- Average inventory sold per day
- Sales attributed to marketing
For businesses just starting out, begin demand planning once you have at least eight weeks of consistent weekly orders. After a year, you can start forecasting for seasonality.
6. Improve order management
Make your ordering process smoother. This could mean setting up automatic reorders for items you always need or creating a clear system for approving purchases. A well-organized order process helps prevent mistakes like ordering too much or forgetting to restock important items.
Shopify’s Orders page in your admin dashboard is your central hub for order management.
Here, you can:
- View, edit, and process orders from all your sales channels
- Print packing slips and shipping labels
- Export orders for your records or analysis
For retail store owners using Shopify POS, orders made in-person are automatically synced with your online store, giving you a unified view of all your sales.
Shopify’s order management system also includes a Timeline feature for each order, allowing you to view the detailed history of an order, add notes, and communicate with staff. This is useful for tracking complex orders or resolving customer issues.
7. Have safety stock
Think of safety stock as an inventory insurance policy. It’s the extra buffer you keep on hand to protect against unexpected events, like a sudden spike in demand or a supplier delay. Without it, you risk disappointing customers and losing sales.
To determine how much stock you need, consider:
- How variable your sales are (more variation = more safety stock)
- How reliable your suppliers are
- How long it takes to receive new stock
- The cost of holding extra inventory vs. the cost of stockouts
For example, if you typically sell 100 units of a product each month, you might keep an extra 20 to 30 units as safety stock. This gives you a cushion if sales suddenly increase or if your next shipment is delayed. Just be careful not to overdo it, as too much safety stock ties up cash and storage space.
8. Partner with a 3PL
A 3PL (third-party logistics) company manages order fulfillment for your business. These companies specialize in storing, managing, and shipping products, often with more efficiency than you could achieve on your own. They are helpful as your business grows and your inventory needs become more complex.
A good 3PL can offer:
- Advanced warehouse management systems
- Economies of scale in shipping and storage
- Expertise in inventory optimization
- Ability to scale operations up or down quickly
- Multiple warehouse locations for faster shipping
Shopify Fulfillment Network (SFN) is a service that partners with Flexport to manage inventory and fulfill orders for Shopify merchants. It allows merchants to send their inventory to a single location, from which Flexport distributes products across its network of fulfillment centers, optimizing placement based on customer demand and locations.
SFN helps with inventory control by providing real-time tracking, automated distribution, efficient restocking of returns, and data-driven insights, all managed directly from the Shopify admin interface.
💡 Calculate your fulfillment and storage costs and see if a 3PL is best for you.
Find the best stock control system for you
Efficient stock control can make or break your retail business. The best system isn’t just a software tool, but a partner who understands your inventory management needs.
With real-time tracking, demand forecasting, and automated reordering, Shopify’s tools like Stocky and unified POS systems help optimize stock levels and prevent stockouts. These features can help you minimize holding costs, maximize profits, and stay competitive in the retail landscape.
Stock control FAQ
What do you mean by “stock control”?
The term “stock control” refers to the management and oversight of a company’s inventory levels. It involves tracking the quantity of goods on hand, monitoring stock movements, and maintaining optimal inventory levels to meet customer demand while minimizing holding costs.
What is the main rule of stock control?
The main rule of stock control is to maintain the right balance between having enough stock to meet customer demand and avoiding excess inventory that ties up capital. It aims to minimize stockouts while preventing overstocking, which can lead to increased storage costs and potential waste.
What is the best method of stock control?
The best method of stock control depends on the specific needs and characteristics of a business, but many businesses find success with just-in-time (JIT) inventory systems. With JIT, items are only received when required in the production process or for sales, which reduces storage costs and improves efficiency, though it requires careful inventory planning and reliable suppliers to achieve this. Smaller retailers might use manual stock control methods with stock cards and spreadsheets if they don’t move a lot of inventory.
