Inventory

Control
Guide

www.bluecart.com
Table of
Contents
Table of Contents

Chapter 1: Inventory Control 04

Chapter 2: Inventory Management 09
Chapter 3: Inventory Tracking 14
Chapter 4: Inventory Auditing 18
Chapter 5: Dead Stock 22
Chapter 6: Product Lead Time 25
Chapter 7: Reorder Points 29
Chapter 8: Economic Order Quantity 32
Chapter 9: Inventory Forecasting 36
Chapter 10: Inventory Control Manager 40

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Inventory control is a vital part of any business. 

It is also one of the key ways a business can keep its costs low.
This in turn can lead to  higher profit margins and increased sales. 

If you’re an inventory control manager or looking to become one,

understanding how to  control inventory is paramount. 

Read on to get a better grasp on all aspects of inventory control and

management and  how you can use them to make your business grow. 
Inventory
Control 1: Inventory Control

If you don’t take control over your inventory, your inventory will control you.

The success of your business depends on how you purchase, store, sell, and
deliver your inventory. Dedicating time and resources to this process is vital to
long-term growth.

So what is inventory control?

Inventory Control Definition

Inventory control is the process of maintaining a business’s stock level to meet
customer demand and minimize costs. This involves inventory tracking and
maintenance of goods. It also includes making decisions to get the most profit
out of your stock and planning purchases.

Example of Inventory Control

Inventory control can feel like an overwhelming task, but it doesn’t have to be.
Here’s an example of how it can work.

Let’s say that you’re an inventory manager and you discover that you have a
batch of products on hand that aren’t selling. This dead stock takes up valuable
space in your inventory and is nearing the end of its life cycle.

As an inventory control manager, you need to find a way to turnover these

products. One option would be to bundle them with more in-demand products in
a subscription box using a subscription box platform. This is known as product
kitting, and is just one of many options open to you when practicing inventory
control.

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Synonyms for Inventory Control
There are many different terms for the process of inventory control. Here are just
a few you may come across in your travels:

● Inventory management

● Stock management

● Control of goods

● Material control

● Stock keeping

● Assets management

● Stock control

● Warehouse management

The Primary Objectives of Control Over

Inventory Are Twofold
The two primary objectives of inventory control are safeguarding the inventory
from damage or theft and reporting inventory in the financial statements. These
are accomplished by using a variety of control methods to maintain and turnover
inventory each day.

Purpose of Inventory Control In a Warehouse

Inventory control is the most important aspect of warehouse management. It
ensures the warehouse operates smoothly while keeping costs low and meeting
customer demand. Every aspect of stock must be tracked and this data can be
used to make a variety of decisions.

The Application of Inventory Control

Applying inventory control in your business requires investing time and
money into inventory management. This can be done by purchasing inventory
management software or by manually taking inventory. Either way, you can
apply the information gained by looking at inventory levels and trends to plan
for purchasing, controlling, and shipping goods.

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Important Considerations in Inventory Control
There are four major considerations for businesses looking to take control of their
inventory. These considerations will help determine the best control methods and
inventory management programs to use.

1 Inventory analysis and purchasing. Inventory must be tracked and

evaluated regularly to ensure your supply can meet demand. It also
advises the manager on what and when to replenish stock.

2 Product distribution. The ways products are categorized for distribution

can make recording inventory much easier. This can also allow you to
discover discrepancies like dead stock more quickly.

3 Production evaluation. Production costs and efficiency need to be

considered regularly for any manufacturer. This will let you make any
necessary adjustments and increase sales.

4 Tracking and forecasting. Inventory tracking and forecasting will ensure

you can meet demand and avoid issues like backorders. This is done
through the creation of algorithms and constant vigilance.

Inventory Control Function

Inventory control is closely associated with the function of purchasing. Ordering

products, storing, and maintaining them are the main goals of any inventory
control manager.

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Why Do We Need Inventory Control?

Inventory control is a vital part of any business’s operations and has a major
impact on their ability to make a profit.

Here are four major reasons you need inventory control:

● Boost inventory efficiency. Your products may be all over the warehouse
making picking and packing take much longer than needed. Inventory
control lets you discover and optimize this and many other issues to
increase efficiency and streamline your processes.

● Ensure accurate inventory counts. Inaccurate inventory causes

headaches and increases cost. Inventory control gives you insight
into inventory numbers and helps determine reorder points and sales
trends.

● Increase sales and mitigate losses. By eliminating undesired products

and keeping a buffer stock, you can always be prepared to meet demand
and make money.

● Ensure customer satisfaction. Customers hate when products are out of

stock or on backorder. Controlling your inventory lets you avoid these
issues and keep your customers happy.

Why Is Inventory Control Important to Managers?

Storing inventory has many associated costs that a manager needs to keep
under control. Without inventory control, a business’s warehouse can quickly
become a problem. By allowing inventory to move about with no interference,
a manager risks running into skyrocketing costs and plummeting profits. This in
turn will lead to the loss of their job and possibly the closure of the business.

Inventory Control System and Software

One of the best ways to take control of your business’s inventory is to invest in
inventory management software. This software tracks inventory levels, sales
trends, and inventory cycles. There are many options on the market with a
variety of capabilities and additional tools.

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Most of these programs can be tied to your POS system to provide a perpetual
inventory count. This updates your inventory levels each time a sale is made.
This lets you make the most informed decisions and calculate optimal reorder
points, plan for product lead time, and more.

Automated Inventory Control

Automated inventory control takes a perpetual inventory count to the next level
and makes decisions using a set of predetermined rules. This feature is built into
some of the best inventory control software and allows you to take a more hands-
off role.

Here’s an example of how this automatic inventory control can work. If you
have a particular product that you always want to keep in stock, you may set
a minimum supply threshold for reorder. Once you hit this number, the system
automatically sends a new purchase order to your manufacturer.

Inventory Control Sheet

An inventory control sheet is a spreadsheet containing information about

the goods in your inventory. This generally includes inventory levels, storage
capacity, order and reorder dates, and unit prices. There are many other
variables that may also be tracked depending on a business’s inventory model.
Many inventory management programs come with built-in control sheets.

Now that you have a better understanding of inventory control, let’s look at its
partner inventory management.

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Inventory
Management 2: Inventory Management

What methods do you use for inventory management? Do you have an

inventory management and control system?

If you don’t have answers to these questions, you’re not making the most
informed decisions for your inventory. This means you’re spending more on
storage and making less profit.

Adopting new inventory management methods can help you eliminate waste
and focus on growing your business.

What Is Inventory Management?

Inventory management is the process of reducing inventory management costs
and optimizing your ability to meet customer demand. This can be done using a
variety of inventory management methods like reducing dead stock or calculating
optimal reorder points.

This most important part of inventory management is that it requires a dedicated

focus on inventory tracking. You can take inventory manually or you can invest in
an inventory management system.

Inventory Management System

An inventory management system is a system that manages every aspect of a

company’s inventory. This includes buying, shipping, tracking, storage, turnover,
and reordering. This type of all-in-one inventory management software can be
integrated into your POS system to provide a perpetual inventory count.

Process of Inventory Management

Inventory management requires creating and following a simple set of
processes. Once established, these processes limit the chance of improperly
managing your inventory. Before building your plan, you must first understand
the steps that inventory goes through.

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Steps in Inventory Management Process

There are eight inventory management process steps that all inventory plans
are built around. Here are those steps.

1 Product is delivered to your facility. This is the point at which goods

first enter your inventory.

2 Product is inspected, sorted, and stored. You may choose to use

cross docking or another strategy for this, whatever works best for your
storage space.

3 Inventory levels are monitored. This can be through physical inventory,

cycle counts, or a perpetual inventory software.

4 Customer orders are placed. Customers may make a purchase in person

or through your digital storefront.

5 Customer orders are approved. This is likely an automated process in your

POS system. If you participate in dropshipping, this would be the point
where you pass the order along to your supplier.

6 Products are taken from stock. These goods are packaged and shipped
or delivered directly to the customer.

7 Inventory levels are updated. A perpetual inventory program will

change your stock levels automatically. You can also manually record
each sale or discover changes when you take a physical inventory.

8 Stock levels trigger reordering. Calculating your reorder point for each
product you sell can optimize this step and get you the goods you need to
meet demand. This is a major component of the just in time inventory
model.

Determine Inventory Management Process Flow

These eight steps can be done more efficiently with a properly managed inventory
process flow. Each step can be optimized by tracking and reviewing each step.
You can eliminate waste, discover flaws, and reallocate resources to any step that
needs it to increase your profit and limit your costs.

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Create an Inventory Process Map

An inventory process map is a flowchart that shows every step in your inventory
program. Though the eight steps are fairly standard, there are many variables
that are specific to your businesses. By mapping out all steps and options, you
can always be prepared for any changes in supply or demand.

For example, if an order comes in and you’re out of stock, you need to know
what to do. Your inventory process map should include your business’s preferred
method of dealing with this situation. It may be placing a backorder or refunding
the customer. You can even include on your map that you do both depending on
the item’s value.

Inventory Management Methods

Inventory management methods, or inventory management techniques, are
tools you can use to better track your inventory. These run the gamut from
ordering products to shipping methods and each offer unique benefits if done
correctly. Managing your inventory levels is paramount in achieving the most
profit and ensuring you can fulfill your customers’s orders.

Explain the Various Techniques of Inventory Management

The four major devices of inventory management are ABC inventory analysis,
economic order quantity (EOQ), buffer stock, and reorder points. These devices
are ways of ensuring your supply of goods is sufficient for meeting customer
demand. They offer their own benefits based on the business you operate.
Here’s a brief guide on each of them.

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ABC analysis evaluates the value of all goods in your inventory. This allows you
to reallocate resources and put your effort behind your best items. EOQ is an
inventory model that determines the ideal order quantities to minimize storage
costs. Buffer stock is an additional supply of goods that you keep on hand in the
event that demand increases quickly. Reorder points are the precise point that
you should reorder products to meet demand without holding more goods than
necessary.

Kanban Method of Inventory Management

The kanban method of inventory management is an inventory scheduling system

that keeps inventory levels minimal. It is built around “bins” which separate the
materials used in production. This is a major component of the just in time, or
lean manufacturing, model. It only allows you to keep just enough supplies on
hand to fulfill active orders. Each time a new order is placed, you then receive
a delivery of the components needed to fill it.

Here’s an example of how the kanban method works. Let’s say you operate a
meat packing plant. Under the kanban method, you only want to keep enough
meat and packaging materials on hand to fulfill the orders you already have. So,
when a new order for 500 lbs of beef comes in, you use the meat and supplies
on hand first. Once this “bin” of materials are used, you place an order with your
supplier to finish filling the order. This is repeated as needed every time an order
is received.

Internal Audit of Inventory Management Process

Managing inventory requires auditing inventory management processes

regularly. Whether monthly or weekly, you need to keep a close eye on your
inventory processes. Any anomalies or wasted efforts can be caught quickly
and any losses can be mitigated. This can be achieved by doing an inventory
management assessment.

Inventory Management Assessment

An inventory management assessment is an evaluation of the efficiency and

practices in your inventory process flow. There are tools on the market you can
use for this and some inventory management software have one built in. If not,
you can evaluate your processes by using your physical inventory counts to
discover stock level issues. You should also review your process map to
ensure all variables are accounted for and processes are followed.

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How to Improve Inventory Management Process

There are many ways you can improve your inventory management and get
the most out of your inventory.

Here are a few options:

● Coordinate with suppliers. The better relationship you have with your
suppliers, the better your inventory management. If you communicate
demand changes and product needs regularly, they can ensure you’re
always supplied.

● Hire an inventory control manager. A dedicated person to manage

inventory will always be better than someone with multiple
responsibilities. This person can stay on top of supply issues and react
more quickly than you may be able to.

● Track product lead time. Product reordering can best be timed if you
know the lead time to expect. This will also help you avoid running into
issues with meeting customer demand.

● Purchase inventory management software. The larger your inventory

gets, the harder it will be to manually track. Inventory management
software is a great option for lowering your workloads and increasing
profits.

The most important part of any inventory control manager’s job is proper
inventory tracking.

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Inventory
Tracking 3: Inventory Tracking

“Now where did I leave that inventory,” you say as you walk dazedly through
your warehouse.

That scenario is a bit dramatic, but it can certainly feel that way when you discover
your inventory numbers are off. Properly tracking inventory usage and variance is
key to making the most out of your products.

Luckily, it doesn’t have to be as hard as it seems. Here’s how to do it.

How to Keep Track of Inventory

Keeping track of inventory requires investing time, energy, and money. Inventory
tracking is one of the most important inventory control methods. It can also be one
of the most labor-intensive, so it’s vital that you stay on top of it.

Inventory levels influence all decisions you make and can quickly increase or
decrease your revenue. They can be tracked manually or perpetually. We’ve
broken out how these work below.

How to Track Inventory

The simplest way to track inventory is to manually count your inventory every
two weeks and compare the numbers versus sales. That’s known as periodic
inventory.

There is also perpetual inventory, where an inventory management app or

software is used and integrated into your business’s POS. This gives you access
to your inventory data at all times and lets you have more control over inventory
tracking.

There are a number of inventory tracking programs and tools that you can use to
better understand your inventory levels. Only you can determine what is best for
your business.

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Keeping Track of Inventory Best Practices

There’s no one best way to track inventory, but there are a few best practices
that all businesses should adopt.

Here are six ways you can make inventory tracking easier for your business.

● Establish KPIs. You need to set specific goals for your inventory,
otherwise you simply have goods sitting around with no plans. Inventory
turnover ratio, inventory costs, and reorder points and frequency are all
good places to start.

● Use ABC inventory analysis. This analysis will give you insight into the
value of your inventory. With that information you can prioritize the stock
that is most important to your bottom line.

● Keep a buffer stock on hand. Buffer stock, or safety stock, is additional

inventory you keep in case demand suddenly rises. This allows you to
fulfill orders and avoid backordering.

● Optimize your inventory cycle. The speed at which your stock sells, or
turns over, is vitally important to understand. This will help you plan
reorders and avoid stocking items that don’t sell quickly.

● Use the FIFO inventory method. The first-in-first-out inventory costing

method is where your business sells inventory in order of arrival. It
allows you to rotate stock more quickly and avoid products expiring or
going bad in storage.

● Increase packing efficiency. Picking and packing is a time-consuming

practice that causes and is a result of poor inventory management. Look
at where products are located in the warehouse and move them as
needed for ease of access. You can also look into product kitting if there
are multiple SKUs that often sell or ship together.

Inventory Tracking System

An inventory tracking system is any dashboard, software, or program that tracks
inventory levels in real-time. This type of inventory management is known as
perpetual inventory and lets you access data on the fly.

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Inventory Tracking Software

Inventory tracking software is a digital program or application that provides a

perpetual inventory count. It is generally integrated into your POS and updates
instantly every time an item is scanned as it’s sold or shipped.

Inventory software requires an up front investment and a monthly payment to

use. It also takes a large time investment to integrate the software and provide
an initial inventory count. However, it offers many long-term benefits to a
business and eliminates the need for full, physical inventory counts every month.

How to Track Inventory Manually

To track inventory manually you’ll need to physically take inventory at least twice.
Once to establish baseline stock levels and again to determine usage. These two
inventories are usually taken on the first and last days of the month.

Manual inventory tracking is much more labor-intensive than using tracking

software, but can still make use of technology. This is by making use of a
spreadsheet to track the data you collect.

Inventory Tracker Excel: Inventory Tracking Spreadsheet

Manual inventory is best tracked using an inventory tracking spreadsheet.
You must keep track of initial inventory, ending inventory, and received inventory.
This will allow you to determine usage and shrinkage rates.

Ideally, you will bring a laptop or other portable device with you during the
inventory to update it as you go. However, you can also print out a sheet and
write in your data.

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How to Keep Track of Inventory in Excel

To keep track of inventory in excel, you first need to build out an inventory
tracking spreadsheet. To start, set aside enough time to take a full, manual
inventory. Bring the spreadsheet with you and note each item counted. Then,
at the point you want to discover usage, repeat the process. Next, add in any
inventory received in between the two inventories. Finally, compare the data
in the spreadsheet against sales data to determine any waste or incorrect
information.

After tracking and counting inventory, a manager’s next step is to perform

an inventory audit to confirm the data.

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Inventory
Auditing 4: Inventory Auditing

Inventory auditing is one of the most important tools an inventory control

manager can use to maintain inventory and uncover issues. Once you have
the know-how and the right tools you can become an auditing master.

What Is an Inventory Audit?

An inventory audit is a process where a business cross-checks its financial
records against its inventory records. It is a vital part of inventory management.
It is done to ensure all records are accurate and uncover any discrepancies in
inventory count or financial records. These audits can also help with inventory
forecasting.

How to Conduct Inventory Audit

Conducting an inventory audit requires accurate and current data from a
variety of sources. This may include inventory counts, sales records, shipping
manifests, or other records. Inventory tracking is key in ensuring audits can be
done with complete and accurate information.

Though there are many forms of inventory auditing, the workflow is mostly the
same. You must acquire two records that should reflect the same inventory
numbers. Then check them against each other to discover if they do match.
If not, flag the areas with issues and look into any problems that arise like
missing inventory, damaged product, or inaccurate sales figures.

There are also many smaller procedures that may be a part of the inventory
audit workflow.

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10 Audit Procedures for Inventory

Inventory audits can be completed by using a variety of audit procedures.

Here are ten of the most common audit procedures:

1 Physical inventory counting. This is the most common way to perform

an inventory audit. It involves physically counting every item in your
inventory and comparing the numbers against the numbers in your
system. This is easier for businesses that use a just in time inventory
method or regularly calculate their economic order quantity.

2 Cycle counting. Similar to physical counting, cycle counting involves

manually counting a number of products and comparing them against
your system. However, cycle counts are performed regularly on only
a select number of products. This means you can audit your most
valuable products much more often and avoid issues like inventory
shrinkage.

3 ABC inventory analysis. ABC analysis is a process where you group

different items by their value. This allows you to store and audit only the
particular groups you want.

4 Cutoff analysis. With this analysis, you halt all operations at the time
of the physical inventory count. This ensures there can be no mistakes
of uncontrolled variables.

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 5 Analytical procedures. Here, you compare your inventory turnover ratio,
gross margins, or unit costs with the data from previous years. This lets
you catch any sudden increases or volatility.

6 Overhead analysis. An overhead analysis is an audit of all non-material

expenses. This includes rent, utilities, salaries, and other “hidden” costs
associated with inventory.

7 Finished goods cost analysis. This method is ideal for manufacturers

and producers. All products are accounted for and values upon
completion to ensure financial statements are accurate.

8 Freight cost analysis. This analysis evaluates the amount you spend
on shipping costs and the lead time involved. It also accounts for losses
and damage incurred during transit.

9 Shipping invoice matching. Auditors often perform this inventory audit at

random. It involves matching the cost of inventory shipped with the
number of products shipped. It verifies that no products are shipped for
the incorrect amount of money.

10 Product reconciliation. If you discover issues during your inventory

count, you need to investigate to reconcile products. This will let you
track what SKUs are likely to have errors in the future.

Inventory Auditing Standards

Inventory audits are only as good as the standards applied to them. On the
financial side, standards are set by the IRS and SEC. If you are not accurately
reporting the value of your inventory or sales, you can be fined or worse.

On the warehouse side, standards must be established by the business itself.

There is no legal punishment for failed inventory audits, but they can have a
negative impact on your business. If you have no standards, you cannot expect
to achieve the results you want.

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There are two rules that make inventory audits easier and more accurate.

Here they are:

● Pick the audit types you’ll use and do them regularly. From the list of ten
above, pick one or two and make them a part of your monthly or weekly
workflow. This way you can discover problems sooner and avoid having
to train employees on new audits as you perform them.

● Practice proper inventory control. Inventory audits are useless if you’re

not actively tracking and recording the movement of your products. Make
sure all warehouse activity is being tracked so that you can easily access
and compare numbers.

Physical Counts of Inventory

Physical counts of inventory are necessary to measure and adjust for inventory
shrinkage. If you are using auditing measures that are focused on other data
or have a perpetual inventory system, you may uncover some discrepancies.
Physical inventory counts are the only way to guarantee to verify these numbers
and ensure that shrinkage is accounted for.

Inventory audits can uncover a number of issues with your inventory. One of the
biggest is the problem of dead stock.

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Dead
Stock 5: Dead Stock

Dead stock is an issue that many businesses find themselves faced with.
It takes up warehouse space, loses value, and interferes with a business’s
ability to make money.

So, what exactly is dead stock and how do you deal with it?

Dead Stock Definition

Dead stock is any unsold inventory that sits in storage for a long period of time.
These goods are not expected to be sold in the near future. They were not
ordered with the intention of storing them for a long time, as in the case of buffer
stock. This makes dead stock a drain on warehouse resources.

Dead stock continues to depreciate in value and may eventually expire or

become obsolete and have to be written off as a loss.

Example of Dead Stock

Dead stock is not the same as inventory with a long life cycle. It was never
intended to sit for as long as it has. It is likely the result of overbuying, inaccurate
demand forecasting, or poor sales strategies.

To help clear things up, here’s a brief example of dead stock:

Let’s say you’re a food wholesaler and you ordered 200 sacks of potatoes for
resale. Your demand forecast shows that you can expect to sell them within two
months.

Unfortunately, demand for those potatoes unexpectedly dropped and you can
only sell 50 sacks in those two months. Due to a new health food trend, revised
forecasting shows that sweet potatoes have stolen most demand for potatoes.
As such, you can’t feasibly sell the remaining 150 any time soon.

This remaining balance is now considered dead stock. These potatoes are now
a drain on your warehouse and may even go bad before you can offload them.

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Dead Stock Inventory Management

Dead stock inventory control consists of selling what product you can and finding
ways to minimize the expenses accrued by dead stock. An inventory manager
needs to determine the causes of their dead stock.

One thing that can lead to dead stock is poorly managed lead times and reorder
points. This can cause customers to cancel their orders and stock that was
expected to be sold left sitting in the warehouse.

Inventory tracking is also a vital part of managing and eliminating issues with dead
stock. It will also allow you to determine the correct amount of goods to order in the
future and recognize sales trends and inventory cycles.

How to Account for Dead Stock in Balance Sheet

An unfortunate effect of dead stock is that it will stay in the debit column of the
balance sheet. This is unlike regular inventory which turns over regularly and will
leave the debit column when sold.

Dead stock must be accounted for each month it sits in inventory until it is
gone. That is, until it is finally offloaded or written off as a loss. This lowers your
profitability each month and highlights the importance of eliminating dead stock.

Dead Stock Analysis

Dead stock analysis is an inventory measurement tool that determines the amount
of inefficient stock in storage. It is a common part of most inventory management
software. It is determined by comparing the expected and average life cycles of
products against their actual time in inventory. If a good has passed the expected
time for turnover, it risks becoming dead stock.

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How to Get Rid of Dead Stock

Getting rid of dead stock isn’t easy. If it was it wouldn’t have become dead in
the first place.

Here are a few ways you can move that product.

● Start product kitting. Kitting is a great option for products that aren’t
selling. By bundling them with similar goods or products with more
demand, you can offload them more easily. In particular, you can work
with a subscription box company and get your goods bundled with similar
products from other companies.

● Offer discounts. The most common way to sell unwanted goods is to

lower their price. Create a sense of urgency with a limited-time sale and
push as much of the stock as you can.

● Transfer the goods to another store. If you own multiple locations, moving
them to another location is a viable option. Demand can vary greatly by
location and you may be able to sell more stock in another area.

● See if your supplier will take them back. Some suppliers will include in
their contract that they’ll take inventory back if they don’t sell by a certain
point. You may have that deal already and not know it or your supplier
might be willing to sign a new contract.

● Make new connections. If you’re a wholesaler, building relationships

and finding new customers is a great way to sell dead stock. The
BlueCart Digital Storefront is a perfect way to do that.

Dead Stock Report

A dead stock report is an inventory count of all goods in your inventory that are
considered dead stock. This report can be created by taking a full inventory and
comparing products’ time in inventory against expected life cycle. If you use
software that provides a perpetual inventory count, there is likely the ability to
export a dead stock report.

This report can give you insight into what products are in danger of expiring and
allocate resources to sell or offload them. It can also highlight issues that are
contributing to dead stock like long lead time.

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Product Lead
Time 6: Product Lead Time

Lead time is one of the most important measures in inventory control. It affects
all businesses within a supply chain and can cause major issues if it gets out of
control.

Calculating, understanding, and acting on changes in lead time allows a

business to prevent losses and fulfill orders quickly and efficiently.

What Is Lead Time?

Lead time is the amount of time that goes by from the start to finish of any given
process. In business, this means the amount of time that passes between a
customer placing an order and the products getting to them.

Manufacturing Lead Time

Manufacturing lead time, or production lead time, is the amount of time between
a merchant placing an order and the manufacturer completing it. This includes the
time taken to procure supplies, manufacture, and ship the goods.

Lead Time in Supply Chain

Total lead time is affected by every step within a supply chain. Production takes
time, shipment takes time, and any other intermediary steps take time. As such,
lead time in inventory management needs to be monitored and planned for.

Lead Time ARO

ARO, or after receipt of order, is the point that the supplier receives the order. This
essentially starts the clock on production and is the first important number when
measuring lead time. Any actions taken between ARO and the delivery of goods
are a part of the lead time for that order.

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Why Long Lead Time Is Bad
Long lead time can cause a number of problems that interfere with a business
being able to fulfill orders. No matter where a business is in the supply chain,
lead time issues are a headache.

For retailers, long lead time means a loss of sales and angry customers. On the
manufacturing front, long lead time can cause production to halt entirely. It also
leads to increased lead time for the retailers and strains relationships. Every
additional day that goods are delayed, money is lost.

Working Toward Lead Time Reduction

Lead time reduction takes time, energy, and data, but can help your business
improve its sales and fulfillment capability. The most important factor when trying
to reduce lead time is to look at your historical data. These numbers can help
you determine average lead times and help you discover where lead times are
increasing so you can head them off.

There are a few ways you can use this information to reduce your lead times.

● Change suppliers. Your lead time may be increasing due to issues with
your supplier. If they can’t get it under control, it may be time to look
elsewhere.

● Reorder more often. Another likely cause of lead time increasing is

waiting on shipments to arrive. This is especially common if you order
via bulk shipping. It may be worth ordering smaller batches more
frequently. That requires adjusting your reorder point formula.

● Share sales forecasts with your supplier. If you are predicting a massive
increase in sales in the future, let your supplier know. They can change
their plans and begin working on production sooner to ensure you get the
goods you need.

● Try product kitting. Kitting is a great way to consolidate orders (sometimes

otherwise dead stock) and limit the amount of time it takes to pick and
ship products. This in turn lowers your lead times.

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Importance of Lead Time in Inventory Management

Understanding and controlling lead time is paramount in inventory management.

Lead time affects each step in the supply chain and can cause all operations to fall
behind.

This can cause further delays with subsequent orders leading to ever-growing lead
times and unhappy customers.

Improperly managed lead time in inventory management can cause backorders,

canceled orders, and loss of revenue.

Lead Time Calculator

Calculating total lead time is not nearly as complicated as it may seem. All you
need to know is the various steps involved in the supply chain and the time each
step is expected to take. With these numbers, it’s as simple as using a formula.

Lead Time Formula

Discovering your lead time requires a simple formula. There are two options
depending on if you’re a manufacturer or a retailer.

For manufacturers, the lead time formula is:

Total Lead Time = Manufacturing Time + Procurement Time + Shipping Time

For retailers, the lead time formula is:

Total Lead Time = Procurement Time + Shipping Time

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How to Calculate Lead Time
Now that we have the lead time formulas from above, let’s take a look at an
example of how to calculate lead time. For this, we’ll be a food producer looking
to calculate their lead time for an order of 1000 cans of tuna.

First, we can look at previous data the company has on tuna cans to discover
manufacturing time. Let’s assume the average amount of time for manufacturing
1000 tuna cans is two weeks.

Next, we need to look at procurement time. For a manufacturer, this is the amount
of time it takes for all components and raw materials used in production to arrive
onsite.

In this case, we’ll assume it takes five days to get the necessary materials.
Lastly, we need to find the time it takes to ship the tuna cans to their destination.
This can be estimated based on previous shipments or an external shipping
company will provide it. Here we’ll say it will take one week to ship.

Now, we can use the manufacturing formula above!

Total Lead Time = Manufacturing Time + Procurement Time + Shipping Time

Total Lead Time = Two weeks (14 days) + 5 days + One week (7 days)
Total Lead Time = 26 Days

We discover that the total lead time for this order is 26 days. With this information,
you can keep the customer informed and look at any areas where there is room for
improvement and you have a better chance at calculating optimal reorder points.

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Backordering
7: Reorder Points

If you order product at the wrong time, you could be missing out on a lot of
revenue or spending more on inventory carrying costs than necessary. Ordering
at the optimal point can ensure you always meet demand and streamline your
inventory control.

Keep reading to learn what a reorder point is, how to calculate it, and how it can
benefit your business.

What Is Reorder Point?

The reorder point, or reorder level, is the amount of standing inventory on-hand
that triggers a reorder. Essentially, when you hit this inventory number, you should
reorder products to ensure you continue to meet demand without any gaps.

Reorder point is not a stable number, but is flexible based on sales trends and the
demand cycle of a given product. This means you need to have an understanding
of each product’s inventory levels and sales to optimize its reorder point. This is
easily done using inventory management software that tracks everything you need
to know about your inventory.

Reorder Point Formula

Uncovering the reorder point for a product can be done using a very simple
formula.

Here’s that formula:

Reorder Point = (Average Daily Usage x Average Lead Time) + Safety Stock

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How to Calculate Reorder Point

Calculating the reorder point for a given product first requires that you determine
a product’s average daily sales, lead time, and amount of safety stock. You can
easily pull daily sales information from your POS system if you have one. If
you don’t you can look at inventory numbers and divide by the number of days
between taking inventory.

Lead time can also be calculated for the product using a simple formula or by
contacting your supplier. With these three numbers in hand, it’s as simple as
plugging them into the formula above to determine that product’s reorder point.
Repeat as necessary for each item in your inventory.
 
Optimal Reorder Point & Optimal Reorder Point Formula

The optimal reorder point will maximize the profit you can make from your stock
and avoid surplus inventory in your warehouse. This is the point at which you
need to order product to replenish your stock.

The formula to determine optimal reorder point is the same as above. The main
difference is that you must calculate your reorder point for a product each
day. This will update your data and let you determine the most optimal time
for reordering. It also allows you to notice sudden shifts in demand and react
accordingly.

Or Use a Reorder Point Calculator

Reorder point calculators are a convenient choice if you have a large inventory
with many SKUs. One may be a part of the inventory management software you
use or you can use an Excel sheet with built-in formulas.

Reorder Point Problems and Solutions

Determining your optimal reorder point isn’t always easy. There are a number of
issues that can hamper your ability to make the most informed decisions. Here are
just a few of the issues you may encounter.

Safety Stock, Lead Time, and Reorder Point

Safety stock and lead time are the two more common causes of problems
determining reorder points. However, both can be compensated for if you’re
adequately prepared.

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Safety Stock and Reorder Point

Safety stock is additional stock you keep on hand in the event that demand
suddenly increases. The major issue here is that you may go through this stock
more quickly than anticipated. This means you need to reorder earlier than
anticipated. Luckily, that is exactly why you keep safety stock on hand.

Lead Time and Reorder Point

Lead time is the second issue that may interfere with calculating your optimal
reorder point. Unfortunately, you don’t have much control over lead time as it is
dependent on the supplier and shipper. However, there are two ways you can
prepare yourself for any issues in lead time.

First, by keeping an adequate safety stock on hand. That way you can still fulfill
orders while awaiting products in shipment. Second, calculate your reorder point
daily to notice any changes in lead time as they occur. This way you can order
product earlier if you foresee any issues.

Reorder Point Model

The reorder point model is an option for businesses that use perpetual inventory
management and want to avoid any excess storage. It is a very strict inventory
model and will only work for certain businesses.

It requires the following to be true about a business:

● Demand is relatively stable year-round. If there are seasonal shifts in

demand, reorder points can fluctuate greatly and this model may not be
able to keep up.

● Lead time is constant. If lead time shifts, your products may not arrive in
time. Then, you run into issues with backorders and unfulfilled orders.

● Price per unit and order costs are constant. Costs should be constant so
that you can ensure you have enough cash on hand for full reorders.

● Suppliers can always meet demand. Not all suppliers can always fulfill the
orders they receive. This can’t be the case if you run a business that
orders and expects goods in an optimal time frame. Once you know the
best time to order products, you need to discover the correct amount to
order. That’s known as the economic order quantity,

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Economic Order
Quantity 8: Economic Order Quantity

When choosing what inventory models to implement for your business, economic
order quantity should always be considered. It can help mitigate rising costs,
streamline your warehouse operations, and put more money in your pockets.

Keep reading to find out how economic order quantity works, what benefits it
brings, and how you can implement it in your own business.

EOQ: What is Economic Order Quantity?

Economic order quantity (EOQ) is a production-scheduling method of inventory

control that has been used since the early 1900s. This method is built around
finding a balance between the amount you sell and the amount you spend on
inventory management.

Economic Order Quantity Definition

Economic order quantity is the ideal amount of product a company should
purchase to minimize inventory costs. Essentially, it is the amount of product you
should order to meet demand without having to store any excess inventory.

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Optimal Quantity

The optimal quantity is the exact amount of inventory you should order and keep
on hand to meet demand. Finding your optimal order quantity for a product is the
goal of calculating its EOQ. However, this number is very difficult to achieve as
any slight variance in demand, cost, or price will throw your numbers off.

Importance of Economic Order Quantity

Managing economic order quantity is an important part of every warehouse

manager’s job description. It can help avoid issues like excess stock or dead
stock and keep avoidable losses to a minimum. It also helps you establish goals
for your inventory KPIs, informs inventory forecasting decisions, and helps
increase the company’s sales and revenue.

Advantages of Economic Order Quantity

Utilizing EOQ for your business can provide many benefits. Here are just a few.

● Minimize costs. All warehouse inventory managers know that storage

costs can quickly rise if inventory isn’t controlled. By only ordering the
amount needed to fulfill customer demand, these costs can be kept
very low.

● Adapts to your business. Many inventory methods are only viable for
certain types of business. EOQ utilizes only your own numbers, so it
can benefit any business that uses it.

Economic Order Quantity Problems

Though there are definitely positive aspects of calculating EOQ, there are also
a few drawbacks that you need to be aware of.

● The math is complicated. You’ll see the formula used for EOQ
calculations below, and it’s safe to say it isn’t the easiest to use.
Luckily, there are many ways to automate the process and tools to help.

● It’s based on assumptions. There are a number of assumptions that are

required to calculate EOQ. This means any aspect of your business that
doesn’t match will throw off the numbers and you won’t get the optimal
quantity. Still, the numbers you find are very helpful for inventory
planning.

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EOQ Formula: Economic Order Quantity Formula

Calculating economic order quantity requires you first find a few metrics regarding
demand and costs. These are the annual demand for the product in units, the cost
per order, and the annual holding cost per unit. Once you’ve collected this data, it’s
as easy as plugging them into the formula below.

How to Calculate EOQ

Uncovering the economic order quantity for a product can be done using a slightly
complicated formula.

Here’s that formula:

EOQ = √ (2 x Demand x Order Cost / Holding Cost)

Economic Order Quantity Formula and Example

If any of that seems confusing to you, let’s clear it up a bit with an example.

Let’s say you are a wholesale supplier for the food industry. You have a particular
product you’re looking to optimize, in this case cans of creamed corn. The first
thing you do is look at your historical data regarding creamed corn.

After poring through your data, you calculate that you normally sell an average of
2,500 cans each year. You also look through your purchase orders and inventory
costs to calculate that each shipment of 100 cans of corn costs $75. And you find
that storage of each can costs you $20 per year.

With these variables in hand, you can now calculate your optimal EOQ for cans
of creamed corn. Let’s plug them in.

EOQ = √ (2 x Demand x Order Cost / Holding Cost)

EOQ = √ (2 x 2500 x 75 / 20)
EOQ = 136.9 or 137 cans

We discover that the optimal order size is 137 cans of creamed corn. Pair this
with calculating the optimal reorder point, and you can maximize the profit you
make from cans of corn.

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EOQ Calculator: Economic Order Quantity Calculator

Using the formula above is great if you’re calculating the EOQ for a single
product, but what if you have thousands of SKUs?

That’s where an EOQ calculator comes in handy. There are a few ways you can
do this. First, there are options online where you can manually input data to find
your EOQ. Second, a calculator may be built into your inventory management
software if you use one. Lastly, you can use an Excel sheet and import product
data. unplanned backordering happens.

EOQ Model: Economic Order Quantity Model

The EOQ model is used by many industries, but is most prevalent in businesses
that operate a just in time inventory system. These systems are built to minimize
inventory that is held on location and require constant contact with suppliers.
There are a few assumptions of economic order quantity you need to understand
if your business is going to use it.

1 The rate of demand is constant.

2 Ordering costs are consistent.

3 Unit price is constant.

4 Lead time is constant.

5 There is no safety stock.

These assumptions are necessary as the formula will not be accurate if any of
the numbers involved fluctuate.

Difference between Economic Order Quantity and Reorder Quantity

Though you may come across both terms in your journey through inventory
control, economic order quantity and reorder quantity are not the same. Both
numbers are used to determine the best amount of inventory to order but are
calculated in different ways. Reorder quantity is a formula used by ecommerce
businesses and is based only on sales and lead time.

Regardless of the industry you’re in, EOQ is meaningless if you aren’t

participating in inventory forecasting.

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Inventory
Forecasting 9: Inventory Forecasting

Inventory forecasting can help you prepare for changes in consumer demand,
uncover new opportunities for inventory, and increase your profits. It can also be
a very daunting task.

Read on to discover how inventory forecasting works, the elements needed for it,
and the tools you can use to do it.

How to Do Inventory Forecasting

Inventory forecasting is a method of inventory control used to predict future
inventory levels needed to meet demand. This is accomplished by looking at
historical data and combining it with future assumptions on demand cycles and
sales trends. Software and spreadsheets are used to determine product reorder
points, what to keep a buffer stock of, or if something should be discontinued.

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Collecting data is the most important part of inventory forecasting. This requires a
strong inventory management program. Sales trends, stock issues, and dead
stock are just a few of the things that can be uncovered by taking regular inventory.

How to Forecast Inventory Levels

To forecast inventory levels, you must first take inventory at least twice. These
can be physical inventories, a series of cycle counts, or the use of a perpetual
inventory program. From there, you can determine what products are selling
well and if they are nearing their reorder point. This lets you predict future sales
trends based on historical sales.

You can also use ABC inventory analysis to organize the products by value and
establish goals for each. This will let you invest more into purchasing, marketing,
and selling the most in-demand products.

Each new inventory taken will provide further insight into inventory trends. You
can use any shifts in sales or stock levels to make more informed forecasts.

Inventory Forecasting Elements

There are many moving parts when using inventory forecasting. Here are four
major elements you need to consider:

● Accuracy of demand forecasting. When forecasting inventory levels,

you need enough data regarding consumer demand. This includes
product sales trends, inventory levels, and pending orders. Otherwise,
your forecasts will be less accurate and you could end up with excess
inventory or too little inventory.

● Lead time forecasting. Understanding how long each product takes to

arrive in your inventory is key for forecasting. If not calculated correctly
you may end up with a large amount of unintended backorders and
unhappy customers.

● Reorder cycle optimization. Standing inventory levels, optimal reorder

points, and the frequency of order placement all affect your ability to
plan for future order fulfillment.

● Special order consideration. If demand does increase more than

forecasted, you need to have a plan for special orders. This involves
coordinating with your suppliers and manufacturers to meet your needs
at a moment’s notice.

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How to Forecast in Excel for Inventory

If you don’t have an inventory management program with integrated forecasting,

your next best option is to use an Excel spreadsheet. This sheet can vary by
company, but it mainly needs to track inventory levels, costs, lead time, and
discontinuation status.

Forecasting Analysis to Optimize Inventory

If you don’t use forecasting analysis, you don’t have the optimum inventory.
That’s because you’re wasting all of the valuable data that comes with inventory
tracking and predicting inventory trends. Luckily, analyzing those trends to
forecast future sales can be done by most businesses willing to commit to the
process.

Best Way to Forecast Inventory

There are many ways any business looking to forecast for inventory
management and control can achieve their goals.

Here are three best practices to get you started:

● Consistently track inventory. You can’t forecast inventory if you don’t

know what you own. Tracking inventory levels not only informs you that
you need to reorder goods, but it provides insight into inventory turnover
rates and seasonal demand trends.

● Involve key players. Many departments are involved in the movement of

inventory. Include at least one person from each when making planning
decisions and you’ll be surprised at some of the insight different people
bring.

● Use inventory management software. Inventory forecasting can be done

manually, but it’s difficult. This is especially true if you have a very large
inventory. Software can automate much of the process and give you
immediate access to pertinent data.

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Inventory Forecasting Software

Inventory forecasting is made much simpler and more precise by using inventory
forecasting software. Most perpetual inventory management software has this
functionality built in, but there are also stand-alone options.

If you choose to go this route, here are the most important features to look for:

● Integration into existing databases. You should already be tracking

many pertinent aspects of your inventory. You need to make sure any
inventory software you purchase can easily pull data from your systems.
If not, you’ll lose all that valuable historic data and have to start anew.

● Intuitive user interface. A piece of software that is too unwieldy is just an

expensive waste. Test out any software you’d like to purchase in
advance so you can see how easy it is to grasp.

● Quick implementation. The initial setup of any inventory management

system is time-consuming. Make sure it can be done within a
reasonable time frame so you can get to making informed decisions
as quickly as possible.

● Aligns with business goals and processes. Investing in forecasting

software only makes sense if it fits in with your larger business goals.
If not, you’re just throwing money away. You also need to be able to
dedicate resources to its implementation and use.

Now that you know all about inventory control and management, it’s time to put it
all to use. That can be done by becoming an inventory control manager.

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Inventory Control
Manager 10: Inventory Control Manager

By using all of the information above, inventory control managers can become
one of the most important members of a business’ staff.

Read on for an overview of what an inventory manager is, their normal tasks,
required skills, and how much they’re paid.

What Is an Inventory Control Manager?

Inventory control managers are in charge of all aspects of inventory
management and inventory control. They are a vital part of a company’s
management team and are responsible for warehouse operations and
inventory tracking.

Inventory Control Manager Salary

The average salary for an inventory control manager is $60,643. To ensure the
most accurate number, we took the average inventory control manager salary
from the five largest nationwide employment websites.

Given that number combined with the fact that inventory control manager duties
take an average of 40 hours per week, inventory control managers make an
average of $29.16 an hour. They have a lot of responsibility in keeping the
warehouse operational.

Here’s the data we used:

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At Home Inventory Control Manager Salary

The average salary for an at-home inventory control manager is $47,557.

There is less information regarding this career as it is relatively new. As such,
his number is an average salary from two of the largest nationwide employment
websites.

At-home inventory control manager’s duties are essentially the same as their
in-person counterparts. However, the compensation is lower due to the remote
nature of the job. At-home inventory control manager duties take an average of
40 hours per week, so they make an average of $22.86 an hour.

Inventory Control Manager Job Description

Inventory control managers are responsible for every aspect of inventory
management. This includes everything from inventory tracking to inventory
auditing to inventory maintenance and more. They must also manage and
direct warehouse personnel.

5 Important Inventory Control Manager Skills

Due to the varied nature of this role, inventory control managers must have
a wide variety of skills.

Here are the five most important skills:

● Leadership. Inventory control managers are in charge of a number of

employees who work with inventory. They need to be able to lead by
example, resolve conflict, and take decisive action.

● Problem solving. There are many issues that may arise like shrinkage,
dead stock, or missing product. Inventory control managers need to be
able to quickly and efficiently find solutions.

● Data analysis. Inventory is built around data. It is used to calculate

reorder points, lead time, economic order quantity, and more. A good
inventory control manager makes informed, data-driven decisions to
help the business grow.

● Organization. A disorganized warehouse is more of a liability than an

asset. It’s highly important for an inventory control manager to maintain
order and optimize processes.

● Attention to detail. Every mistake comes with a price. A manager with an

eye for detail can avoid most mistakes and save the company money.

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Inventory Supervisor Responsibilities

Inventory control managers may also be called inventory supervisors. This is

because the majority of their responsibilities are regarding inventory.

Here are the main responsibilities:

● Monitor all inventory counts. Inventory managers are responsible for

ensuring inventory counts are done correctly. This is true whether it’s
physical inventory counting, cycle counts, or data from perpetual
inventory management software.

● Perform inventory audits. Inventory numbers need to be accurate, or

they can damage a business’ bottom line. Inventory control managers
must perform audits regularly to uncover any problems.

● Inventory forecasting. Using the data gathered from inventory counting

and sales, a manager needs to predict future trends. Done correctly,
they can optimize the amount of product kept on hand and keep costs
low.

● Train warehouse staff. A manager is a manager, regardless of their

other functions. As such, inventory managers must ensure their
employees are properly trained and working as a team.

● Track and control shipping. An inventory control manager’s job doesn’t

end when the product leaves the warehouse. They need to ensure it
gets to the final destination on time and intact. They also need to make
decisions to lower shipping costs and increase profit.

Assistant Inventory Manager

An assistant inventory manager is a junior leader who reports to the inventory
control manager. Their job functions are essentially the same, but at a lower
level. They manage inventory, conduct inventory counts, and help with audits.

You may not be ready to make the leap to become an inventory control manager
or maybe there’s only an assistant manager position open. This role is a great
first step. It can prepare you for becoming an inventory control manager and give
you valuable experience in inventory control and management.

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Ready to take the next step?

To see exactly how

BlueCart can help your
business streamline
inventory processes,
schedule a free demo.

FREE DEMO

You can also book a demo

by contacting us directly:

Konstantin Zvereff
Chief Executive Officer

(443) 454-6781
[email protected]