Inventory Management
Inventory Control Guide: How to Avoid Waste and Stockouts
Read time: 10 min read
Inventory is one of the biggest assets in any business — and also one of the biggest sources of waste if not managed properly. This guide gives you the tools and core concepts for effective control.
1. The Reorder Point Concept
The reorder point is the minimum stock level at which you automatically place a new order. To calculate it:
- •Calculate the average daily sales rate per item
- •Multiply by lead time (days to receive the shipment)
- •Add a safety stock buffer to protect against delays
- •Example: 20 units/day × 5-day lead time + 10 safety units = reorder point of 110 units
2. ABC Inventory Classification
Classify your products by total value:
- •Category A: 20% of items representing 80% of value — review weekly
- •Category B: 30% of items representing 15% of value — review monthly
- •Category C: 50% of items representing 5% of value — review quarterly
3. Periodic vs. Continuous Stocktake
There are two main stocktake approaches:
- •Periodic stocktake: full inventory count once or twice a year — suitable for small businesses
- •Cycle counting: count a portion of inventory every day — keeps you always up to date
- •Real-time tracking: instant tracking via system with every sale or purchase movement
4. Reducing Inventory Waste
Common causes of inventory waste and how to handle them:
- •Expiry: activate FIFO (first in, first out) + expiry alerts
- •Damage and theft: isolate sensitive items + frequent counting
- •Over-purchasing: follow reorder points precisely
- •Dead stock: monitor items unsold for 90+ days and move them with promotions
5. Key Inventory Reports to Monitor
Follow these reports regularly:
- •Dead stock report: items with no movement in 30/60/90 days
- •Low stock report: items approaching reorder point
- •Fast-movers report: ensure top items are always available
- •Variance report: compare physical count with system records