Inventory Control: Types, Methods, and Techniques

From the moment stock enters your warehouse to the second it ships out, inventory control is the backbone of a smooth, error-free supply chain.  

Done right, it prevents issues like mis-picks, spoilage, mis-shipments, out-of-stocks, overstocks, and costly delays. Done poorly and you’ll be fighting fires daily: dealing with wrong shipments to customers, running out of bestsellers during peak season, watching perishable goods expire on shelves, the list goes on.

A strong inventory control system ensures that you’re always working with the right amount of stock, not too much, not too little. It enables your business to prevent stockouts with timely replenishments, reduce excess stock and shortages, and make cost-effective purchasing decisions driven by real-time insights.

Read on as we break down the different types of inventory control systems and explore proven methods for managing inventory more effectively, helping you find the right fit for your operations and scale smarter.

Types of Inventory Control Systems

Inventory control systems can be categorized into two primary types: periodic and perpetual. Each has its place depending on your operational scale, available resources, and business model.

As defined by the CSCMP, these systems help businesses track stock levels and streamline warehouse operations through either manual periodic counts or continuous real-time monitoring.

Periodic Inventory Control

With a periodic inventory system, inventory counts are done manually at regular intervals. Think monthly, quarterly, or annual physical inventory checks. 

This traditional approach involves physically counting all stock to update inventory records and is typically used by small businesses with low inventory turnover. If your operations are straightforward, periodic control may work.

Pros:

• Low cost and simple to implement
• No need for advanced software or infrastructure

Cons:

• Lacks real-time visibility
• Prone to human error
• Delayed reporting may lead to stockouts or overstocking

Perpetual Inventory Control

A perpetual system uses technology for real-time tracking of inventory as items are received, moved, or sold. This often includes barcode scanning, RFID technology, and integrations with inventory management platforms, such as ShipHero. 

Perpetual control requires an upfront investment in software and employee training, but the benefits of accuracy and automation far outweigh the costs.

Benefits include:

• Enhances visibility in multi-location tracking
• Supports cycle counting for accurate records
• Enables automated reordering based on thresholds

Best Inventory Control Methods

If you’re struggling with overstocking, constant reordering, or poor forecasting, it’s time to re-evaluate your method. But choosing the right inventory control method isn’t one-size-fits-all. It depends on your business size, industry, product mix, and the degree to which demand fluctuates.

In this section, we break down the most effective inventory control methods used across industries today.

First-In, First-Out (FIFO)

FIFO ensures the oldest inventory is sold or used first. It’s especially effective for perishable goods or products with expiration dates (e.g., cosmetics, food, pharmaceuticals). This method reduces the obsolescence of inventory items by maintaining proper stock rotation.

ABC Analysis

ABC Analysis categorizes inventory based on value and consumption:

• A-items: High-value, low-quantity
• B-items: Moderate value and quantity
• C-items: Low-value, high-quantity

This method allows prioritization based on product demand and supports cost-effective purchasing decisions by allocating resources where they’ll have the biggest impact on profitability.

Economic Order Quantity (EOQ)

EOQ is a formula-based method that calculates the ideal order quantity to minimize warehouse storage costs. It’s particularly effective for businesses with steady demand and predictable lead times. 

While EOQ works best for steady, predictable demand, it improves cash flow through better stock control by balancing capital investment in inventory and preventing rush orders at premium prices.

Fast, Slow, and Non-Moving (FSN)

FSN classifies inventory by how quickly it moves:

• Fast-moving: Frequent sales or usage
• Slow-moving: Occasional movement
• Non-moving: No movement in a set period

This approach provides data-driven insights on demand patterns, revealing which products move quickly versus those gathering dust. This method optimizes space utilization in warehouses by strategically placing fast-moving items in prime picking locations.

Vendor-Managed Inventory (VMI)

With VMI, suppliers take responsibility for maintaining stock levels and replenishing inventory based on usage data. This collaborative approach works particularly well for high-volume, predictable items where supplier expertise can enable consistent stock levels, reducing your inventory management workload.

Batch Tracking

Batch tracking monitors inventory by lot or batch numbers throughout the supply chain, which is critical for regulated industries.

Benefits of this method include:

• Enhances traceability
• Essential for recalls and quality control
• Ensures compliance with industry regulations

Key Techniques for Inventory Control

The inventory methods we discussed above are already powerful. But they become even more effective when combined with tactical techniques that enhance performance and accuracy.

Just-In-Time (JIT) Inventory

JIT supports just-in-time (JIT) methodologies by receiving goods only as needed for immediate use or sale. This technique is ideal for companies looking to minimize warehouse storage costs and reduce tied-up capital. 

Risk Alert: JIT is sensitive to supply chain disruptions. Consider backup plans or safety stock buffers.

Safety Stock and Reorder Points

Simply put, safety stock acts as a buffer against supply delays or sudden demand surges, while reorder points trigger automated replenishment when inventory hits a certain level. This approach stabilizes operations and ensures customer satisfaction even during demand spikes.

Why it matters:

• Uses safety stock to mitigate risk
• Enables automated reordering based on thresholds
• Aligns stock with production schedules

Inventory Audits and Cycle Counting

Instead of shutting down operations for full physical counts, cycle counting involves regularly auditing portions of inventory. Cycle counting also allows continuous verification of stock levels, which helps catch discrepancies early. This technique improves accuracy with minimal disruption. 

Average Costing

Average costing values inventory based on the weighted average cost per unit. This technique simplifies accounting and cost-of-goods calculations, smoothing out price fluctuations over time. 

Use case:

• Ideal for businesses with frequent purchases of identical items
• Helps standardize reporting and margin tracking

How to Choose the Right Inventory Control Method

Many businesses rush into inventory control methods without proper evaluation, resulting in expensive false starts and frustrated teams. The truth is, your ideal approach depends on a range of variables, including your inventory size, product diversity, order volume, and the level of visibility and automation you want. 

But how do you know what works best for your operations? Here’s how to approach that evaluation and choose the right fit.

1. Inventory size and turnover: High-turnover businesses may benefit from perpetual inventory systems and methods, such as FIFO or EOQ.
2. Product variability: Diverse product lines may require ABC Analysis and FSN for better categorization.
3. Order frequency: Frequent orders benefit from JIT and automated reorder systems.
4. Technology access: Businesses with access to inventory software should consider perpetual systems for real-time tracking and data insights.

OUR BEST TIP: Start by piloting one or two methods. Test methods on a subset of SKUs before full implementation, then monitor performance and adjust based on what aligns best with your operations and goals.

Key Takeaways

• Inventory control enhances inventory accuracy and efficiency while reducing waste and supporting smarter decision-making.
• The right combination of systems, methods, and techniques can optimize space utilization in warehouses and enhance cash flow through improved stock control.
• Success stems from aligning control strategies with a business’s size, industry, and customer demand.

Frequently Asked Questions

What is the Most Commonly Used Inventory Control Method?

FIFO and periodic inventory control are widely used due to their simplicity and ease of implementation. FIFO is especially common in industries that handle perishable goods, while periodic control is more commonly used by smaller businesses.

How Do Inventory Control Techniques Improve Business Efficiency?

When your inventory is under control, everything else falls into place. Inventory control methods, such as cycle counting and automated reordering, eliminate the hidden costs and operational friction that drain resources daily. They help streamline every stage of your operations from purchasing to fulfillment.

The result?

• Fewer stockouts and overstocks, leading to better customer satisfaction
• Lower holding costs, thanks to smarter purchasing and optimized stock levels
• Improved cash flow, because capital isn’t tied up in unsold inventory
• More accurate planning, driven by real-time, data-informed insights

Can Multiple Inventory Control Methods Be Used Together?

Yes. Many businesses combine various methods and techniques to meet their diverse operational needs. For example, a retailer may use FIFO for perishables, ABC for prioritization, and JIT for high-demand items to strike a balance between efficiency and flexibility.

How Does Inventory Control Differ from Inventory Management?

Inventory control focuses specifically on tracking, regulating, and optimizing stock levels to ensure your system matches what is actually on your shelves. 

Inventory management is a broader umbrella that encompasses control, as well as strategic decisions such as forecasting demand, negotiating with suppliers, planning seasonal inventory builds, and optimizing the entire supply chain.