STOCK MANAGEMENT: Detailed Guide and Best Practices

Stock Management

Inventory management encompasses all procedures concerned with regulating the flow of goods or products within a business. It keeps inventory maintenance expenditures to a minimal while maintaining client service.
Enterprise-level inventory management policies provide answers to questions like, “What is the ideal stock level for each SKU?” When should orders for stock replenishment be placed? How much stock should be purchased?
Warehouse operations stock management includes responsibilities such as location assignment, inventory traceability, and stock management systems (such as FIFO, FEFO, or LIFO), among others. Throughout this article, we will concentrate on the subject of stock management.

What is Stock Management?

Stock management is the practice of ordering, storing, managing, and regulating goods.
Stock management pertains to all items used by a company to manufacture its goods or services, from raw materials to completed goods. In other words, stock management encompasses all aspects of a company’s inventory.

Stock control, inventory control, and inventory control are other names for stock management.
What is the significance of stock management?
Inventory is a significant asset that symbolizes locked-up capital; efficiently managing stock allows a corporation to free up capital.

Understanding the mix of different types of stock and realizing the demands on that stock are required for effective stock control. This helps to maintain a suitable level of stock, balancing the requirement for surplus supply with the desire to reduce tied-up capital.

Different Types of Stock

There are four types of stock or inventory:

  1. Raw materials and components: These are stock that are ready for use in the manufacture of goods.
  2. Work in progress: incomplete goods that are still being manufactured.
  3. Finished goods: These are items that are ready for sale.
  4. Consumables: These are stock that will be used in the day-to-day operations of the firm and will require replenishment, such as fuel and stationery.

You have the option of categorizing your stock further. For example, if you categorize stocks by value, you could have low, medium, and high-value stocks. If cash flow is tight, this could help you plan for and fund stock replacement.

Periodic vs. Perpetual Stock Management

There are two techniques for stock management for small businesses: periodic and perpetual stock taking.

  • Periodic stock management: This inventory valuation system necessitates physical inventory records at regular periods. This strategy is ideal for small firms with limited inventory and is far less expensive than electronic tracking systems. However, because physical stock takes are time-consuming, it is not ideal for large enterprises with substantial inventories.
  • Perpetual stock management: This system relies on electronic tracking and POS systems to continuously record and track inventories. While more expensive than physical inventory counts, this system provides a more precise and up-to-date indication of stock levels and eliminates the danger of human error.

What Are the Distinctions Between Stock Control, Stock Management, and Stock Optimization?

The concepts of stock control, management, and optimization are interconnected in the warehouse management ecosystem, and as a result, issues regarding what each includes arise from time to time:

  • Consider stock control to be a thorough snapshot of a warehouse’s inventory. It contains all of the information on the quantity, qualities, and location. A dependable register is essential for preventing errors in warehouse activity.
  • Stock management in a warehouse refers to how all material flows in a warehouse are organized. It includes acts such as site assignment, inventory tracking, replenishment item organization, and goods movement methods such as FIFO, FEFO, or LIFO, among others.
  • Stock optimization entails tasks aimed at increasing the productivity of the stored stock. You can, for example, use specialized software to analyze the warehousing log to better product slotting or placement. Heat maps can also be used to detect inefficiencies and thereby alleviate bottlenecks.

Software programs aim to achieve the objectives associated with each idea. In general, warehouse management systems provide features that aid in the completion of many associated duties. Let’s go over this in more depth later.

What are the Goals of Stock Management?

The goal of stock management is to strike a balance between the following factors:

#1. Adapt stock levels to demand as needed.

Forecasted demand is used to calculate warehouse stock. As a result, inventory will behave differently in one area where product consumption is relatively consistent compared to another sector that is significantly impacted by seasonality.
Demand Forecasting is a discipline within using Big Data across your supply chain that generates comprehensive projections on demand based on sales data, market trends, rivals, and other economic variables.

#2. Providing a high degree of service

When it comes to stock management, the service level would be the warehouse’s ability to locate an SKU, pack it, ship it, and deliver it with pinpoint accuracy, in excellent condition, and on short notice. In this regard, a balance must always be established so that providing improved service does not unduly raise storage costs.

The rise of omnichannel logistics and the hyperconnectivity of logistics 4.0 has raised customer expectations, particularly among those who purchase products online. This is visible in both the service offered to end customers and the service supplied to retailers: stockouts are becoming less and less accepted by customers, who will not hesitate to turn to the competition if they do not find the goods they want in pristine condition.

#3. To keep stock storage expenses in control

The decline in dead in-warehouse stock is the key to the more common usage of tactics such as cross-docking or the just-in-time system. The overarching goal of storage logistics is to try to limit inventory while maintaining service levels.

To accomplish this goal, measures to improve a warehouse’s overall efficiency are frequently adopted, such as the automation of stable and repeated procedures, the organization of items according to stock rotation, or the optimization of order-picking duties using a WMS.

Stock Management Procedures

Before you can create a stock management plan, you must first comprehend each phase in the stock management process. This is critical for minimizing errors and selecting the best stock management software for your company.

  • The goods are delivered to your location: This is the point at which raw materials and subcomponents for manufacturers or finished goods for customers enter your warehouse for the first time.
  • Inspect, sort, and store merchandise: This is when inventory is evaluated, sorted, and placed in its proper stock regions, regardless of whether you utilize dropshipping, cross-docking, or a different warehouse management system.
  • Keep an eye on inventory levels: This can be done using physical inventory counts, perpetual inventory software, or cycle counts, and it helps to reduce the possibility of inaccuracy.
  • Placing stock orders: Customers can place orders either online or in-store.
    Stock orders have been approved. This is the stage at which you send the order to your supplier, which may be automated using your POS system.
  • Take items from the stock: The required items are identified by SKU number, purchased from stock, and shipped to the maker or client.
  • Refresh inventory levels: You can use a perpetual inventory system to automatically update inventory levels and share them with the appropriate stakeholders.
  • Purchases and reorders are triggered by low stock levels. As needed, replenish the stock.

Try making an inventory process map to better visualize these eight processes. Keep track of and review each phase of the process to reduce out-of-stock and overstocked inventories.

Stock Management Techniques

Stock management can grow complex, covering multiple techniques and strategies, especially for larger apps with many moving elements. Let’s look at some inventory control techniques you may implement in your own warehouse.

#1. Economic Order Quantity

Economic order quantity (EOQ) is a formula that determines how much inventory a company should buy based on variables such as total cost of production, demand rate, and other considerations. The formula determines the largest number of units to reduce purchasing, holding, and other costs.

#2. Minimum Order Quantity.

The least amount of inventory that a retail organization will acquire in order to keep costs low is known as the minimum order quantity (MOQ). However, keep in mind that inventory goods that cost more to generate often have a lower MOQ than inexpensive things that are easier and less expensive to supply.

#3. ABC Analysis.

This method divides commodities into three groups in order to find those that have a significant impact on overall inventory costs.

  • Category A is made up of your most valued products, which contribute the most to overall profit.
  • Category B: Products in Category B are those that fall between the highest and least valuable.
  • Category C Small transactions that are important for overall profit but don’t contribute much individually fall under Category C.

#4. Just-in-time Inventory Management.

JIT inventory management is a process in which businesses obtain inventory when needed rather than ordering too much and risking dead stock (stuff that was never sold or utilized by consumers before being removed from sale status).

#5. Safety Stock Inventory

Safety stock inventory management is the ordering and storing of excess inventory in case the organization does not have enough for replenishment. This helps to avoid stock-outs, which are often caused by inaccurate forecasting or unexpected changes in consumer demand.

#6. FIFO and LIFO.

LIFO and FIFO are two methodologies for calculating the cost of products. To keep inventory fresh, FIFO, or first-in, first-out, assumes older goods is sold first.
LIFO, or last-in, first-out, assumes that newer inventory is normally sold first to avoid spoilage.

#7. Point Reordering Formula.

The reorder point formula determines how much stock a company should have before reordering. To account for wait time, a reorder point is frequently higher than a safety stock level.

#8. Batch Tracking

Batch tracking is a quality control approach that allows users to group and monitor comparable commodities in order to manage inventory expiration or track defective items back to their originating batch.

#9. Consignment Inventory

You’re correct if you’re thinking about your neighborhood consignment shop.
Consignment inventory occurs when a consigner (vendor or wholesaler) agrees to provide items to a consignee (retailer) without the consignee paying for the inventory in advance. The consignor retains ownership of the items, and the consignee pays for them only when they sell.

#10. Perpertual Inventory Management.

To provide real-time insights, perpetual inventory management simply counts inventory as soon as it arrives.

It is the most fundamental sort of inventory management system and can be manually entered on pen and paper or an Excel spreadsheet. Alternatively, you can employ an inventory system that automates inventory balances as soon as stock is moved, sold, used, or disposed by using handheld devices that scan product barcodes and RFID tags.

#11. Dropshipping

Dropshipping is a type of order fulfillment in which the seller ships things to the buyer directly. When a store makes a sale, instead of selecting an item from their own inventory, they buy it from a third party and have it shipped to the customer.

#12. Lean Manufacturing

Lean manufacturing refers to a wide range of management principles that can be applied to any company process. Its purpose is to increase efficiency by removing waste and non-value-added tasks from daily operations.

#13. Six Sigma

Six Sigma is a process that provides businesses with tools to improve their business performance (raise profits) and reduce surplus inventory.

#14. Lean Six Sigma

Lean Six Sigma improves on Six Sigma tools by focusing on boosting word consistency and business flow.

#15. Demand Forecasting

To forecast consumer demand, demand forecasting is based on historical sales data. It is essentially an estimate of the goods and services that a firm anticipates its consumers will purchase in the future.

#14. Cross-docking.

Cross-docking is a method of creating a JIT shipping process by having a supplier truck unload products directly into outbound vehicles. This removes the need for warehousing, and there is little to no storage in between delivery.

#15. Bulk Shipments

Bulk shipments are a cost-effective way of shipping in which a company palletizes merchandise in order to send more at once.

Problems with In-warehouse Stock Management

The expansion of the supply chain creates new conditions for warehouses that have an impact on inventory management:

#1. SKU proliferation, defined as an increase in the number of stored stock keeping units

Increasing the number of SKUs makes inventory optimization more difficult. It necessitates keeping an extremely diverse, and ever-diverging, minimal stock at a warehouse. This is referred to as SKU proliferation.

For example, a cosmetics company may have five different shampoo variants (SKUs) tailored to different hair kinds and smells. Soon after, it decides to market another five SKUs aimed towards men, increasing the total to ten. Furthermore, by considering consumer preferences, it generates a travel size version of the product, resulting in a total of 20 SKUs to manage.

As new goods are introduced to the company’s portfolio, the number of SKUs increases, and a minimum of each must be kept in stock to meet demand

#2. Inventory traceability

Partially connected to the previous point, the traceability of material flows in a warehouse is required for accurate stock control. And, as a result, it prevents errors in picking or order preparation, as well as in the location of goods.

This can significantly impede a warehouse’s operational capabilities. As a result, highly complex inventories necessitate coding systems that automatically and reliably identify and log them. The usage of RF technologies in place of paperwork is a growing trend in most medium to large-sized warehouses nowadays.

#3. Demand fluctuates dramatically.

When demand fluctuates, the flexibility and reactivity of a warehouse are put under increasing strain. This is particularly evident in the way e-commerce operates: the end customer is guided by fads and trends that are difficult to forecast. Another industry that faces this difficulty on a regular basis is distribution centers, which must adjust to the products of their own clients.

Seasonality, on the other hand, can provide a challenge for stock management because it can result in a warehouse being flooded with goods at certain periods of the year, as was the situation with the French company Schaal Chocolatier before embarking on an automation project with Mecalux.


Inventory management is critical if you want to compete and provide your consumers with the experience they desire, whether you’re a brick-and-mortar, internet, or multichannel store. You’ll never get ahead if you don’t use stock management techniques.

Sign up for inventory software that teaches you the fundamentals of stock management and serves as a catalyst for your growth, or select an ecommerce platform that allows you to centralize your store’s stock management across all channels.


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