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Inventory control

Inventory control is the systematic process of overseeing, regulating, and optimizing the storage, ordering, and utilization of goods and materials within an organization to ensure sufficient stock availability for meeting customer demand while minimizing associated costs such as holding, ordering, and shortages.^[1] This practice serves as a critical buffer against fluctuations in supply and demand, decouples various stages of production or operations, and helps hedge against price volatility or seasonal variations in business needs.^[1] Effective inventory control balances the trade-offs between overstocking, which ties up capital and incurs storage expenses, and understocking, which can lead to lost sales and customer dissatisfaction.^[2] The primary objectives of inventory control include achieving an acceptable level of customer service—typically measured by fill rates or stockout avoidance—while minimizing the total relevant costs, which encompass holding costs (around 25% of inventory value annually, covering storage, insurance, and opportunity costs), ordering or setup costs (fixed expenses per replenishment cycle), and shortage costs (including lost revenue and expedited shipping).^[2] Inventory can be categorized into four main types: raw materials (inputs for production), work-in-progress (partially completed goods), finished goods (ready for sale), and maintenance, repair, and operations (MRO) supplies (items supporting facility upkeep).^[1] In modern supply chains, inventory control relies on forecasting techniques, such as qualitative expert judgments or quantitative statistical models like moving averages and exponential smoothing, to predict demand and inform replenishment decisions.^[1] Key methods for inventory control include the Economic Order Quantity (EOQ) model, which calculates the ideal order size to minimize combined ordering and holding costs assuming constant demand and lead times, using the formula Q^* = \sqrt{\frac{2DC_0}{C_h}} where D is annual demand, C_0 is ordering cost per order, and C_h is holding cost per unit per year.^[3] Another essential technique is ABC analysis, which prioritizes inventory items by classifying them into categories—A (high-value items comprising about 70% of total value but only 10% of items), B (moderate value, 20% of value and 20% of items), and C (low-value, 10% of value and 70% of items)—to allocate control efforts efficiently based on annual dollar volume.^[3] Additional approaches encompass reorder point (ROP) systems, which trigger orders when stock reaches a predetermined level accounting for lead time demand (ROP = d \times L, where d is daily demand and L is lead time), often incorporating safety stock for variability, and periodic or perpetual review systems enhanced by technologies like RFID and ERP software for real-time tracking.^[1]^[3] By implementing robust inventory control, businesses can enhance operational efficiency, reduce waste, improve cash flow through better working capital management, and gain competitive advantages in supply chain responsiveness, particularly in volatile markets where just-in-time principles may complement traditional models to further minimize excess stock.^[2]

Fundamentals

Definition and Scope

Inventory control is the process of overseeing and regulating the ordering, storage, and utilization of inventory to ensure items are available when needed while minimizing associated costs and waste.^[4] This involves activities, systems, and procedures designed to optimize stock levels across an organization.^[4] The scope of inventory control encompasses the management of stock levels for raw materials, work-in-progress (WIP), and finished goods within specific facilities, such as warehouses, to maintain operational continuity.^[5] It focuses on internal tracking and adjustment of these inventory types but excludes broader procurement functions, which involve sourcing and vendor negotiations, as well as distribution logistics, which handle outbound transportation and delivery to customers.^[5] A core principle of inventory control is striking a balance between the risks of stockouts, which can result in lost sales and dissatisfied customers, and overstocking, which ties up capital in excess inventory and increases holding costs.^[6] Effective inventory control supports customer satisfaction by ensuring product availability and enhances operational efficiency by reducing waste and optimizing resource allocation.^[5] Key types of inventory include cycle stock, safety stock, and buffer stock. Cycle stock refers to the portion of inventory used to meet regular, predictable demand over a given period, representing the standard flow of goods through operations.^[5] Safety stock is additional inventory held to protect against uncertainties such as demand fluctuations or supply delays, acting as a safeguard to prevent disruptions.^[5] Buffer stock, often used interchangeably with safety stock, serves a similar protective role but may emphasize reserves for anticipated variations in demand or supply.^[5]

Historical Development

Prior to the 20th century, inventory control relied heavily on manual methods such as handwritten ledgers and visual inspections in manufacturing and trade settings. Merchants and early industrialists tracked stock levels through rudimentary record-keeping, often using intuition or periodic physical counts to manage supplies, which were prone to errors, theft, and inefficiencies as production volumes grew during the Industrial Revolution.^[7]^[8] A pivotal shift occurred in 1911 with the publication of Frederick Winslow Taylor's The Principles of Scientific Management, which advocated for systematic efficiency in industrial processes, including the optimization of material flows and stock handling to reduce waste.^[9] In 1913, Ford W. Harris introduced the Economic Order Quantity (EOQ) model in his article "How Many Parts to Make at Once," providing an early mathematical framework for balancing ordering costs against holding costs to determine optimal batch sizes. In the 1920s and early 1930s, reorder point systems emerged as practical tools for triggering replenishments based on observed demand patterns and safety stocks, building on these foundational ideas amid growing industrial complexity.^[10]^[11] Operations research (OR) emerged as a discipline during World War II in the 1940s, initially for military logistics, with the 1950s marking its post-war transition and expansion to civilian applications. This era applied analytical methods to inventory challenges, further refining Harris's EOQ into standardized models for demand forecasting and stock control in industrial applications through probabilistic and simulation techniques.^[12] From the 1980s onward, the proliferation of computer-based systems enabled automated inventory tracking, shifting from manual calculations to software-driven reorder points and real-time data integration, significantly enhancing accuracy and scalability. Concurrently, the Toyota Production System (TPS), pioneered in the mid-20th century by Taiichi Ohno and Eiji Toyoda and popularized globally in the 1980s-2000s as lean principles, promoted just-in-time (JIT) inventory to eliminate excess stock and align production with demand.^[8]^[13] As of 2025, recent trends reflect a pivot toward digital resilience in inventory control, spurred by COVID-19 disruptions that exposed JIT vulnerabilities, such as prolonged shortages in semiconductors and consumer goods, leading firms to incorporate AI, IoT, and buffer stocks for greater supply chain adaptability.^[14]

Core Methods and Techniques

Traditional Inventory Control Techniques

Traditional inventory control techniques encompass manual and rule-based approaches that businesses have employed for decades to monitor stock levels, prevent shortages or overstocking, and ensure operational efficiency without relying on complex computational tools. These methods, rooted in basic record-keeping and physical verification, form the foundation of inventory management in small to medium-sized enterprises where advanced systems may be impractical. By focusing on periodic assessments, categorization, and simple triggers, they enable practitioners to maintain control through disciplined processes rather than automation.^[15] The periodic inventory system involves conducting physical counts of inventory at fixed intervals, such as monthly or quarterly, to determine current stock levels. During these counts, ending inventory is calculated using the formula: ending inventory = beginning inventory + purchases - cost of goods sold, where all values are derived from accounting records and the physical audit. This approach is particularly suitable for businesses with low-value or low-volume items, as it minimizes daily record-keeping efforts but requires accurate documentation of purchases and sales between counts to reconcile discrepancies.^[16]^[17] In contrast, the perpetual inventory system maintains continuous records of inventory changes through manual ledger entries updated in real-time for every transaction, such as receipts or issuances. This method provides ongoing visibility into stock levels, allowing managers to track items without waiting for periodic counts, though it necessitates regular cycle counts—targeted audits of specific items—to verify accuracy and correct for errors like theft or miscounts. Businesses using this system often integrate it with basic costing methods like FIFO (first-in, first-out) or LIFO (last-in, first-out) to assign values during updates.^[18]^[15] ABC analysis is a prioritization technique that categorizes inventory items based on their annual consumption value, drawing from the Pareto principle to focus efforts on high-impact items. Items are divided into three groups: A items (typically 10-20% of total items accounting for 70-80% of value, requiring tight control and frequent monitoring); B items (moderate value and quantity, with standard controls); and C items (80-90% of items but only 5-10% of value, managed with minimal oversight). To implement, managers rank items by value, calculate cumulative percentages, and assign categories, enabling efficient resource allocation for control activities.^[19]^[20] Reorder point (ROP) determination serves as a manual trigger for replenishment orders, calculated to avoid stockouts during lead time—the period from order placement to receipt. The basic formula is:

\text{ROP} = (\text{average daily demand} \times \text{lead time in days}) + \text{safety stock}

To arrive at this manually, first estimate average daily demand by dividing total demand over a recent period (e.g., past year) by the number of days; multiply by lead time (based on supplier history); then add safety stock, which is a buffer computed as a multiple of demand variability (e.g., standard deviation of daily demand times lead time, adjusted for desired service level like 95%). For example, if average daily demand is 50 units, lead time is 5 days, and safety stock is 30 units, ROP = (50 × 5) + 30 = 280 units, prompting an order when stock reaches this level. This process relies on historical data and simple arithmetic, making it accessible for manual application.^[21]^[22] The two-bin system is a visual, low-tech method ideal for fast-moving, low-value items, using two containers per item: one active bin for current use and a reserve bin holding reorder quantity. When the active bin empties, it signals the need to replenish by using the reserve bin and ordering a replacement for both, preventing stockouts while limiting overstock. This technique, often applied in workshops or retail backrooms, requires initial setup of bin sizes based on usage rates and lead times but operates without paperwork, relying solely on physical observation.^[23]^[17]

Mathematical Models for Inventory Optimization

The Economic Order Quantity (EOQ) model is a foundational deterministic approach to inventory optimization, aimed at determining the ideal order size that minimizes the combined costs of ordering and holding inventory. Developed by Ford W. Harris in 1913, the model assumes constant demand, instantaneous replenishment, fixed ordering and holding costs, and no shortages or quantity discounts.^[24]^[25] The derivation begins with the total annual cost function, TC = (D/Q)S + (Q/2)H, where D is the annual demand rate, Q is the order quantity, S is the fixed cost per order, and H is the annual holding cost per unit. To minimize TC, take the first derivative with respect to Q and set it to zero: dTC/dQ = -(D S)/Q² + H/2 = 0. Solving yields Q* = √(2 D S / H), the EOQ formula. The second derivative, d²TC/dQ² = (2 D S)/Q³ > 0, confirms a minimum. This balances ordering costs, which decrease with larger Q, against holding costs, which increase with Q. For example, with D = 80,000 units/year, S = $400/order, and H = $1/unit/year, EOQ ≈ 8,944 units, reducing total costs compared to arbitrary ordering.^[25] The Economic Production Quantity (EPQ) model extends EOQ to manufacturing settings where inventory builds gradually during production rather than instantly. Introduced by E.W. Taft in 1918 as an adaptation of Harris's work, it incorporates finite production rates and assumes constant demand rate d, constant production rate p > d, fixed setup cost S per production run, holding cost H per unit per year, no shortages, and no lead time.^[26] The derivation minimizes the total average cost per unit time, which includes setup costs (d S / Q) and holding costs based on average inventory. During production, inventory rises at rate (p - d); after production stops, it depletes at rate d until zero. The maximum inventory is Q (1 - d/p), and average inventory is (Q/2) (1 - d/p). Thus, TC = (d S / Q) + (Q H / 2) (1 - d/p). Differentiating with respect to Q and setting to zero gives dTC/dQ = -(d S / Q²) + (H / 2) (1 - d/p) = 0, so Q* = √[2 d S / (H (1 - d/p))], the EPQ formula. The second derivative is positive, verifying the minimum. This adjustment accounts for the production-demand imbalance; for instance, if d = 1,000 units/year, p = 4,000 units/year, S = $100, H = $2, EPQ ≈ 223 units, lower than the EOQ equivalent due to buildup during production.^[26] Safety stock addresses demand and lead time variability in inventory models, providing a buffer to maintain service levels without excessive holding costs. The standard formula for safety stock (SS) under normally distributed demand is SS = Z × σ × √L, where Z is the service level factor (z-score from standard normal distribution tables), σ is the standard deviation of demand per unit time (e.g., daily or weekly), and L is the lead time in those same units.^[27] To compute Z, consult normal distribution tables for the desired cycle service level (probability of no stockout per replenishment cycle). For a 95% service level, Z = 1.65 (area under the curve to the left of Z covers 95% of the distribution); for 99%, Z = 2.33. The term σ × √L represents the standard deviation of demand during lead time, assuming independent periods. For example, if weekly demand σ = 10 units, L = 2 weeks, and Z = 1.65 for 95% service, SS = 1.65 × 10 × √2 ≈ 23 units. This formula derives from the cumulative distribution function of demand during lead time, ensuring stockouts occur only in the tail (e.g., 5% for Z=1.65). Adjustments apply for variable lead times, using SS = Z × √(L × σ_d² + d_avg² × σ_L²), where σ_d is demand standard deviation and σ_L is lead time standard deviation.^[27] Inventory costing methods determine how costs are assigned to units sold and remaining in stock, impacting financial statements and taxes under models like EOQ or EPQ. The First-In, First-Out (FIFO) method assumes oldest units are sold first, valuing cost of goods sold (COGS) at earlier (lower) costs in rising price environments, leaving recent higher costs in ending inventory.^[28] Pros include matching physical flow for perishables, yielding higher net income and current asset values; cons involve higher taxes due to elevated profits. Last-In, First-Out (LIFO) assumes newest units sold first, assigning higher recent costs to COGS, reducing taxable income in inflationary periods. Pros encompass tax deferral benefits; cons include understated inventory values and poor suitability for rotating stock. Weighted average cost calculates a single per-unit cost by dividing total inventory cost by total units, smoothing fluctuations. Pros offer simplicity and stability in valuation; cons reduce precision in volatile markets, potentially misstating flows compared to FIFO or LIFO. In rising prices, FIFO reports higher income ($20,000 vs. LIFO's $13,000 on $50,000 sales), while LIFO lowers taxes.^[28] Deterministic models like EOQ and EPQ rely on assumptions of constant demand and lead times, which limit their applicability in real-world scenarios with variability, potentially leading to stockouts, excess inventory, or revenue losses during disruptions.^[29] These models treat demand as fixed (e.g., D(t) = a - bt), ignoring fluctuations from market changes or externalities like pandemics. Stochastic extensions, such as those incorporating normal or uniform demand distributions (e.g., D(t) = a - bt + ε, where ε ~ N(0, σ²)), are recommended for volatile environments to optimize under uncertainty using techniques like safety stock integration or simulation.^[29]

Systems and Technologies

Inventory Tracking and Management Systems

Inventory tracking and management systems encompass software and hardware solutions that enable businesses to monitor stock levels in real time or at defined intervals, facilitating automated updates and basic operational automation. These systems primarily distinguish between perpetual and periodic approaches to inventory recording. In a perpetual inventory system, records are updated continuously as transactions occur, such as sales or receipts, providing immediate visibility into stock quantities through integrated software. This contrasts with a periodic system, where inventory is tallied at specific intervals, often requiring manual adjustments between counts. Enterprise resource planning (ERP) platforms like SAP and Oracle exemplify perpetual systems, integrating inventory modules with dashboards that display real-time stock levels, reorder points, and transaction histories for enhanced decision-making.^[30]^[31] Barcode and scanner technologies form a foundational hardware component of these systems, improving accuracy by automating data entry over traditional manual counting methods, which typically achieve around 65-85% accuracy due to human error.^[32] Implementation typically begins with labeling inventory items using standardized barcodes, such as UPC or Code 128, followed by procuring compatible scanners—handheld or fixed-mount—that integrate with software via USB, Bluetooth, or wireless networks. Next, the system is configured to map barcodes to product records, enabling seamless integration with point-of-sale (POS) terminals or warehouse management tools for capturing movements like receiving, picking, and shipping. This setup significantly reduces counting errors, achieving up to 97% accuracy in well-implemented environments, as scanners verify items instantly against digital records.^[33] Basic inventory management software provides user-friendly interfaces for core functions, often as standalone tools or add-ons to accounting platforms. These systems automate order generation by triggering purchase orders when stock falls below predefined thresholds, send stock alerts via email or in-app notifications for low or overstock conditions, and generate reports on metrics like turnover rates and valuation summaries. For instance, QuickBooks Online tracks inventory in real time, supports automated reorder alerts, and produces customizable reports for sales and stock analysis.^[34] Similarly, Fishbowl integrates with QuickBooks to handle advanced tracking, including multi-location support, automated order fulfillment, and detailed reporting on inventory movements without disrupting accounting entries.^[35] Cycle counting protocols enhance the reliability of perpetual systems by using statistical sampling to verify records incrementally, avoiding the disruptions of full physical audits that can halt operations for days. Common methods include random sampling, where a fixed percentage of items (e.g., 10% of SKUs daily) is selected unpredictably to detect systemic errors, and ABC analysis, prioritizing high-value (A) items for more frequent counts while sampling lower-value (C) items less often. These approaches apply statistical principles, such as confidence intervals, to ensure sampled counts represent the entire inventory population, typically aiming for 95-99% accuracy without shutdowns.^[36] Integration with accounting systems ensures inventory data supports financial reporting by applying valuation methods like FIFO (First-In, First-Out) or LIFO (Last-In, First-Out). In FIFO, the oldest stock is assumed sold first, aligning costs with current market values during inflation; software automates layer tracking to calculate cost of goods sold (COGS) accordingly. LIFO, conversely, values recent purchases as sold first, reducing taxable income in rising price environments, with systems maintaining FIFO/LIFO queues for precise balance sheet updates. ERP tools like Oracle and SAP embed these methods directly, syncing inventory transactions to general ledgers for compliant reporting under standards like GAAP.^[31]^[30]

Emerging Technologies in Inventory Control

Radio-frequency identification (RFID) and near-field communication (NFC) technologies enable automated tracking of inventory items without line-of-sight requirements, significantly reducing human error in counting and locating stock. RFID tags, which use electromagnetic fields to identify and track tags attached to objects, allow for real-time visibility into inventory movements across supply chains, improving accuracy by up to 30-50% in large-scale implementations. For instance, Walmart's RFID pilot in 24 stores demonstrated a reduction in out-of-stock incidents by enhancing inventory accuracy and streamlining restocking processes. NFC, a subset of RFID with shorter range, complements these systems for close-proximity tasks like verifying item authenticity at checkout, further minimizing discrepancies in high-volume retail environments.^[37]^[38]^[39] Internet of Things (IoT) sensors facilitate real-time monitoring of inventory conditions, particularly for perishables, by embedding devices that track environmental factors such as temperature, humidity, and location. These sensors provide continuous data streams, alerting managers to deviations that could lead to spoilage, thereby extending shelf life and reducing waste in sectors like food and pharmaceuticals. Integration with cloud platforms enables predictive maintenance, where algorithms analyze sensor data to forecast equipment failures or stock degradation, optimizing replenishment schedules and minimizing downtime. For example, in cold chain logistics, IoT-enabled temperature sensors ensure compliance with storage standards, preventing losses estimated at billions annually in global supply chains.^[40]^[41]^[42] Artificial intelligence (AI) and machine learning (ML) advance inventory control through sophisticated demand forecasting models, often employing neural networks to process historical sales, market trends, and external variables for precise predictions. Recurrent neural networks (RNNs) and convolutional neural networks (CNNs) excel in time-series analysis, achieving forecast accuracy improvements of 20-40% over traditional methods by capturing nonlinear patterns in demand fluctuations. Additionally, ML algorithms enable anomaly detection, identifying irregularities such as theft, misplacement, or supply disruptions through pattern recognition in inventory data. Amazon leverages AI-driven replenishment systems, using tools like Amazon Forecast to automate ordering and reduce stockouts by integrating real-time sales data with predictive models.^[43]^[44]^[45] Blockchain technology provides secure, immutable records for supply chain traceability, ensuring tamper-proof documentation of inventory provenance from manufacturer to end-user. In the pharmaceutical industry, blockchain platforms like PharmaChain enable end-to-end verification, reducing counterfeit drugs—which account for up to 10% of global medicine circulation—by allowing stakeholders to scan and validate product histories in real time. This decentralized ledger enhances accountability, facilitates rapid recalls, and complies with regulatory standards for authenticity, particularly in complex international distributions.^[46]^[47]^[48] As of 2025, autonomous systems such as automated mobile robots (AMRs) and drones are emerging for inventory control, enabling hands-free scanning and navigation in warehouses to improve efficiency and reduce labor needs. AMRs integrate with IoT for dynamic path optimization, while drones facilitate aerial stock verification in large facilities, achieving faster cycle counts with minimal disruption.^[49] Emerging technologies also support sustainability in inventory control by enabling green practices aligned with 2020s regulatory frameworks like the EU Green Deal, which mandates reduced waste and resource efficiency. AI optimizes routing and stock allocation to minimize transportation emissions and overstocking, while blockchain and IoT track recycling processes in circular economy models, promoting reuse and closing material loops. For instance, AI-driven systems in industrial operations enhance circularity by predicting recyclable inventory flows, potentially cutting waste by 15-25% through better resource recovery. These innovations address environmental imperatives, such as the Green Deal's targets for 65% municipal waste recycling by 2035, by integrating sustainability metrics into inventory decisions.^[50]^[51]^[52]^[53]

Benefits and Challenges

Advantages of Effective Inventory Control

Effective inventory control significantly reduces holding costs by optimizing stock levels, thereby freeing up 20-30% of working capital typically tied up in excess inventory.^[54] This approach minimizes expenses associated with storage, insurance, and obsolescence, while also lowering ordering costs through more precise procurement timing and quantities. For instance, just-in-time (JIT) strategies within inventory control frameworks can cut warehouse costs by 15-30% due to decreased storage needs.^[55] By minimizing stockouts, effective inventory control enhances customer service levels, achieving fill rates of 95% or higher and improving on-time delivery performance.^[56] Accurate demand forecasting and real-time tracking prevent lost sales from unfulfilled orders, fostering customer loyalty and repeat business in competitive markets.^[57] Operational efficiency improves through faster inventory turnover ratios, which indicate quicker movement of goods and reduced capital immobilization. In retail, robust control mechanisms can enhance working capital efficiency by 15-25%, leading to lower levels of dead or excess stock.^[58] This streamlined process supports leaner operations, with higher turnover ratios—ideally 2 to 4 for most retailers—enabling better resource allocation and reduced waste.^[59] Inventory control serves as a critical buffer against supply disruptions, as demonstrated during the 2020s global events like the COVID-19 pandemic, where safety stocks mitigated shortages and delays.^[60] By maintaining appropriate buffer inventories, businesses offset revenue losses from supply shocks and gain time to source alternatives, enhancing overall supply chain resilience.^[61] Financially, precise inventory valuation through effective control ensures accurate balance sheets, better cash flow management, and compliance with standards like GAAP, which require inventory to be reported at the lower of cost or market value.^[62] This accuracy prevents profit overstatement and supports informed decision-making, ultimately improving liquidity and investor confidence.^[63]

Disadvantages and Common Pitfalls

Implementing advanced inventory control systems can entail substantial upfront costs, particularly for mid-sized firms, where initial setup expenses often exceed $50,000 to cover software licensing, hardware integration, and customization. These costs are compounded by ongoing training requirements, as employees must learn to operate new tools effectively, potentially adding thousands more depending on the scale of the workforce and system complexity. For instance, ERP implementations that include inventory modules typically range from $10,000 to $150,000 for small to mid-sized businesses, encompassing data migration and configuration. Such financial barriers can deter adoption, especially in resource-constrained environments, though phased rollouts and vendor financing may serve as mitigation strategies to spread expenses over time. Manual inventory control methods are highly susceptible to human errors, including data entry mistakes, miscounts, and misplaced records, which can result in significant discrepancies between recorded and actual stock levels. In contrast, perpetual inventory systems, while designed for real-time tracking, are vulnerable to data glitches from software bugs, integration failures, or network issues, often leading to phantom inventory—illusory stock that appears available in records but is physically absent. These inaccuracies, stemming from unreported transactions or technical faults, can cause stockouts, overordering, and lost sales; regular cycle counts and automated validation checks are essential mitigation tactics to reconcile discrepancies and maintain reliability. Over-reliance on demand forecasting in inventory control can intensify the bullwhip effect, a phenomenon where minor fluctuations in consumer demand propagate and amplify upstream through the supply chain, particularly in volatile markets. Inaccurate or delayed forecasts exacerbate this variability, leading to excess inventory buildup or shortages as orders swing wildly. The 2021 global semiconductor chip shortage exemplified this pitfall, as automakers and electronics firms, reacting to uncertain projections amid pandemic disruptions, placed inflated orders—up to 10-20% above actual needs—resulting in widespread overstock and prolonged supply chain chaos. To counteract such risks, supply chain partners can implement collaborative forecasting and real-time data sharing; briefly, AI-driven tools offer potential for refining predictions in unstable conditions. Excess inventory resulting from ineffective control practices poses notable environmental and sustainability challenges, as surplus goods contribute to resource waste, increased greenhouse gas emissions from storage and transport, and eventual disposal in landfills. Overstocking drives unnecessary production, straining raw materials and energy, while ignoring eco-impacts in decision-making—such as favoring just-in-time over resilient buffering—can accelerate obsolescence and hazardous waste generation. In industries like fashion, this has led to an estimated 60 billion unsold garments annually, amplifying pollution from textile decay and incineration. Mitigation involves adopting circular economy principles, like reverse logistics for returns and sustainable sourcing, to minimize waste and align inventory with environmental goals. Scalability presents a key pitfall for small businesses attempting to apply complex inventory models, which are often optimized for large-scale operations and overwhelm limited resources, leading to error rates of 10-20% due to inadequate adaptation. These firms may struggle with the technical demands of advanced algorithms or software, resulting in inconsistent application and heightened inaccuracies from manual overrides or incomplete data inputs. Average inventory accuracy for U.S. retail businesses hovers around 66-83%, underscoring the gap for smaller entities without dedicated expertise. To address this, small businesses can opt for simplified, cloud-based tools tailored to their size, coupled with gradual scaling and external consulting to reduce errors without overcomplicating processes.

Integration and Applications

Distinction from Inventory Management

Inventory control and inventory management are interrelated yet distinct concepts within supply chain operations. Inventory control primarily focuses on the internal regulation of stock levels, including activities such as monitoring quantities, conducting audits, and ensuring accurate tracking of goods within a facility to prevent shortages or excesses. In contrast, inventory management is a broader discipline that encompasses strategic elements like demand forecasting, procurement, sourcing from suppliers, and the eventual disposition or disposal of inventory across the entire supply chain. This distinction positions inventory control as a tactical, operational function aimed at day-to-day efficiency, while inventory management adopts a strategic role in aligning inventory with overall business objectives.^[64]^[65] Despite these differences, significant overlaps exist between the two, particularly in the use of shared tools and methodologies such as demand forecasting and reorder point calculations, which support both immediate stock adjustments and long-term planning. Inventory control operates at a more reactive, execution-oriented level to maintain predefined parameters, whereas inventory management is proactive, involving policy development and optimization to minimize costs and maximize service levels. According to standards from the Association for Supply Chain Management (ASCM, formerly APICS), inventory control is defined as the systems and procedures for optimizing inventory levels, serving as a core component within the wider scope of inventory management, which tracks inventory movements across multiple locations and integrates with broader business functions.^[4]^[66] The terms have evolved historically, with notable blurring occurring in the post-1980s era due to the advent of integrated software systems like Material Requirements Planning (MRP) and its successor, Manufacturing Resource Planning (MRP II), which combined planning, control, and resource allocation into unified platforms. This technological shift, driven by advancements in computing during the 1980s and 1990s, reduced the separation between operational control and strategic management, leading to more holistic approaches in practice. Current ASCM definitions, as outlined in their Certified in Planning and Inventory Management (CPIM) framework, reflect this integration while maintaining conceptual boundaries for clarity in professional certification and application.^[8]^[67] In practice, inventory control is applied for routine tasks like cycle counting and stock adjustments to ensure operational continuity, whereas inventory management is employed for developing long-term policies, such as supplier contracts and inventory turnover strategies. Effective integration of the two yields substantial benefits, including enhanced supply chain efficiency through real-time data sharing, reduced holding costs through optimized systems, and improved decision-making that aligns tactical execution with strategic goals for overall business performance.^[68]^[69]

Business Models and Industry Applications

Just-in-Time (JIT) inventory control is a low-inventory strategy designed to minimize waste by synchronizing production and delivery with demand, originating from the Toyota Production System where it emphasizes pull-based manufacturing to reduce holding costs and improve efficiency. In manufacturing, particularly the automotive sector, JIT has been widely adopted to streamline assembly lines, as seen in Toyota's implementation that reduced inventory levels while enhancing responsiveness to customer orders. However, the model's reliance on stable supply chains exposed vulnerabilities during 2020s disruptions, such as the COVID-19 pandemic and semiconductor shortages, leading to production halts in the auto industry and prompting adaptations like hybrid JIT with buffer stocks for resilience.^[14] Vendor-Managed Inventory (VMI) shifts inventory control responsibility to suppliers, who monitor and replenish buyer stocks based on shared data to optimize availability and reduce stockouts.^[70] In retail, VMI offers benefits like lower ordering costs and improved service levels, exemplified by the pioneering collaboration between Procter & Gamble and Walmart in the 1980s, which enhanced supply chain coordination and cut inventory expenses for both parties.^[71] This model promotes efficiency in high-demand environments by leveraging supplier forecasting, though it requires robust trust and information-sharing protocols to mitigate risks like overstocking.^[70] Consignment and drop-shipping models defer ownership transfer until sale, allowing retailers to hold goods without upfront capital commitment and reducing financial risks associated with unsold inventory.^[72] In e-commerce, these approaches are integral to platforms like Amazon's Fulfillment by Amazon (FBA), where sellers ship products to Amazon's warehouses for storage and fulfillment, enabling scalable operations and faster delivery without the seller managing logistics.^[73] Drop-shipping, in particular, eliminates the need for seller-held inventory by having suppliers directly ship to customers, which supports small e-commerce businesses but can introduce challenges in quality control and delivery times.^[72] In retail, inventory control emphasizes high-velocity ABC analysis, classifying items into categories (A for high-value/fast-moving, B for moderate, C for low-value/slow-moving) to prioritize monitoring and replenishment of top-selling products, thereby optimizing turnover in dynamic markets like consumer goods.^[74] Manufacturing adapts the Economic Production Quantity (EPQ) model for production lines, determining optimal batch sizes that balance setup costs and holding expenses during continuous manufacturing, as applied in assembly processes to minimize downtime.^[75] In healthcare, control of perishables such as pharmaceuticals and blood products integrates RFID for real-time tracking, ensuring expiration dates are monitored to prevent waste and maintain supply integrity in critical care settings.^[76] As of 2025, advancements in artificial intelligence (AI) and Internet of Things (IoT) technologies are increasingly integrated into inventory control applications, enabling predictive demand forecasting, automated replenishment, and real-time asset tracking to enhance resilience in models like VMI and JIT across industries.^[49] Sustainability integrations in inventory control increasingly incorporate reverse logistics, where returned or end-of-life products are collected for recycling or remanufacturing, embedding circular economy principles into supply chain models to reduce environmental impact.^[77] As of 2025, green supply chains leverage these models to track recyclable materials, as seen in electronics manufacturing where reverse flows recover components, lowering resource consumption and aligning with regulatory demands for eco-friendly operations.^[78] This approach not only cuts disposal costs but also enhances compliance with global sustainability standards, fostering long-term resilience in industries facing resource scarcity.^[77]

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Reading: Fredrick Taylor's Scientific Management - Lumen Learning
In 1913, Frederick Taylor published Principles of Scientific Management, ushering in a completely new way of understanding the modern organization.Missing: inventory control
[10]
Ford Whitman Harris and the Economic Order Quantity Model
Ford Whitman Harris first presented the familiar economic order quantity (EOQ) model in a paper published in 1913. Even though Harris's original paper was ...
[11]
https://www.almyta.com/Inventory_Management_History_4.asp
[12]
The history of OR | ORS - Operational Research Society
Companies utilised OR to optimise production processes, inventory management, supply chain logistics, scheduling, and resource allocation, leading to ...
[13]
TPS - The History of the Toyota Production System - 6Sigma.com
Feb 28, 2025 · Taiichi Ohno and Eiji Toyoda, Japanese industrial engineers, developed the system between 1948 and 1975. Originally called Just-in-time ...Missing: timeline control
[14]
Just‐in‐time for supply chains in turbulent times - Sage Journals
With the increased uncertainty that firms experienced during the Covid‐19‐related disruptions of 2020−2022, companies need to alter supply chains by changing ...Missing: trends | Show results with:trends
[15]
[PDF] Unit – 1 - Introduction to Inventory Management - OSOU
Traditional techniques include the use of inventory related ratios, two bin system, perpetual inventory system and periodic order system. Modern techniques ...Missing: articles | Show results with:articles
[16]
Periodic Inventory System: Is It the Right Choice? - NetSuite
Mar 2, 2022 · Periodic inventory is an accounting inventory method where inventory and cost of goods sold are calculated at the end of an accounting period ...
[17]
[PDF] Inventory Management
Periodic systems require regular (periodic) checks of inventory to determine quantity on hand. ... A variation of the periodic system is a two-bin system. In ...
[18]
1.2 Perpetual and Periodic Inventory Systems - FlatWorld
Perpetual inventory systems are designed to maintain updated figures for inventory as a whole as well as for individual items. Separate subsidiary ledger ...Missing: source | Show results with:source
[19]
[PDF] ABC Analysis for Inventory Management: Bridging the Gap between ...
ABC analysis is a well-established categorization technique based on the Pareto Principle for determining which items should get priority in the management of a ...Missing: origin seminal
[20]
[PDF] ABC Analysis For Inventory Management: Bridging The Gap ... - ERIC
ABC analysis is a well-established categorization technique based on the Pareto Principle for determining which items should get priority in the management ...
[21]
[PDF] Inventory Management and Reorder Point (ROP) Strategy Using ...
This study aims to design and implement how the. ABC method can be used to determine purchasing decisions and which ROP calculations should be used. The ABC ...Missing: traditional perpetual bin scholarly articles
[22]
[PDF] Inventory Management and Reorder Point (ROP) Strategy Using ...
This study aims to design and implement how the ABC method can be used to determine purchasing decisions and which ROP calculations should be used. The ABC ...Missing: traditional perpetual bin
[23]
[PDF] UNIT 5 INVENTORY MANAGEMENT AND ORDER HANDLING
Perpetual review system (P system): Tliis system is also known aS Fixed Order Size System,. Reorder Level System, Two Bin System, or Constant Cycle System.
[24]
Origin of the Economic Order Quantity formula; transcription or ...
Aug 7, 2025 · The most well-known inventory control model is economic order quantity (EOQ), which was proposed by Ford W. Harris around 1913 [4] . However, ...
[25]
8.3 Economic Order Quantity (EOQ) – Supply Chain Management
At its core, the EOQ model is designed to strike a balance between the costs associated with holding inventory and the costs related to ordering inventory. It's ...Missing: seminal paper
[26]
[PDF] 1 The EOQ and Extensions
Sep 9, 2004 · The EPQ balances the average fixed ordering cost (that decreases with large orders) and the average inventory holding cost (that increases with ...
[27]
[PDF] Understanding safety stock and mastering its equations - MIT
In other words, the safety stock is Z-score times the square root of the sum of the squares of the individual variabilities.
[28]
FIFO vs. LIFO Inventory Valuation - Investopedia
When sales are recorded using the FIFO method, the oldest inventory—that was acquired first—is used up first. FIFO leaves the newer, more expensive inventory in ...Missing: authoritative | Show results with:authoritative
[29]
[PDF] A COMPARATIVE STUDY OF INVENTORY MODELLING
By highlighting the limitations of deterministic models and the benefits of stochastic approaches, it encourages managers to adopt adaptive strategies that ...
[30]
What Is Inventory Management? | Oracle
Jun 6, 2024 · The three primary inventory management systems are manual, periodic, and perpetual. Perpetual systems are the most advanced and accurate ...Benefits Of Effective... · Challenges In Managing... · Examples Of Inventory...
[31]
Physical Inventory: Methods | SAP Help Portal
In a periodic inventory, all stocks of the company are physically counted on the balance sheet key date. In this case, every article must be counted. During ...
[32]
Inventory Cycle Counting 101: Best Practices & Benefits - NetSuite
Dec 16, 2021 · Cycle counting is a method of checks and balances by which companies confirm physical inventory counts match their inventory records.Missing: protocols | Show results with:protocols
[33]
Warehouse Barcode System Implementation Guide - RFgen
Dec 13, 2024 · Barcode systems can reduce inventory errors through automated tracking and verification. An inventory management system enhances inventory ...
[34]
How to Implement a Barcode Inventory System (6 Essential Steps)
This article contains everything you need to know about barcode inventory systems, helping you decide if they are something you need and how to implement them ...
[35]
Inventory Tracking Software for Small Businesses - QuickBooks
Inventory tracking. With QuickBooks Online, always know what's in stock and what's on order. Track your inventory easily with real-time updates and reports.Inventory Tracking · Let's Get You In · Compare All FeaturesMissing: generation | Show results with:generation
[36]
Set up and track your inventory in QuickBooks Online - Intuit
QuickBooks Online includes features to help you to track what's on hand, get alerts when it's time to restock, and see insights on what you buy and sell.Missing: generation | Show results with:generation
[37]
Fishbowl & QuickBooks Integration For Inventory Management
With a QuickBooks integration, Fishbowl handles all of the inventory management and order fulfillment. Thus, any open sales orders or purchase orders in ...
[38]
Inventory Cycle Counting – A Simple Guide | MRPeasy Blog
Rating 4.6 (215) Sep 20, 2024 · Inventory cycle counting is a stock auditing method where a portion of your stock is counted on a regular, rotating basis instead of all at once.Missing: protocols statistical verification
[39]
Cycle Counting & Inventory Accuracy - Strategos, Inc
Cycle counting finds and corrects inventory record errors. Cycle counters select a small sample of inventory items for audit each day.Missing: protocols methods verification
[40]
Beyond FIFO & LIFO: 4 Inventory Costing Methods in Accounting ...
Dec 5, 2018 · There is no one-size-fits-all approach to calculating product inventory; there are four: first in, first out (FIFO); last in, first out (LIFO); average cost; ...<|control11|><|separator|>
[41]
Measuring the impact of RFID on out of stocks at Wal-Mart
Aug 9, 2025 · Walmart also did a pilot study with 24 stores over a period of around 6 months to measure how RFID can improve inventory management. They ...
[42]
RFID, Present and Future - CITP Blog - Princeton University
Oct 26, 2005 · This has obvious advantages in streamlining inventory control, which helps WalMart operate more efficiently and sell products at lower prices.
[43]
[PDF] Inventory Management Using RFID - ScholarWorks
Bluetooth Low Energy (BLE), RFID, and NFC, are responsible for indoor tracking. ... of the benefits that come with implementing RFID are potentially significant ...
[44]
IoT in Inventory Management: Usecases, Examples & Sensors - Intuz
Especially important for industries dealing with perishable goods, these sensors monitor environmental conditions in real time to prevent spoilage or damage.
[45]
Applications of IoT Sensors in Inventory Management - GAO Tek
Overview · Real-time monitoring: IoT sensors continuously track inventory levels, providing real-time insights into stock availability, usage, and location.
[46]
IoT in Logistics: Components, Use Cases & Common Challenges
Jun 5, 2025 · Predictive Maintenance. IoT sensors track equipment conditions in real-time, monitoring temperature, vibration, and usage patterns to spot early ...
[47]
Enhancing supply chain management with deep learning and ...
Demand Forecasting and Anomaly Detection: CNNs analyze visual data for quality control in manufacturing, while RNNs process time-series data to improve ...1.1. Scm Evolution And The... · 1.3. Scm Cloud Market... · 8. Review Discussion And...
[48]
From forecasting demand to ordering – An automated machine ...
Mar 12, 2021 · ... machine learning approach with Amazon Forecast to decrease stockouts, excess inventory, and costs ... outlier treatment), regressors like ...Demand Forecasting To Order... · Forecast Demand · Automated Order Placement...Missing: neural replenishment
[49]
AI for Demand Forecasting: Benefits & Use Cases - Appinventiv
... demand forecasting with AI, Amazon ensures timely inventory replenishment ... Continuously monitor the AI models to evaluate accuracy, detect anomalies, and ...
[50]
Blockchain-based drug supply chain provenance verification system
In this paper, we introduce PharmaChain, a decentralized hyperledger fabric framework that leverages confidentiality, accountability, and interoperability.
[51]
Improving End-to-End Traceability and Pharma Supply Chain ...
Blockchain improves pharma supply chain by enabling end-to-end traceability, data transparency, real-time verification, and better product recall management.
[52]
Blockchain in Pharma Supply Chain - Reducing Counterfeit Drugs
Blockchain in Pharma Supply Chain can manage inventory as well as reduce counterfeiting and theft issues.
[53]
[PDF] The role of Artificial Intelligence in the European Green Deal
AI can promote the European Green Deal goals, but its adverse environmental impacts could jeopardize them. Regulatory action is needed to align AI with the ...
[54]
Revolutionizing the circular economy through new technologies
The results highlight the transformative role of new technologies, especially blockchain and artificial intelligence, in advancing the circular economy.
[55]
(PDF) AI-Driven Circular Economy of Enhancing Sustainability and ...
Nov 12, 2024 · This study investigates integrating circular economy principles—such as closed-loop systems and economic decoupling—into industrial sectors, ...
[56]
Artificial Intelligence in Logistics Optimization with Sustainable Criteria
Oct 22, 2024 · This article provides an overview of the diverse AI models and algorithms employed in logistics optimization, with a focus on sustainable practices.
[57]
7 Strategies to Reduce Inventory Without Stockouts - Arda Cards
Inventory reduction can free up massive capital: Companies typically have 20-30% of working capital tied up in inventory, with carrying costs reaching up to 30% ...Missing: control | Show results with:control
[58]
Inventory Control: Strategies for Efficiency & Costs Reduction - Cyzerg
Feb 10, 2025 · In fact, research indicates that JIT can reduce warehouse costs by 15-30% due to lower storage requirements (source). FIFO & LIFO Methods – ...
[59]
Say farewell to late deliveries by calculating fill rate - Katana MRP
The average order fill rate for manufacturers is around 95%, and you want to be making that your minimum target. Otherwise, you're going to end up with: Drop in ...What Is Fill Rate? · An Order Fill Rate... · Make Your Fill Rate Count
[60]
The Importance of Item Fill Rates and Inventory Management
A good item fill rate rests right between 85-95%. Item fill rates and inventory management are incredibly important regarding customer service and sales.Missing: delivery | Show results with:delivery
[61]
Mastering Inventory Turnover Ratio in Manufacturing - Controlata
Mar 10, 2025 · Research from McKinsey & Company shows that companies with optimized inventory management achieve 15-25% better working capital efficiency ...Missing: dead stock
[62]
Inventory Turnover Ratio: Analysis, Formula & Calculator - ShipBob
For most retailers, an inventory turnover ratio of 2 to 4 is ideal; however, this can vary between industries, so make sure to research your specific industry.
[63]
Global Supply Chains in a Post-Pandemic World
When the Covid-19 pandemic subsides, the world is going to look markedly different. The supply shock that started in China in February and the demand shock ...<|control11|><|separator|>
[64]
Navigating Challenges of the COVID-19 Pandemic and Beyond
Apr 23, 2025 · The COVID-19 pandemic imposed unprecedented stresses on global supply chains (GSCs), compelling companies to reassess their supply chain structures and ...
[65]
The Importance of Inventory Systems and GAAP Compliance
Feb 25, 2019 · Good inventory management is a vital aspect of GAAP compliance because it can help limit the overstating of profits and/or value associated with inventory.Missing: flow | Show results with:flow
[66]
Understanding Inventory Accounting: Definition, Process, and Benefits
Accurate inventory valuation is essential to reflect a company's true financial position and ensure compliance with GAAP standards.
[67]
Inventory Control vs. Inventory Management: What's the Difference?
Sep 15, 2020 · Inventory management handles forecasting and ordering stock, while inventory control manages the stock on-hand and its movement within the ...
[68]
Inventory Control vs Inventory Management: Key Comparisons
Inventory control refers to the process of managing the movement and storage of inventory to make sure that a business has the right amount of stock at the ...Missing: APICS dictionary
[69]
Inventory control vs inventory management: What you need to know
Inventory control focuses on monitoring existing stock, while inventory management is broader, encompassing the full supply chain and strategic decisions.What Is Inventory Control · What Is Inventory Management... · Tips For Managing And...
[70]
Types of Inventory Control Systems - ASCM
For supply chain professionals, inventory control helps guide better decisions about resources, components, maintenance and more. But it's important to ...Types Of Inventory Control... · Who Should Use Periodic... · Pros Of Perpetual Inventory
[71]
Inventory Control Vs Inventory Management | Netstock
Your Inventory Management is the brain which processes all the data from your inventory control and turns that data into valuable insights to enable you to make ...Missing: APICS dictionary definition<|separator|>
[72]
The Advantages of Inventory Management Systems - Netstock
Benefits of inventory management software when integrated with ERPs · Streamlined operations and data consistency · Enhanced forecasting and planning capabilities.
[73]
The relationship between vendor managed inventory and ...
Sep 30, 2022 · VMI helps reduce lead times to the maximum and keep the supply chain lean to promote efficiency and eliminates waste to meet their random needs.Missing: scholarly | Show results with:scholarly
[74]
https://haslam.utk.edu/gsci/news/inventory-management-in-supply-chain/
[75]
(PDF) A Literature Review of E-commerce Supply Chain Management
Aug 10, 2025 · 1 Drop Shipping mode. In this mode, the manufacturer is responsible for the storage and logistics distribution of goods, · 2 Consignment Stock ...Missing: FBA | Show results with:FBA
[76]
An interpretable risk-adjusted fulfillment model - ResearchGate
In this article, using data from a wedding gown E‐retailer in China, we analyze the differences between two fulfillment choices—fulfillment by Amazon (FBA) and ...
[77]
The Importance of Inventory Management for Supply Chain ...
Apr 23, 2021 · Think of inventory optimization as balancing inventory based on demand: not over-ordering, not under-ordering. Finding the sweet spot for each ...Missing: principles | Show results with:principles
[78]
Controllable Production Rates & Inventory Systems: Literature Review
Feb 1, 2021 · This paper presented the results of a systematic literature review on inventory models with controllable production rates.
[79]
Impact of Radio-Frequency Identification (RFID) Technologies ... - NIH
RFID technology can reduce costs, improve patient safety, and improve supply chain management effectiveness by increasing the ability to track and locate ...
[80]
(PDF) Review on Green inventory model and Reverse logistic
Abstract. Inventory management involves overseeing and controlling the commodity and materials flow within the. company to optimize operations of supply ...
[81]
Mapping Reverse Logistics: Research Insights, Environmental ...
Oct 15, 2025 · Reverse logistics, involving the return, recycling, and repurposing of products, is increasingly recognized not only as an environmental ...