Inventory Control Methods: 11 of the Most Common Techniques for Retail


The modern POS has quickly revolutionized retail inventory management. The days of manually entering numbers into a spreadsheet or ledger book are, hopefully, gone. These new inventory control methods have allowed retailers to more easily sell products on multiple channels, manage their warehouse space, carry more products, communicate with vendors, keep shelves stocked, and much more.

While the industry has evolved rapidly, there are still many retailers that have not adopted these powerful new techniques. If you find yourself in that group, it’s worth thinking about making a change to your system. We’ll go over several inventory control methods and how they’ll make your business better. Check it out below!

What Are Inventory Control Methods in Retail?

Your inventory control is the process of keeping in-depth track of all products in your catalog. By doing it well, you’ll ensure that your business is correctly ordering, stocking, pricing, and tracking the entire inventory

On its most basic level, inventory control is meant to make sure that your shelves are always adequately stocked, but that your warehouse or storage area isn’t over stocked. You should know exactly where your inventory is and how much you have at any moment.

There are many different ways of measuring and managing your inventory. Most retail businesses employ several depending on the type of inventory.

These methods are generated and managed by your inventory management, which is typically built into your retail point of sale system. A retail POS keeps all product data in one system so it can provide you with valuable reports and actionable advice to help you make better business decisions.

Why Is Inventory Control So Important for Retail Businesses?

If you run out of stock for a certain item, you’ll face a twofold problem. Of course, you’ll lose sales because you don’t have the product on your shelves. Even worse, you’ll likely also lose customers. Shoppers who can’t buy an item they came to your store for are probably going to shop elsewhere. This long-term cost can have calamitous effects on your small business.

Likewise, it’s equally poor for business if you are overstocked on a certain item. Though it offers less of a direct cost to business, it’s eventual consequences are the same. Carrying too much ties up your business’s cash flow and also takes up valuable storage space. Both scenarios prevent you from being able to spend the money elsewhere: no cash means no capital to order more products and no space means no room to hold any new products.

So with proper inventory control methods, you’ll see several important changes in your business: 

More sales – People want their retailers to have products in stock and available for purchase.

Better loyalty – Don’t let a poor experience drive a customer away from your business.

Increase storage efficiency – Keep optimal stock levels in your warehouse so that you can add new products.

Less retail waste – With better inventory efficiency, you’ll minimize your retail waste, saving both your wallet and the environment.

Your inventory management is truly at the heart of your entire business operations. If it’s not controlled effectively you will see the consequences immediately and in many areas of your business. But when it’s done right, you’ll see your business improve in ways that you never imagined.

What Are the Most Common Inventory Control Methods?

  1. ABC Retail Analysis for Inventory
  2. Just in Time Inventory Control Method
  3. Economic Order Quantities
  4. Choose Custom Par Levels
  5. FIFO & LIFO
  6. Vendor Relations and Automated Ordering
  7. Anticipate with Demand Forecasting
  8. Minimum Order Quantity
  9. Safety Stock Ordering
  10. Perpetual Counts
  11. Dropshipping Inventory

1. ABC Retail Analysis for Inventory

ABC analysis breaks down your entire catalog item by item. In doing so, it assigns a letter grade (A, B, or C) to each item based on its revenue and profitability. The grade allows you to quickly identify which products are doing well and which need a change. 

This can help with your pricing strategies and marketing efforts. Even better, your POS can grade your inventory and produce a detailed report in just 15 seconds.

2. Just-in-Time Inventory Control Method

This method, often shortened to JIT, lessens the amount of inventory that a business has on hand at any given time. Instead, it tries to order products as needed, waiting until the last minute to receive new inventory. This keeps storage space and cash flow at healthy levels.

This method won’t work for all retailers, especially if your delivery times are lengthy or you have large swings in in-store traffic, but it’s a popular option for businesses that manufacture some or all of their products.

3. Economic Order Quantities

Also commonly shortened, EOQs try to find the perfect balance between going out of stock and being overstocked. The formula for implementing EOQ control is hard to devise and based on a number of factors, including cost of production, rate of demand, annual sales, ordering cost, carrying/storage cost, and order quantity.

4. Choose Custom Par Levels

Setting custom par levels in your POS system’s inventory control software allows you to get notifications for each stock item when they hit a certain level.

This level will be different for each of your products. Spend some time trying to determine a smart level for each item based on a number of factors:

  • How long it takes to sell
  • Order pending duration
  • Delivery time
  • Case size
  • Minimum order

This inventory control technique does require some time and effort up front, but it will pay off in the long run. The par levels can be set and all future ordering will be automated.[


A few of the more common inventory control methods, first-in-first-out (FIFO) and last-in-first-out (LIFO) are costing methods for retailers.

They differ in how to calculate sales against costs. FIFO measures the sales against the costs of the longest standing order in the store.

LIFO calculates the cost of the sale against the cost of the most recent order. 

Each costing method has different merits, though most retailers are likely to rely on the FIFO method.

6. Vendor Relations and Automated Ordering

It’s important to maintain a healthy relationship with all vendors. Late orders, missed payments, or other frustrating behavior can strain your vendor relations and hurt your business. 

Having your vendor relations built into your POS software makes this much easier and pain free. You can set stock notifications to alert you to place an order or just have your POS do it for you with automated ordering.

7. Anticipate with Demand Forecasting

Look at reporting and analytics from prior years to get an idea of when your slow and busy times are. For most retailers, a typical July order is very different from one in December.

You must be able to anticipate a predicted amount that you’ll sell. It’s impossible to do so perfectly, but ballparking a range will help prevent against catastrophic miscalculations.

8. Minimum Order Quantity

Many suppliers and vendors set minimum order standards for each item that they carry. This helps them keep the costs down when merchants order products wholesale, but means that business owners must order a certain amount each time. 

Typically, more inexpensive items will have higher minimum order quantities. Again, this allows wholesale merchants to sell items at a cheaper rate. This, of course, is to the retailer’s advantage, but it’s important to be careful not to over order and leave your store with a stock surplus.

9. Safety Stock Ordering

This technique involves carrying a bit more stock than you might anticipate selling through. This is commonly used to protect against stockouts, and is a great strategy for retailers who have a bit of extra space and cash on hand.

It’s also wise if you have issues with an unreliable vendor, uncertainty of future availablility of a certain product, or an unpredictable season approaching. Ideally, you don’t want to ever over-order, and your point of sale inventory management is meant to protect you against this, but there are times when it makes sense.

10. Perpetual Counts

This counting method allows you to keep track of your inventory throughout the year instead of doing it just once at the end of the year.

Many retailers still rely on a single year-end count. If there are large discrepancies at this point, there is nothing that can be done to fix it.

Instead, perpetual counts keep you up-to-date on your inventory throughout the year. You can choose which products you want counted each day and come up with a manageable schedule. This helps identify loss or theft issues and keep your inventory safe.

11. Dropshipping Inventory

Dropshipping cuts you out of the inventory and delivery equation entirely. You simply serve as the facilitator of the transaction, while the product is shipped from a manufacturer or wholesaler directly to the customer.

Arguably, since you don’t even have to deal with the inventory, this is the most efficient system of them all!

How Can Your POS Help with Inventory Management?

Your POS inventory management system will make this all so much easier. You’ll be able to come up with custom ways of measuring your inventory catalog that will give you a great perspective on your store and help you continue to succeed and expand.

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About the Author

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Michael Chalberg

Michael has long focused his writing on the world of retail and small businesses. He''s been a part of the KORONA POS team since 2018 and loves helping entrepreneurs find ways to adapt and succeed. In his spare time, you'll likely find him hiking somewhere in the Southwest.

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