Inventory control is knowing what stock you have, where it is and how much you need, and making sure nobody changes it without a record. It matters because every unrecorded or unauthorised movement becomes a loss, a stockout or a wrong order. Most stock leaks at seven points a small shop can name and lock.
This guide covers the methods, systems, technologies and KPIs of inventory control. It adds the part most guides skip: who in a small shop may receive, adjust, move, discount and refund stock. The worked example is a Lagos shop, in naira.
What is inventory control?
Inventory control, also called stock control, keeps the stock on your shelves equal to the stock in your records. It covers every movement: goods received, sold, moved, returned, damaged and corrected after a count.
Inventory management is the wider job: what to buy, how much and when. Control keeps its numbers honest, and the hub on inventory management for small business covers the rest.
Controls come in two kinds. Investopedia calls them preventive and detective: preventive controls stop an error before it happens, and detective controls find it afterwards.
- Preventive: each person on their own sign-in, permissions by role, approvals for transfers, a minimum selling price on each product.
- Detective: stock counts, the adjustment report, the till's cash difference, a weekly look at returns and discounts.
Why inventory control is important
Inventory control matters because stock is cash on a shelf, and a small leak eats a large share of profit. Fortune reported in 2015 that Walmart was losing about $3 billion a year to theft, about 1% of its $300 billion revenue. Even with guards and cameras, that was one dollar in every hundred it sold.
For example, take a provisions and household shop in Lagos with three staff. It holds ₦12,000,000 of stock at cost, sells ₦9,000,000 a month and keeps a gross margin of 20%. These are example figures, not a real shop's.
A month-end review finds ₦180,000 of stock at cost gone with no sale behind it. The table shows where it went.
| Where it leaked | What happened | Value (₦) |
|---|---|---|
| Adjustments | Subtractions with no note, made late in the day by one login | 95,000 |
| Returns | Refunds with no customer named and goods never seen again | 45,000 |
| Prices | Lines sold below cost after a price was typed over | 40,000 |
| Total | 180,000 |
At a 20% margin, the shop must sell ₦900,000 more just to earn back ₦180,000. That is 10% of a month's sales, every month, or ₦2,160,000 of stock a year.
Poor control also costs sales. When the records show stock the shelf doesn't have, no reorder alert fires and the customer meets an empty shelf. Each such loss shows up as inventory shrinkage at the next count.
The controls that stop stock mistakes
Each way stock can move needs one control that prevents a bad movement and one that finds it. Seven movements cover almost everything that happens in a shop.
| Movement | What goes wrong | Prevent it | Find it |
|---|---|---|---|
| Receiving | Short or damaged deliveries signed for; goods in, but never recorded | Count against the delivery note before signing; mark the purchase received only after the count | Compare purchases with each supplier's statement monthly |
| Adjusting | A subtraction "to fix the count" hides theft | Only the owner or a manager adjusts, always with a note | Read the adjustments by person every week |
| Transferring | Stock leaves one branch and never reaches the other | A second person approves; the receiving branch counts it in | Chase any transfer still on its way after two days |
| Pricing | A cashier types a price below cost for a friend | Cashiers can't change prices; set a minimum selling price | Read the discount and sales reports weekly |
| Returns | A refund with no real customer takes cash and puts nothing back | Only a supervisor takes returns, against the original sale | Compare each cashier's returns with their sales |
| Damages | Good stock written off as broken | Every damage recorded with its reason; damaged goods kept aside until checked | Total damages by month and by product |
| Counting | The person who keeps a store counts it alone and covers a gap | Someone else counts, or counts with them | Track record accuracy count by count |
Who may do what: a table for a four-role shop
Give each person the movements their job needs and nothing else. Start from this table and adjust it to your staff.
| Action | Owner | Manager | Storekeeper | Cashier |
|---|---|---|---|---|
| Sell at the till | Yes | Yes | No | Yes |
| Change a price in the cart | Yes | Yes | No | No |
| Take a customer return | Yes | Yes | No | No |
| Record a purchase and mark it received | Yes | Yes | Yes | No |
| Send a transfer | Yes | Yes | Yes | No |
| Approve a transfer | Yes | Yes | No | No |
| Record damaged stock | Yes | Yes | Yes | No |
| Count stock | Yes | Yes | With a second person | Yes |
| Adjust stock after a count | Yes | Yes | No | No |
| Delete a sale, purchase or adjustment | Yes | No | No | No |
The rule behind the table is old: no single person should approve a movement, record it and hold the goods. Investopedia describes this as the separation of duties.
When one person has to do two jobs
Most small shops can't separate every duty, so the owner checks instead. Five habits cover the gap.
- No shared logins. With one password for the whole counter, every loss belongs to nobody.
- Nobody corrects their own count. The person who counted a store hands the differences to someone else to adjust.
- A note on every adjustment and damage. "Count, shelf B2" or "dropped crate" takes ten seconds and makes a pattern visible.
- A 20-minute review every week. Adjustments by person, returns by cashier, prices typed over, and each till's cash difference.
- Spot counts without warning. Count ten valuable lines on a random day, such as phones, cooking oil or spirits.
Inventory control methods
The methods below control how much stock you hold and in what order it leaves. Choose by how steady your sales are and how reliable your suppliers are.
| Method | How it works | Suits | Watch out |
|---|---|---|---|
| FIFO and FEFO | Sell the oldest, or the earliest-expiring, first | Anything that ages | New stock goes behind old on the shelf |
| LIFO | Costs the newest stock as sold first | No small shop: IFRS for SMEs doesn't permit it | Use FIFO or weighted average |
| Min-max | At the minimum, order up to the maximum | Steady sellers | Reset both levels each season |
| Just-in-time | Order only when you need the goods | Suppliers who deliver within a day | Imported lines that take weeks |
| Two-bin or three-bin | Opening the last bin signals a reorder | Screws, sachets, small cheap items | Refills from the store with no record |
| Fixed order quantity | The same amount each time stock drops to a level | Steady demand | Size it with the EOQ formula, then round to cartons |
| Fixed period | Order on set days; the quantity follows sales | A distributor's weekly van | A missed visit costs a week |
| Vendor-managed inventory | The supplier counts and refills | Drinks, bread, route deliveries | Count what they leave; see VMI |
| Par levels and safety stock | A minimum on hand, plus a buffer for late deliveries | Everything you reorder | A guessed buffer ties up cash |
FIFO is both a shelf rule and a cost formula. FIFO vs LIFO compares the two, and paragraph 13.18 of IFRS for SMEs allows only FIFO or weighted average for costing.
Par levels and safety stock decide most stockouts. How to avoid overstocking and stockouts works both through for one product.
Inventory control systems
A system is only as strong as what it stops. Choose by who can change a number and whether the change carries a name.
| System | What it records | What it can't stop |
|---|---|---|
| Stock book | Every movement, if someone writes it down | A missing entry; totals are added by hand |
| Stock cards (bin cards) | One card per product at the shelf: date, reference, in, out, balance | Anyone can write on a card; the till never updates it |
| Spreadsheet | Totals and stock value, with formulas | Anyone with the file can change any cell, with no name on the change |
| Basic inventory software | Each sale takes stock off; each movement carries a person and a time | A shared login, which puts every change under one name |
| Advanced software | Approvals, accounting, many warehouses and online channels | Its own setup cost, which most small shops don't need |
A point-of-sale system with stock built in is the step that matters most. It records the sale and the stock movement together, so the till can't sell without the records knowing.
Inventory control technologies
Technology cuts the errors people make when they type or pick, but it doesn't decide who may change stock. Three tools matter for a small business.
- Barcodes and scanners. A scan picks the exact product, so lookalike sizes stop being confused. A USB scanner or a phone camera does the reading. Clean codes come first: see SKU management.
- QR codes. They hold more data than a barcode and scan with any phone camera.
- RFID. Tags read by radio, many at once, without a line of sight. Tags and readers cost far more than printed labels; RFID vs barcodes sets out when each pays.
Inventory control KPIs
KPIs tell you whether the controls work. Track two that measure the records themselves, then the usual stock measures.
| KPI | Formula | Example | What it tells you |
|---|---|---|---|
| Record accuracy | Lines where the count matches the record ÷ lines counted × 100 | 176 ÷ 200 = 88% | Whether you can reorder from the records |
| Adjustment rate | Stock removed by adjustments in a month, at cost ÷ stock at cost × 100 | 95,000 ÷ 12,000,000 = 0.8% | How much vanishes between counts |
| Days inventory outstanding | Stock at cost ÷ cost of goods sold in a month × 30 | 12,000,000 ÷ 7,200,000 × 30 = 50 days | How long stock sits before it sells |
| Inventory turnover | Cost of goods sold in a year ÷ average stock at cost | 86,400,000 ÷ 12,000,000 = 7.2 times | How often the stock sells and is replaced |
| Stockout rate | Products at zero ÷ products stocked × 100 | 6 ÷ 300 = 2% | How often customers meet a gap |
| Order accuracy | Orders filled right ÷ all orders × 100 | 188 ÷ 200 = 94% | How often deliveries go out wrong |
The shop's cost of goods sold is its ₦9,000,000 of sales less the 20% margin: ₦7,200,000 a month, or ₦86,400,000 a year. Its stock is taken as steady at ₦12,000,000, so the average is the same figure.
Read record accuracy first. At 88%, about one line in eight is wrong, so every report built on the records is wrong in the same places.
Inventory holding costs complete the set: rent, power, insurance, interest and loss on the stock you keep. Accurate records lower them, because a shop that trusts its counts needs less buffer.
How to set up inventory control in ArmPOS
ArmPOS puts each control on a role, a setting or a report. These nine steps set up the tables above.
- Give each person their own sign-in. Every sale, return and adjustment then carries their name. See Add your team.
- Make one role per job. In User Management › Group Permissions, each panel has separate View, Create, Edit and Delete ticks. A cashier needs Point of Sales; leave Change product details, Sales Return, Reports and Settings off. See Roles and permissions.
- Keep each person to their branch. On the user's form, untick All Warehouses and pick theirs under Some Warehouses.
- Set a Minimum Selling Price. It sits under Pricing And Tax on the product form, and the POS won't accept a line price below it. See Add your first products.
- Receive on the count. Save a purchase as ordered, then set it to received after the delivery is counted. Attach the supplier's invoice from the purchase's menu. See Record a purchase.
- Approve transfers. A transfer moves nothing until someone allowed to edit transfers approves it. Use Sent while goods are on the road and Completed once they are counted in. See Move stock between warehouses.
- Keep Allow_Overselling off in POS Settings, so the till can't sell stock the records don't hold. See Receipt and POS settings.
- Count, then correct with a note. Products › Count Stock makes a sheet by warehouse and category. An adjustment corrects the difference, and breakages go in Damages instead. See Count and adjust stock.
- Review every week. The Stock Adjustment Report shows quantity removed and its cost. The Users Report counts each person's returns, transfers and adjustments. See Team and system reports.
Turn on the alert for a register closed short, so a cash difference reaches your phone that evening (Get alerts on your phone). The steps are the same for a shop in Nigeria or anywhere else.
Frequently asked questions
What is the difference between inventory control and inventory management?
Inventory management decides what to buy, how much and when. Inventory control makes sure the stock you hold matches your records and that each movement was allowed.
What are the two types of inventory control?
Preventive controls stop a mistake before it happens, such as permissions, approvals and minimum prices. Detective controls find it afterwards, such as counts, reports and the till's cash difference.
How often should a small shop count its stock?
Count a section every week, with fast and valuable lines more often, and count everything at least once a year. Cycle counting sets up the weekly rota.
Can one person handle inventory control in a small shop?
Yes, with checks in place of separate duties. The owner reads the adjustments, returns and cash differences every week, and nobody corrects their own count.
Start this week with two changes: a sign-in for every person, and adjustments taken off the till. To see who changed which stock and when, create a free ArmPOS account.
