Inventory Management Techniques: What You Need to Know

Effective inventory management is an essential part of a well-functioning business. It is used to determine sales, business costs, and financial projections, and the right inventory management process ensures efficient production and streamlined warehouse operations. 

Though vital to operations, many business managers struggle with inventory management. 43% of retailers ranked it as their number one day-to-day challenge. There are many different inventory management methods out there, and what works for another business may not work for you. 

What is Inventory Management? 

Inventory management is the process of ordering, handling, storing, and using a company’s stocked goods or non-capitalized assets. It is a step in the supply chain where stock is tracked in and out of your warehouse: monitoring weight, dimensions, amounts, and location. For some companies, stock involves raw materials and components, while others only deal with finished items. 

The goal of the inventory process is to minimize holding costs while optimizing inventory. Through keeping track of inventory, a business knows when to restock products or buy more materials to manufacture them. This ensures little to no out-of-stocks or overstocks. 

Inventory Management Techniques and Methods 

Tools and techniques used for inventory management are different for each company. However, this is a highly customizable part of doing business. That means the optimal technique for your business is likely to be a combination of more than one method. What are the inventory management techniques used by most businesses? Below are some prominent examples. 

• Bulk Shipments

Bulk shipments are one of the most cost-efficient inventory management strategies, as this method banks on the notion that it is usually cheaper to purchase and ship goods in bulk. Bulk shipment inventory management is mostly applied for goods with high customer demand that will sell out fast. 

• Back Ordering 

Backordering refers to a company’s decision to take orders and receive payments for out-of-stock products. It is an effective method for small retailers, as it helps to reduce the chances of overstocking. Labels such as “pre-order” are used to collect back-orders from customers. 

• ABC Analysis 

This stock management process involves categorizing and prioritizing the restocking of products in order of importance. Category A products are those that are most profitable and valuable, thus most important, while C products are usually slow-moving or dead stock. 

• First In, First Out (FIFO)

(FIFO) is one of the most utilized inventory control techniques by sellers of perishable products. It operates by a process where the oldest stock (first in) gets sold first (first out), not your newest stock. 

• Dropshipping

If you want to eliminate the cost of holding inventory altogether, dropshipping is one of the best inventory management techniques you can use. With dropshipping, a store purchases the item ordered from a third party and has it shipped directly to the consumer. They do not see or handle the product itself. 

• Just in Time (JIT)

This is where companies purchase inventory a few days before it is needed for distribution or sale, or raw materials are ordered from suppliers in direct connection with production schedules. This inventory management process helps organizations save on inventory holding costs, as well as eliminate the possibility of deadstock. 

Inventory Management Process

The systems and supporting processes of inventory management are vital to an efficient warehouse. They include: 

• Merchandise planning.
• Purchasing and purchase orders.
• Transit monitoring.
• Receiving, checking, and putting away stock.
• Customer order fills at the store level.
• Customer order fulfillment and relieving inventory in the warehouse.
• Allocation and reservation of items to an order in the network.
• Returns processing and disposition as saleable.
• Inventory adjustments. 

Implementing an effective inventory management system makes it possible to accomplish these goals with maximum workflow efficiency, optimal return on investment, and minimum expense. 

Inventory Management Strategies & Best Practices 

Follow these best practices to get the most value out of the tools and techniques used for inventory management. 

1. Make sure your warehouse, or any other spaces used for inventory, are easily accessible and in a fairly central location. 
2. Plan and organize your warehouse properly to make the process of retrieval and storage efficient. 
3. Evaluate warehouse floor plan and layout efficiency every few months. This will help you notice any problems with storage, spacing, or inventory process. 
4. Optimize your inventory to have just the right amount of products in stock. Establishing the minimum and maximum level of stock at any given time will help achieve this. 
5. Get rid of dead or slow-moving stock that takes up warehouse space by holding promotions or offering discounts. 
6. Cycle counting should be an essential component of your weekly or even your daily routine as it helps a business properly analyze product flow. 

Revel Systems Simplifies Inventory Management

If you’re looking to improve your inventory management, Revel Systems can help you eliminate the outdated inventory control methods that are taking all your time and costing you money. Contact us to learn more.