11 Best Practices for Effective Inventory Management

Editorial Team

Inventory is synonymous with the business world. It refers to the goods handled by a company that is meant to be sold. It may be raw materials or even intangible goods like software. Inventory should be well managed to ensure the smooth flow and success of the organization. There are different types of inventory which may vary depending on the products sold by the company. Some of the examples are raw materials, work-in-progress, manufactured goods, safety stock, and finished product inventory.

Inventory management could be defined as the approach in sourcing, controlling, managing, storing, and selling the goods that should be done systematically. There are several key processes that should be paid attention to in managing inventory which includes tracking, buying, manufacturing, using to even selling. Managing and storing aside, pricing and costing are also important to be considered accordingly when the managing inventory of your business. In simpler words, inventory management is done by providing the right number of items at the right time at the right cost.

This article will explain eleven tips that may be practiced to improve your company’s inventory management.

1. Come Up with A Systematic System   

There is no specific system in dealing with inventory management. Some companies or businesses may opt for a different system than the others depending on their needs and requirements.

In systemizing your management, some of the key aspects that need to be regarded are demands, resupplied cycle times, safety stock, prediction, and many more. Some systems may work while some may not which are influenced by the kind of business your company is operating on. Hence, you may want to experiment with some systems and if it does not bear the fruition of success, it may be best to adopt a new one. However, being inconsistent may hinder a lot of processes in your business. You may want to review the best system in the store that may suit your company well.

It is also recommended to improve your company step by step. Start improving and revolving one sector then gradually improve the others rather than changing the whole system abruptly at one time. This may lead to more serious trouble if the system is deemed to be daunting to your business.

2. Prioritize Based on Your Needs

Having a warehouse that is full of inventory would be tedious and may confuse your employees. It is important to manage the inventory well and categorize them depending on their importance.

Some goods may have a higher demand than another. Hence it is crucial to prioritize the high demanding goods and keep restocking them necessarily. Some items may not need to be restocked too regularly.

Hence, it is crucial to pay attention to your customers’ needs and demands in order to manage your inventory well. One of the models designated for this step is as follows.

3. Adopting ABC Analysis

Have you ever heard of ABC analysis? It is a kind of technique in arranging inventory according to the hierarchy of importance. It is one of the specific models designated for the previous practice, prioritizing based on needs. A refers to the high demand items, highest priority stock with the need for continuous review, and reordering. B, on the other hand, are valuable items that are medium-priority. Items at B level are usually reordered monthly. Last but not least, C refers to items with the lowest demand and priority. Reordering of items in C level is done very rarely.

Adopting your inventory based on their importance, priority, demand, and value would help you to organize your warehouse efficiently. An organized warehouse will result in enhanced storage space as well as synchronizing order fulfillment. Besides, it may lower the risk of confusion among your employees. This kind of organization will improve the visibility of items as they would be aware of which items are more important than the others.

 4. Optimize Quality Control

Quality control is one of the most indispensable aspects to look into either you are a startup business or a long-running business. Quality equals customers’ satisfaction and ensures the growth of your business.

Some of the key aspects that should be paid attention to are signs of damage, products, and prices. It is important to address the issue immediately if your products show signs of damage such as tears, leaks, or broken seals. In terms of product, make sure the description provided in the advertisement matches the real products. It can be as simple as the color, size, and styles of the products. If the differences are unavoidable it is suggested to put notice warning that there may be slight differences in size, color and so forth.

If you notice that there are continuous damages on your products, it may be advisable to start pinpointing the cause of it. Some damage may also be caused by the place of storage. Some products may be prone to damages if not stored properly. Does your warehouse provide necessary humidity and temperature that may influence the quality of your products? If not, then it is time to start improving your warehouse.

5. Refining Pick and Pack System

The pick and pack process refers to procedures used by employees in fulfilling orders efficiently and smoothly. It comprises four basic yet crucial steps which are receiving, picking, packing, and shipping. This may sound trivial however the process behind it is more complex than it sounds.

In refining your pick and pack system, it is fundamental to organize your warehouse well. As mentioned earlier, it is suggested to organize your items based on their importance and priority. Remove any unwanted waste or outdated products. Double-check the orders to avoid errors and mistakes as well as ensuring precise accounting. Utilize pick and pack software in calculating the sizing as well as for data key-in. The other recommendation is by providing infill instructions to ease the task of packers in identifying the proper packing materials of the orders.

6. Reduce Your Inventory

Reducing your inventory benefits in a lot of ways. It provides you with lower inventory levels without the risk of being understocked. This may aid you to enhance the growth and profit gained for your business and further leads to cost savings.

There are many methods to reduce inventory. One of them is by reducing the variability of demand and improving forecast. Besides, eliminating outdated products and constantly modifying stock is fundamental as well. You may want to clear the stock by organizing sales and providing discounts.

The other method is by addressing issues related to capacity and lowering sizes of order, manufacturing lot, supplier lead as well as the number of items in your business. The other method that may be implemented is by reducing lead times and constantly reviewing suppliers to detect any ineffectiveness that may have affected your stock and business.

7. Adopting Vendor Managed Inventory

Another way that could smoothen your inventory management is by adopting vendor managed inventory or VMI. It is a model where the retailer provides information to the supplier and the agreed inventory of the goods will be fully managed by the vendor. The vendors will take responsibility for providing the stock when the time comes.

Using this model will lessen inventory in the supply chain and avoid accidental out of stock goods. It can also help to remove safety stock from your inventory as well as cutting costs related to purchasing goods. For this reason, the company does not have to provide large space or resources for high-level inventories.

Adopting this model will not only benefit the retailer’s behalf but also is advantageous for the supplier or vendor. This win-win situation may be preferred by both parties nowadays in competing with other competitors in the industry. However, be alert that everything in this world has its pros and cons hence it is best to study thoroughly on this model before abruptly resorting to it.

8. Utilizing Software

Managing your inventory manually is very tedious and challenging. Mistakes are more prone to happen. Hence, it is best to start utilizing a digitalized platform to ease the task of managing inventory. The simplest examples are barcode scanning and sale apps.

There are numerous available software or application designated to store and manage your inventory which may work for small or even on a larger scale. One of the benefits of utilizing software is it could ease the task, save time, money, and energy. Using software will provide automated data and information and without doubt, will lower the risks of mistakes and errors.

Another advantage of using software or applications is it could synchronize your inventory or orders throughout all the platforms you are using. Proper synchronization will help to adjust the number of stocks accordingly and prevent overselling which will affect customers’ satisfaction. The automation could also cut a lot of costs in managing your inventory. This platform may aid in data retrieval for long-term business, easing the process of auditing and reviewing.

9. Utilizing Cloud-based Platform

Some may think software and cloud are similar but they are not. Cloud-based inventory refers to more complex software that may have more upgraded features. To unlock these features, you are required to subscribe by paying a fee.

Utilizing cloud-based is helpful since the software companies will also throw in their effort to sustain the smoothness and efficiency of the software you purchased from them. That aside, most cloud software is equipped with a support team that may help you should you have any inquiries as well as facing any issues with the software.

The benefits of using this cloud-based software are quite similar to the benefits of normal application. It helps with automated data in terms of supply of chain, ordering, and so forth. Errors could also be minimized. Safety and security are also guaranteed since most data are instantly saved and stored remotely.

10. Coaching

There are multiple types of theories, models and formulas that are useful to be implemented when managing inventory. Some of the most common ones include economic order quantity (EOQ) formula, days inventory outstanding (DIO), reorder point formula, inventory turnover formula, and safety stock formula. If these formulas seem too foreign to you, it is time to start providing coaching on these especially among vendor managers.

It is recommended to send your managers for workshops or seminars to maximize the knowledge related to how to further improve the management of inventory. You may start to research any good seminars that provide training related to this aspect. Some seminars are even done virtually hence it could cut some transportation costs. Some courses or workshops may cost you a little bit. However, investing for your business advancement would surely bring betterment for your business for both the short or long-term. Some of the formula overviews could even be accessed online which are provided for free.

11. Regulate Appraisal

Performance is not the only thing that should be appraised regularly. It is also important to appraise inventory regularly in terms of the value, characteristics, demands, current market, and so forth.

Four of the most important inventory valuations include specific identification, First-In, First-Out (FIFO), Last-In, First-Out (LIFO), and Weighted Average Cost. By effectively implementing these four valuations, it may help to identify your gross income and discerning your financial position.

Aside from the retail products, it is also important to monitor everything related to your products. Regularly monitor the conditions of your warehouse. Does it abide to the SOPs provided? Are the cleanliness and organizations well taken care of? By doing this, it may further promote the quality of products sold to your customers, ensuring prolonged trust in your business.


Managing your inventory well will benefit your company in a lot of ways. Well managed inventory will prevent unnecessary transactions such as overselling materials which may result in future problems.

Managing inventory well will help to improve the efficiency of operation and the longevity of your business operation. Clear and organized inventory complemented with top-notch management will optimize fulfillment, lower costs, upgrade customer service as well as preventing the risks of facing loss. It will also provide apprehension about your finance, customer preferences, potential trends, and so forth.

This brief list may serve as the guide for you in enhancing the vendor management in your business or company. You may refer to any other related articles available on the internet for more information to further refine your management.