Inventory Management: The Key to Running a Smooth Business


Last Modified: September 14th, 2021

10 min read

Inventory management is a crucial aspect of running a successful business. If inventory levels are not maintained, it can lead to various problems for your company including late deliveries, inventory shortages, and inventory overages. In order to make sure you have the right inventory at all times, there are different types of inventory management strategies that you should be aware of. We will discuss what inventory management is and how it benefits your business as well as the different types of inventory management techniques available to use in your operation.


What is inventory management?

Inventory management is the process of monitoring inventory levels and ensuring that your inventory does not become too low or overflow. This will help to prevent you from running out of inventory before a new order can be placed with your suppliers, causing late deliveries for your customers. If inventory overages occur, it’s possible that some items may expire before they can be sold.

Inventory management can help you keep inventory levels where they need to be for your business, but it’s important that inventory is not managed too closely as this could lead to a chain of other problems including inventory shortages and overstocks. We will discuss inventory management techniques in more detail shortly so you have an idea of which technique would work best for your inventory.

What are the benefits of an optimized and automated inventory management?

There are many different reasons to implement inventory management strategies, so it’s important that you understand these benefits before putting a system in place to help manage your inventory levels. Some of the most common inventory management benefits include:

Inventory space is used more efficiently when inventory is managed closely.

Products can be reordered before they become inventory overages, preventing inventory from going to waste and saving your company money in the process.

You will have a more accurate view of inventory levels across different locations or stores that you operate which helps increase accuracy when forecasting future orders as well as tracking inventory movements between those locations.

Inventory management allows inventory levels to be monitored more closely so it’s easier for you to identify trends in inventory demand, allowing your purchasing process and production schedule to be fine-tuned accordingly.

Inventory management is a great way of getting the most out of inventory space as well as ensuring that inventory does not expire before being sold. By having inventory levels managed closely, inventory management can also help you find trends in inventory demand that can be used to improve your purchasing process and manufacturing schedule.

Some common issues in inventory management

It’s important to note that there are certain inventory management issues that can arise when inventory is managed too closely. These inventory management problems include:

  • • Limited visibility

It creates shortages, delays, and incomplete, incorrect, or delayed shipments when your inventory is difficult to identify or find in the warehouse. By having limited visibility of your inventory levels, it can be difficult to identify trends in inventory demand that could help you improve your manufacturing schedule.

  • • Manual processes

Manually tracking and managing inventory with paperwork and manual processes is time-consuming and tedious. This is a common inventory management issue as inventory is often mislabeled or misplaced, resulting in the wrong items being ordered and shipped to customers.

  • • Faulty tracking system

Manual inventory tracking methods across numerous software and spreadsheets are time-consuming, overlapping, and prone to mistakes. It’s important to find inventory management tools that provide accurate and up-to-date inventory information.

  • • Warehouse disorganization

Inventory can be difficult to find and inventory managers may have trouble keeping track of inventory in a disorganized warehouse. Inventory can be delayed when it takes too long for inventory managers to locate inventory with manually tracking inventory making it difficult for you to track your inventory levels across different locations.

  • • Supply chain problems

With the current global crisis effect expected to last for years, inventory levels are holding out against pressures from logistical constraints and rapidly changing consumer demands.

Inventory management can help you keep inventory levels where they need to be for your business, but it’s important that inventory is not managed too closely as this could lead to a chain of other problems including inventory shortages and overstocks. We will discuss inventory management techniques in more detail shortly so you have an idea of which technique would work best for your inventory management needs.

Inventory management techniques:

Inventory management is a crucial aspect for any business today as it allows companies to make sure inventory levels are where they should be without overages or shortages occurring. However inventory levels should not be managed too closely, or inventory management can result in inventory shortages and inventory overages which will make the problem worse. There are different inventory management techniques that you can use to help keep your inventory at optimal levels without going overboard with inventory management.

  • 1. Just-in-Time (JIT)

The goal of Just-in-time inventory management is to avoid overstocking and shortages by only placing orders for inventory as it’s needed. This will help you make sure that inventory levels are where they need to be without having too much of a good thing, so your inventory space can be used more efficiently.

  • 2. Consignment

With this type of inventory, you will be required to pay for the inventory before it’s in your hands and ready to use. This method helps businesses avoid overstocking or shortages while ensuring that they always have enough inventory on hand when it needs to be used for production or taken to market.

  • 3. ABC Analysis

This inventory management strategy helps companies identify what inventory items they should keep in stock and which inventory items can be marked down or discontinued.

The ABC Analysis focuses on identifying three inventory categories: A, B, & C. Inventory that falls under category A must always remain in inventory and in stock. Inventory that falls under category B is inventory items that can be discounted or marked down in price to ensure they are sold quickly, but it’s still important for these inventory items to have a place in inventory so you don’t run out of them altogether if needed. Inventory that falls under category C can be discontinued or marked down in price to ensure it’s sold quickly, and these inventory items do not need to stay in inventory as they will likely never sell.

  • 4. Demand Forecasting

This inventory management strategy helps companies by predicting future inventory demand in order to determine how much inventory space they will need when it’s needed.

Demand forecasting helps with determining what kind of inventory levels your business should aim for. It also allows businesses to make sure that their inventory levels are where they should be to avoid overstocking or shortages.

  • 5. FIFO and LIFO

With this inventory management strategy, the inventory item that was first purchased or received will be used up before inventory items are taken out of inventory. FIFO helps businesses make sure they aren’t wasting any inventory space by using older inventory items over newer inventory items.

FIFO inventory management also ensures that inventory is used up in the order it was bought or received, which can help businesses avoid shortages by using inventory items before they expire or become out of date. This inventory management technique requires keeping detailed records to determine which inventory item should be taken next when inventory needs to be used up.

LIFO inventory management is a method that helps businesses avoid overstocking inventory items by using the most recent inventory item in inventory before older inventory items are used up. LIFO allows businesses to use newer inventory first, which can reduce costs when it comes time to sell or discard old inventory items since they will have less value than inventory items that are newer.

LIFO inventory management also ensures inventory is used up in the order it was bought or received, which can help businesses avoid shortages by using inventory items before they expire or become out of date. This inventory management technique requires keeping detailed records to determine which inventory item should be taken next when inventory needs to be used up.

  • 6. Batch Tracking

This method allows businesses to monitor inventory levels by breaking them down into smaller groups of items. Batch tracking can help companies track inventory at different stages in the production process, which helps with keeping up with production and ensuring there are no delays or hiccups along the way.

Batch inventory management can also help companies save money by making sure inventory items aren’t wasted or lost. This inventory management technique requires keeping detailed records of inventory batches so they can easily be identified when needed. Batch inventory management allows inventory to be used up sooner than if inventory was not managed in batches, which can reduce costs when it comes time to sell or discard old inventory items since they will have less value than inventory items that are newer.

  • 7. Materials Requirements Planning (MRP)

This inventory control method helps companies plan ahead for inventory by determining what materials are needed to make products so customers can be supplied with their orders in a timely manner.

MRP also allows businesses to forecast inventory levels and how much work will need to go into manufacturing or production inventory items. This inventory management strategy helps businesses plan ahead and make sure they have adequate inventory levels to meet customer demand, which can help avoid delays or shortages that could hurt a business’s reputation. MRP also allows businesses to predict future inventory demands in order to determine how much inventory space they will need when it’s needed.

  • 8. Perpetual Inventory Management

With this inventory control method, inventory items are counted and tracked as they come in and go out of inventory. This inventory management strategy is similar to FIFO because it ensures that inventory items aren’t wasted or misplaced.

Perpetual inventory management allows businesses to better track their inventory by using a perpetual system instead of the traditional stock-taking inventory method. This inventory management technique is beneficial to businesses that rely heavily on inventory, such as retailers or grocery stores because it allows them to track their inventory more closely and know how much inventory should be available at any given time so they can provide customers with the items they need in a timely manner without running out of inventory.

  • 9. Economic Order Quantity (EOQ)

This inventory management strategy determines the quantity of inventory that should be purchased at a time in order to save companies the most money. EOQ helps businesses avoid purchasing too much inventory or not enough inventory by determining what size orders are more cost-effective for their business so they can save on costs when it comes time to sell or discard old inventory items.

  • 10. Bulk Shipments

This inventory management technique allows businesses to save money by bundling their inventory items into larger shipments that are then sent out for delivery. This strategy works well with inventory items of the same kind and size so they can be shipped together without wasting space or time in transit, which can help lower shipping costs and reduce packaging waste when it comes time to sell or discard inventory items.

  • 11. Cross-Docking

Cross-docking inventory management involves moving inventory items from inbound shipments directly to outbound shipping without storing them, which can help businesses save time and money since they will not have to pay for the extra storage space that would be used up by inventory that is not immediately shipped.

This inventory control method works well with small or medium-sized businesses that handle inventory items that are not especially time-sensitive because it can prevent delays in inventory shipments. This inventory management technique is also beneficial to businesses with less available storage space since inventory items will not have to be stored before they can be shipped out which means there won’t be any extra materials taking up valuable inventory space.

  • 12. Lean Manufacturing

Lean inventory management is a business practice that strives to reduce waste and save time, money, and resources by streamlining inventory processes so businesses can improve their workflow. This inventory control method works well with companies that produce large quantities of products or work with bulk materials because it helps ensure that inventory items are not wasted or mismanaged which can help prevent delays or inventory shortages that might negatively affect a company’s reputation.

  • 13. Six Sigma

The inventory management process of Six Sigma is an inventory control method that helps inventory owners determine how many inventory items they should have on hand at any given time to reduce waste and increase customer satisfaction. This inventory control technology can help businesses save money because it reduces the number of unnecessary inventory purchases, as well as saves time since only necessary inventory orders are placed.

  • 14. Lean Six Sigma

The approach of Lean Six Sigma is to improve the tools of Six Sigma. To minimize waste and improve process quality levels by lowering costs and reducing rework.

  • 15. Dropshipping

This inventory management method can help businesses save money on costs and provide their customers with the inventory items they need in a timely manner. Dropshipping inventory management involves finding reputable suppliers or manufacturers that sell inventory items, then purchasing those inventory items from them so they can be shipped directly to customers without any additional purchases needed by the business owner who is using this inventory control technique.

This inventory management method works well for small or medium-sized businesses that handle a variety of inventory items and need to be able to keep them in stock at all times, but do not have the resources available to purchase bulk inventory themselves. By using dropshipping with suppliers who sell their own products and ship directly to customers, inventory management costs are reduced significantly since businesses only have to pay for the inventory items they need instead of purchasing bulk shipments.

The inventory process is constantly changing, with new inventory management techniques being developed every day that can benefit companies in many different ways. It’s important for business owners to stay up-to-date on these changes so their inventory management techniques are as efficient and cost-effective as they can be.

  • 16. Reorder Point Formula

The reorder point formula is an inventory management technique that helps inventory owners determine the specific inventory items they should plan to reorder so business operations run smoothly and inventory levels remain at an optimum level. This inventory management technique works well for businesses that sell inventory items via online stores because it allows them to automatically place orders for more inventory when their stock has reached a predetermined low point or “reorder point”.

This inventory control method works well for inventory owners that work with bulk materials or large quantities of inventory items since it helps ensure that they receive the correct amount of inventory before any out-of-stock situations can occur.

  • 17. Safety Stock

The safety stock inventory management technique helps inventory owners determine how much inventory they should purchase as a “safety net” so there are never any gaps in inventory levels. This inventory control method works well for companies that work with large quantities of inventory or sell bulk materials because it ensures they always have the correct amount on hand to avoid out-of-stock inventory situations.

This inventory management technique can help inventory owners avoid inventory shortages, which could lead to a loss of customers and revenue if the business cannot provide its services without any delay due to an inventory shortage.

  • 18. Minimum Order Quantity

The inventory management technique of using minimum order quantities helps inventory owners determine the lowest inventory purchase amount they should require so it is both cost-effective and efficient for inventory to be reordered. This inventory control method works well with companies that work with large quantities or bulk materials because it helps ensure that only a small number of items are ordered at any given time.

When inventory owners use minimum order quantities for their inventory, they can save money on the cost of inventory reorders because only a small number of inventory items are purchased at any given time instead of purchasing bulk shipments all at once. This is particularly helpful for businesses that sell both wholesale and retail goods since it allows them to purchase inventory in smaller amounts to sell at retail prices while purchasing inventory in bulk for wholesale orders.

Need help with inventory management?

Inventory management is a necessary, but often overlooked part of running any business. Inventory control methods help you save money and avoid inventory shortages by managing your inventory effectively so it’s ready to go whenever needed. If you’re not sure where to start or want some tips on how to manage inventory more efficiently, contact us now (email info@excelym.com) for more information on our inventory solutions.

Serge Ybanez

Serge is a Managing Partner, and also heads Sales and Business Development.

Published on: September 13, 2021