Inventory Management Best Practices: How to Manage Inventory the Right Way

February 23, 2023 - 12 minutes read

How to streamline your inventory processes for success.

Your inventory is one of the most important parts of your business. Without a clear-cut inventory management strategy, productivity will grind to a halt, and your brand reputation will suffer.

But if you take hold of your inventory management processes, you stand to improve your financial efficiency, boost productivity, and consistently meet the needs of your consumers.

To help you do just that, we’re going to explore essential inventory management best practices for modern retail and eCommerce businesses.

Let’s dive in.

Why is inventory management so important?

Did you know? Just 43% of small businesses track and manage their inventory. So, by improving your inventory management processes, you’re likely to get an edge over the competition.

The reason effective inventory management will push you ahead of the pack is that you will gain the ability to optimize every single process in your fulfillment and supply chain.

With effective inventory management, you will:

Improve your stock ordering and arrangement processes
Drive down unnecessary costs
Improve internal as well as supplier relationships
Uncover trends and insights that will spark commercial growth
Ensure you consistently deliver on your customer promises
Boost your brand reputation and build trust

How to get your inventory management right: Tips and best practices

Now that you understand the importance—and benefits—of utilizing inventory management best practices, let’s take a look at some.

Know your consumers’ needs

First of all, to optimize your inventory management strategy for continual success, you have to know your customers.

By gaining a deeper understanding of your consumers’ needs, pain points, and preferences, you will make more informed choices when it comes to ordering stock.

The best way to select an inventory that is likely to sell (and offer a healthy return on investment) is to get to know your audience and what they’re most likely to buy from your store.

The best way to do this is by creating buyer personas and segmenting your customers into specific groups based on their demographics as well as past buying behaviors.

To help you get started, here are two practical guides for your reading pleasure:

Use the FIFO method

Another inventory management best practice is using the first in, first out (FIFO) method that ensures your stock keeps flowing, maximizing your return on investment (ROI) in the process.

The FIFO method is beneficial to all businesses, but it’s especially effective if you sell any form of perishable goods or products with an expiry date (organic beauty products, for example). Here’s how it works:

You sell your goods or products in the same chronological order as you purchase or manufacture them.

Doing so will keep your inventory in excellent condition and give you a strategic framework that keeps everything flowing smoothly.

Find your low-turn stock

Another practical means of making sure you don’t keep wasting money on the wrong inventory is by taking the time to periodically identify your low-turn stock.

Prioritize seeking out stock that typically sits on the warehouse or storage shelf for 6-12 months. Doing this will empower you to stop investing in the products that are draining your time and budget while choosing items that are more likely to sell.

Audit your inventory regularly

Another key inventory management strategy that many retail and eCommerce businesses often overlook is carrying out frequent audits.

Auditing your inventory regularly will give you an accurate and objective account of your actual stock levels rather than a rough estimate. You can do this manually or by working with smart inventory management software (we’ll talk about this a little later). Whatever approach you adopt, doing audits will ensure you stay in control of your processes and strategies.

Always do quality control (QC) checks

When optimizing your inventory management processes, it always pays to do quality control checks. Weaving QC into your inventory management strategy will ensure you maintain a solid brand reputation, which will build customer loyalty.

Before products go out to clients or customers, you should have your team carry out swift yet detailed QC checks. If something is damaged, worn, or substandard, you’ll be able to ensure it doesn’t go out to your customer.

If you spot a trend where a particular inventory item or product is flagged as faulty, you can address the issue before it spirals out of control, such as a poor supplier or problems with how you store your inventory.

Train your inventory team or partners

Another vital aspect of inventory management is providing the right level of staff training. Doing so will ensure that all of your processes and systems remain active and consistent, resulting in sustainable success.

Running regular inventory management workshops will give your staff or colleagues the skills and tools to perform to the best of their abilities. If everyone is pulling together and has the intelligence they need to succeed, your inventory management processes will generate your business healthy levels of profit.

Group your inventory

Another effective way of keeping your inventory organized and making informed promotional decisions is by grouping or categorizing your inventory according to its monetary value.

This small yet significant strategic tweak will improve the way you store your inventory, speeding up your fulfillment processes. It will also give you a solid overview of your inventory when it comes to running promotions or marketing campaigns. With categorization in place, you can decide how much of your assets you’re willing to invest in terms of merchandising and promotion.

Set up minimum stock level alerts

Whether you do this manually or with an automated tool, setting minimum stock alerts for your inventory will ensure you never run out of particular items or over-order them.

Setting minimum levels for every batch of items in your inventory is a good idea because when you reach them, you can re-order the right amount. Keeping a record of the time it takes for items to reach these levels is also an excellent way to track the success of your inventory choices. If you spot items that are taking a long time to reach minimum levels, for instance, you could reconsider replacing them with something that’s currently trending—which brings us to our next point.

Forecast trends and demands

Forecasting market trends and demands is one of the most valuable best practices on our list.

In addition to getting to know your customers, you can also explore key trends in your niche or industry, you will get a firm grip on what inventory is selling well. Gaining an understanding of market trends while keeping a firm eye on the competition will not only help you make the best investments but also position you as a go-to brand.

Here are a couple of publications you should follow to keep up with the latest trends:

Retail Bum
Retail Dive
OmniTalk
Sourcing Journal

Work with the right tools

Last but certainly not least, to succeed with your inventory management strategy, working with the right tools is vital.

We live in a digital age where technology moves at warp speed. As such, superior inventory management processes command tools and platforms that can help you tie every best practice together in a way that is informative and intuitive.

You no longer need to rely solely on laborious manual processes; you can streamline everything from one tool or platform.

The best inventory management tools:

Integrate with existing tools and platforms in your business ecosystem
Scale seamlessly with your business
Serve up automated reports and data that is easy to understand
Meet your exact inventory management needs, goals, and requirements
Empower everyone in the business to work to the best of their abilities

Final thoughts

“If you want to succeed, you should strike out on new paths rather than travel the worn paths of accepted success.”—John D. Rockefeller

Good inventory management is the cornerstone of any successful retail or eCommerce business. Your inventory management choices are, in many ways, linked to your sales, merchandising, and marketing efforts. A solid inventory management strategy will build the very best foundations for your business, so it’s worth your time and investment.

In addition to working with the right tools and following best practices, showing solid leadership and sticking to your convictions will get you where you need to be—and beyond.

We wish you the best of luck on your journey. And for more business-boosting tips, read The Art Of Upselling: How to Maximize Your Profit & Improve the Shopping Experience.