10 Ways to Sharpen Your Inventory Management Techniques


Sonia Khosla


Mar 12, 2024
image of a person inside a fulfilment warehouse
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When you think of a successful business, what’s the first thing that comes to mind? Inventory management isn’t always at the top of your to-do list but it’s a fundamental piece of the puzzle. Have you noticed how some store shelves are consistently stocked and some are always out of stock? There’s a good chance that the store with the consistently fully stocked shelves have a good inventory management system.

What is Inventory Management?

Inventory management is a system to keep track of goods in and goods out. It’s a way for retail and eCommerce businesses to track the lifecycle of their stock and inventory as it enters and exits the store. Inventory management is an integral part of the supply chain where inventory and stock quantities are tracked in and out of your warehouse.

If inventory management isn’t up to date or you lack a system, you can deplete your stock without having reorder decisions in place to replenish your inventory in time.

“Over 70% of online shoppers would search for an item elsewhere if it was unavailable, rather than wait any length of time for it to come back in stock.” - Repricer Express, 4 Top Ecommerce Inventory Management Stats

When an item is out of stock online, you need to have a system in place so you know how much inventory to allocate to each channel. Learn more about the basics of inventory management with our guide here.

What happens if you don’t use an inventory management system?

You will likely lose customers because you end up with too much or too little inventory for products that may or may not sell at all. All of this inventory will build up leaving you with an inaccurate number of products when you need it the most.

As online shopping continues to rise, warehouses and order fulfillment centres are opening across Australia to compete and offer discount shipping rates and faster delivery times than 3PL giants, like Amazon.

That’s why all businesses- retail, eCommerce, brick-and-mortar must have an inventory management system in place to scale and grow your business.

This way, at any given time, you know how much stock you have on hand and where it is located.

Using an inventory management software gives you the ability to create a personalised integration flow based on the needs of your business. You can integrate one supply chain process with other parts of your business like shipping, point of sale, and multi-channel management. Invest in a reliable inventory management system because without it, you risk losing shipments, low stock or out of stock, and more.

Here are some key inventory management techniques that will help you stay organized and on top of your stock flow and inventory.

1. Minimum Order Quantity

a hybrid office and commercial storage space

The minimum order quantity is the lowest set amount of stock that a supplier is willing to sell. If a retailer is unable to purchase the minimum quantity of a product, the supplier will not sell the stock. Use this technique to get rid of stock quickly.

For example:

If you can’t purchase the MOQ of a specific product, then the supplier won’t sell it to you. Typically, inventory items that cost more to produce will have a lower MOQ than low-ticket inventory that are cost-effective and easy to make.

2. Batch Tracking

Batch tracking is a quality control technique that is used to monitor a set of stock with similar properties and traits. It’s a system that allows you to group and monitor items based on expiration dates and/or track and trace defective items.

For example:

If your items have a limited shelf life, use batch tracking to easily locate and pick usable inventory based on manufactured date and expiry date to help you stay ahead of expiring stock to pick items from usable inventory batches.

3. Dropshipping

a pile of ecommerce stock orders

Dropshipping is becoming increasingly popular because it is a popular inventory management fulfillment method used by sellers who don’t actually have any physical inventory on hand. The method allows stores to sell products that they don’t actually keep in store. The products are stored in a wholesaler warehouse facility and are shipped directly from the warehouse to the customer.

For example:

You can run a dropshipping business from anywhere. It requires minimum capital investment and you don’t need a warehouse or thousands of dollars to stock inventory. It can be an easy way to manage your inventory and orders as they come and go.

4. Demand Forecasting

Demand forecasting is a familiar inventory management technique to retailers. It is based on making informed estimations on future customer demand based on historical sales data. Use demand forecasting to calculate an estimate of the expected forecast of customer demand over a period of time.

For example:

Use this inventory management technique to forecast customer satisfaction, supply chain management and profitability to optimise inventory and increase inventory turnover rates.

5. Cross-docking

image of a cross-docking warehouse

Cross-docking is an inventory management technique used as a “just in time” shopping process because there is no storage between deliveries. This technique occurs when an incoming truck unloads product or materials directly into an outbound truck.

For example:

You can use cross-docking to increase speed and productivity of your supply chain to improve efficiency and handling times.

6. ABC Inventory Analysis

ABC Inventory analysis is the classification of inventory into different categories. The categories A, B and C are given to indicate the importance of stock to the business. The category of an item determines the impact it has on the overall inventory cost. This inventory management technique is also an example of the pareto principle, or 80/20 rule. The rule suggests that 80% of a company’s turnover is generated by only 20%.

For example:

Category A: the most valuable products in your stock that contribute the most to overall profit

Category B: the products that are in the middle between the most and least profitable

Category C: the small transactions that are essential for overall profit but don’t hold much weight individually to the company altogether.

7. Perpetual inventory management

Perpetual inventory management is the inventory management method that tracks when stock is received or sold in real-time through an automated process. The inventory management system used will track changes in inventory at the point of sale.

For example:

Inventory is counted and continuously updated as goods are bought and sold. This method is the most basic inventory management technique and can be done manually or using a spreadsheet.

8. Consignment inventory

Think of your local consignment store. This inventory management technique follows a similar concept. Consignment inventory is when a wholesaler or vendor gives a retailer their goods without having to pay upfront. The vendor supplying the inventory still owns the goods and the consignee pays for the stock only when they sell.

9. FIFO and LIFO

stack of boxes in an inventoy warehouse

One of the most common inventory management systems is the first-in-first out and last-in-first-out methods. The LIFO and FIFO are used to determine the cost of inventory. FIFO or First in, First out ensures that older stock sells first. LIFO, or Last-in, First-out is used to ensure newer inventory is typically sold first.

For example:

FIFO is a great way to keep inventory fresh and LIFO helps protect inventory from going bad because it ensures that newer inventory will be sold first.

10. Economic Order Quantity

Economic Order Quantity (EOQ) is a common formula used to find the ideal order quantity a company needs to purchase to reduce inventory costs like storage costs, holding costs and order cost. This inventory management technique is used in situations where orders and demand stays constant over time.

For example:

As the size of inventory grows, the cost of holding the inventory rises. The cost of ordering inventory falls with the increase in ordering volume due to purchasing on economies of scale. If you experience difficulty in determining the exact number of items needed to refill stock, the EOQ formula can help calculate the ideal number of units of each product to reduce costs for the supplier.

Finding Success in Optimised Inventory Management

Inventory is the foundation of a scalable business so it is important to treat it as a priority. The success of your business depends on your ability to keep up with customer demand. In order to make money and save money, you need to nurture your most valuable asset, your inventory. Implementing these inventory management techniques will help you stay on top of your stock flow to scale and grow accordingly.

Get set up with an inventory management system so you can use these techniques to stay on top of your supply chain.