Last Updated on Feb 22, 2022 by James W

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Any business requires ample products to sell and adequate staff to provide services. Even service providers need equipment and products in their inventory to deliver services effectively, without delays.  They also know that terrible inventory management practices can quickly derail their business, costing them money. With that said, let’s talk about what inventory management is.

What is Inventory Management?

Inventory management is a practice that helps businesses optimize their inventory space. Organizations use inventory management techniques to order, store, and sell their raw materials and finished products.  

How Does bad Inventory Management Cost you?

Inventory is a current asset. Current asset refers to assets that companies can get cash for within a year to cover short-term expenses. It requires companies to sell their products quickly, which requires the right inventory management strategy. Failure to implement the right strategy can have unwanted consequences. Some of them are:

  • Holding Costs: The longer businesses hold their inventory, the more they must pay. 
  • Missed Opportunities: If an organization does not have enough stock, it can cost them sales. 
  • Overstocking Expense: Overstocking requires businesses to own or lease extra space for storage, which leads to more costs.

Inventory Management Benefits

Businesses can’t do without inventory management. Following are some of its benefits.

  • Know When to Restock: Accurate record-keeping will make it easier for companies to know when to restock and avoid overstocking, understocking, and ordering products that no longer sell. 
  • Deliver Supplies on Time: Whether companies deliver supplies to businesses or customers, they must never be late with their shipment. Organized inventory will help them ship products faster, keeping customers satisfied.
  • Organized Warehouses: An efficient inventory management strategy will keep companies’ warehouses organized, save costs, and improve the fulfillment of products.
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Interested in Inventory Management?

An online MBA in Supply Chain Management Program can teach you the skills required to have a great career in this field. Professionals who know the art of inventory management are in demand. Organizations are paying top salaries to secure the services of these professionals. Even as an entrepreneur, you can educate yourself in this area and oversee supply chain operations. With that said, let’s talk about great inventory management tips for a successful business.

Tip #1: The ABC Analysis

The first step is to develop an inventory management plan before optimizing it. The ABC analysis is a straightforward inventory management system you can apply and build on. It divides the warehouse items into three categories:

  • A Items: These are the top priority items for businesses. They generate the most profit, and organizations should always have them in stock. Items usually include raw materials necessary for manufacturing products.
  • B Items: These items are not as crucial as A items, but they are still important. They generate a decent profit, and companies should have some stock of B items. Items usually include less utilized raw materials. 
  • C Items: These items are not very profitable but still aid in a company’s success. Items can include finished products or inexpensive raw materials. 

Listing items in specific boxes can help businesses know which items need restocking and which items belong in which category.

Tip #2: Reduce Human Error

Humans make mistakes. Implementing an inventory management system can reduce human error and take the manual inventory logging out of the picture. Organizations should use software that is easy to use for employees. In addition, they should sync the software with the store’s SKUs. SKUs are distinctive numbers used to identify products. They are used to track inventory between online and physical stores. An online order system coupled with a barcode scanner are tools used for tracking inventory. 

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Tip #3: Do Warehouse Management & Housekeeping

Businesses must efficiently manage their warehouse. To do so, they must do housekeeping and warehouse management. Housekeeping includes keeping work areas clean and organized ensuring that the floors do not cause any slip or trip hazards. It also includes knowing the facility’s layout, ensuring that it has enough storage space, and regular maintenance. Lastly, it also includes preventing accidents and fires. Warehouse management includes receiving and organizing storage space. It also includes scheduling employees shifts, managing inventory, and customer orders.

Tip #4: Apply Supply Chain Management

Supply chain management is a crucial part of inventory management. Without it, all efforts that businesses put in are futile. Supply chain management refers to managing the flow of products from the supplier to the warehouse. It also includes creating final products out of raw materials. Businesses can optimize their supply chain using supply chain management to gain customers’ trust and an edge in the market. To do so, they can see how long it takes them to receive their order after placing it. If there are problems anywhere in the supply chain, they can have their supply partner remedy the situation.

Tip #5: Avoid Overstocking

As mentioned before, overstocking can cost businesses extra money. The storage space in warehouses is extremely valuable. Therefore, organizations should only keep an inventory of products they need plus safety stock. Safety stocks are the extra bulk of products available in an out-of-stock situation. It is insurance against a sudden increase in demand. In addition, businesses must perform regular audits and monitor sales to see which products are selling and which are not. Products that sit long enough on the shelf are called “dead stock.” It means that these products most likely will not sell. Lastly, another good practice to implement is just-in-time (JIT) production. It means that businesses only keep enough raw material for production and order more when required.

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Tip #6: Know When to Reorder Stock

Organizations must know when they need to restock on products or raw materials. They can do this by setting a reorder point. Reorder point is when companies must reorder more products or raw materials. It can help businesses keep healthy inventory levels and avoid constant check-ups on inventory. Some inventory management systems allow companies to set a reorder point, which, when reached, can trigger automatically. However, organizations will have to readjust their reorder point over time. It is because demands for products can increase or decrease at any given moment. Regular inventory management can keep companies updated on stock levels and plan accordingly. They can remove dead stock to free up space for products in demand. 


Inventory management is critical for every business to succeed. It allows companies to cut operating costs, deliver products to their customer on time, and gain a crucial advantage in the marketplace, ultimately leading to long-term success. 


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