Effective inventory management benefits from having a clearly defined process. But good inventory management can also be enhanced by the implementation of good inventory management software.

But before diving into what that means for your business, what exactly is effective inventory management?

What is Effective Inventory Management?

Inventory management is the practice of successfully charting and tracking your business’s inventory. At its best, good inventory management has the ability to:

  • Improve inventory levels
  • Increase warehouse productivity
  • Maximize profits

Good inventory management is critical for a successful business. But a surprising number of businesses struggle to establish good inventory levels. Oftentimes, businesses find that their stock levels are insufficient to match supply demand. And while that saves money since there’s no excess stock, it’s also a guaranteed way to drive customers elsewhere.

Other businesses anticipating this possibility opt for the other extreme, investing in supply that exceeds demand. On paper, this might look like good inventory management since there is now always available stock. But it also costs money the business may not have with no guarantee of recouping the expense in sales.

Effective inventory management prevents these extremes and successfully navigates a middle ground. With thoughtful work and constructive planning, it’s possible to establish an inventory management system that caters to the demand of your business.

In Retail Warehouse Manager Uses Computer with Inventory Checking Software and Talks with Storehouse Worker about Package Delivery.

What are the Three Major Inventory Management Techniques?

There are various ways to manage inventory, but some have more popularity than others. The three most prevalent are:

  • Push system for inventory management
  • Pull system for managing inventory
  • Just-in-time inventory management system

In the push system, inventory travels from supplier to business warehouse, which pushes supply onto the business anticipating falling inventory levels. For it to be an effective inventory management system, it relies on employees having detailed sales forecasts for their stock.

Conversely, the pull system relies on stocking an item as and when a customer asks for it. Rather than traveling down the supply chain, goods travel up it. This works effectively as a form of inventory management for low-demand or expensive items. However, it’s unusual for a business to apply the pull system across the board.

The Just-in-time system relies on ordering supply “just in time” to meet a customer’s demand. For this kind of inventory management to be effective, it is dependent on open communication between suppliers, vendors, and third-party involvement. Otherwise, there’s a risk the customer’s needs can’t or won’t be met in a timely fashion.

Whatever inventory management system you opt for, there are still things you can do to enhance the efficacy of your inventory levels and management.

Common Warehouse and Inventory Management Systems

A number of systems are commonly used throughout this industry to help steward jobs and make the industry better overall. Some of them are universal, and others may pertain more to one category over the other. We should state that an inventory management system is slightly different from a warehouse management system.

Inventory Management Systems

Inventory management systems are the processes used to track inventory throughout your warehouse and supply chain. These processes can be extensive, and they can be very simple. But, they always have a few key metrics that are tracked.

A good inventory management system is going to track incoming orders, stock levels, and outgoing orders. This will allow you to know when you should be shipping and when you will be receiving or sending out orders.

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The simplest of ways to track your inventory is with a spreadsheet, and some of the most robust ways include fully customizable inventory management software systems. TopShelf from Scout is a great example of a customizable software solution that can integrate with your point of sale platform and warehouse to track your incoming and outgoing orders as well as stock levels. This helps you keep up to date on where your inventory is without dedicating a lot of working hours to it.

Warehouse Management Systems

Unlike an inventory management system, a warehouse management system will offer more features and the ability to track different metrics throughout your warehouse and not just your inventory. Almost all warehouse management systems will track inventory to some extent, but it’s rarely the primary focus of the software or process.

One of the main focuses that a warehouse management system will have is the ability to track employees and help them pick, pack, and ship products from your warehouse. It will also help you perform counting and keep your warehouse running smoothly. Finding the right WMS (warehouse management system) for your business can make all the difference.

warehouse management system; order fulfillment

Warehouse Management vs. Inventory Management

As long as we’re talking about the two different processes, warehouse management vs. inventory management, here are some of the pros and cons of running one vs. the other.

These processes have large amounts of overlap, at least from the side of warehouse management. We defined them a bit above. Inventory management systems will solely focus on tracking a company’s stock, orders, and inventory going in and out every week. But a warehouse management system is going to also track employees and help employees complete tasks throughout the warehouse. But, warehouse management systems will often also offer the ability to do everything that an inventory management system does as well.

Warehouse or Inventory Management? What’s Right for You

If you’re trying to decide whether a warehouse system or an inventory system is right for your business, then you really need to only answer a few different questions. We’ll lay them out for you.

  • Do you have employees that you need to manage through software solutions or processes?
  • Do you have multiple locations where you store inventory?
  • Do you need help finding inventory items throughout a warehouse?

If you answered yes to all of these questions, then you likely need to look into a warehouse management system and not just an inventory management system. If you answered no, then you’re probably just looking to manage and keep track of your inventory supply chain. In that case, an inventory management solution will be perfect for your business.

warehouse management system

What is Warehouse Inventory Management?

Before getting too far into the weeds, we should lay out a general example of warehouse inventory management.

Business news daily defines warehouse inventory management in this way: “Warehouse inventory management is the process by which stock stored in a warehouse or other storage facility is received, tracked, audited and managed for order fulfillment.”

So, in many ways, warehouse inventory management as a whole pertains to anything that goes on at a warehouse directly related to inventory and orders. The role of warehouse inventory management often falls on the warehouse inventory manager. Much of the work that is done in this system and process can be done with the help of software systems and AI technology. But, not all warehouses use these technologies, and some will require their staff to make all of the calculations and tracking by hand.

Inventory Management Best Practices

Here are some of the best practices that are used throughout the warehousing and e-commerce business. A good warehouse inventory management system will have a number of fluid roles and rules to keep everything running smoothly.

1. Prioritize Your Inventory

The first step in managing your inventory is to establish which items of stock are integral to the successful operation of your business and which are causing it to lose money or otherwise underperform.

Having specific categories set up for your inventory will make a huge difference in your overall process. For some businesses, this is elementary, but if you’re just getting started in the world of warehousing and e-commerce, then you’ll want to understand this practice. Here’s a quick definition:

The ABC method refers to how you’ll store and access inventory in your warehouse.

  • A refers to high-value, low sales inventory. This inventory is almost always more expensive but will offer you the highest profit margin.
  • B refers to mid-value, mid-sales inventory. This is all of the items that you’re regularly moving but aren’t your fastest or highest seller.
  • C refers to a lower value, high sale inventory. These are smaller items that you’re always moving and rarely storing over long periods of time. These items have a lower profit margin but do often sell enough to make up for that.

You can learn more about different merchandising and inventory methods here.

African female warehouse manager holding clipboard and using walkie-talkie while checking inventory.

2. Track Product Information

The next trick for managing an effective inventory is to keep detailed records of all items in your inventory at any given moment. The information in these inventory records should include:

  • SKUs
  • Barcode information
  • Suppliers
  • Origin Country
  • Lot number

Having good KPIs (key performance indicators) throughout your inventory processes will help you know what’s working vs. what’s not. This will be easy to see, while in others, it might not be quite as easy. Set sales goals to know how much inventory you want to move and how fast you want to move it.

Inventory turnover should be a key part of your company’s performance. The best thing for your business will be having a minimal amount of money invested in inventory that isn’t regularly moving in and out of your warehouse.

warehouse technology trends

3. Regularly Audit Your Inventory

How often you audit your inventory is negotiable. Some businesses opt for an in-depth annual audit, while others use a week-to-week auditing model. Still, other businesses audit by the month, and yet others use a combination of all of these.

To manage your inventory with efficiency, it doesn’t matter how regularly you choose to audit your inventory. What matters is that you audit it and do so with a regularity that works for you and your business.

Batch tracking is another way to see how often you’re moving inventory. What happens in this process is that a set of lot numbers or batch numbers are assigned to a group of inventory items that were purchased at the same time. Then that batch can be tracked throughout the entirety of the supply chain.

audit inventory for successful warehouse inventory management

4. Practice the 80/20 Inventory Rule

When you are trying to achieve good inventory levels, the rule of thumb is that 80% of the profit you make comes from 20% of the stock you carry.

For effective inventory management, you want to know that 20% well. Prioritize it highly when assessing stock value and give special attention to how it performs when you audit your inventory.

5. Develop a Consistent Approach for Receiving and Handling Stock

Another tip to help manage your inventory is to have a uniform process for handling stock. While this may seem obvious, it’s surprising how quickly discrepancies develop when employees have an individualized approach to receiving and handling stock.

At worst, it creates breaks in the supply chain and inventory levels that don’t balance when neither you nor other employees are certain what came in or where it went. That makes it vital that you develop a process that has everyone receiving stock the same way.

How you receive stock varies, but you want to ensure:

  • Incoming stock is verified
  • Stock is received and unpacked simultaneously
  • Number of incoming goods tallied with order numbers
  • Everything is accurately counted and stored

receiving inventory

6. Track Sales

Tracking sales is another seemingly obvious trick that can help manage inventory. As you track sales, look for things like:

  • Seasonal drop-offs/boosts in popularity
  • Days when the stock sells more than others
  • Items that invariably sell together

Remembering that good inventory management isn’t only about totals will help you optimize your inventory levels, so they reflect the trends and patterns of your business experiences.

Dispatcher showing warehouse inventory sales in laptop to one of workers

7. Cultivate an Active and Involved Working Relationship with your Suppliers

Suppliers are integral to sustaining supply chains. To that end, keeping an open line of communication going between your business and your supplier is vital if you want to manage inventory effectively.

A supplier you do regular business with may preemptively notify you when a popular item comes back in stock or, conversely, warn you when something won’t be available for a while.

And increasingly, as customers strive to buy locally, suppliers can be an excellent way to source local produce.

8. Integrate Mobile Devices Where Possible

Not only do you want your inventory management to be effective, but you also want your sales and stock tracking to be efficient. With that in mind, mobile devices can be a tremendous asset.

Train employees to work with devices like iPads and barcode scanners to keep them moving and on top of everything from financial records to stock-taking. Topshelf by Scout is an effective mobile inventory management solution that will help to increase your warehouse productivity and efficiency.

This has the added benefit of reducing your business’s paper consumption and can even save you time in the long run. But you have to remember to keep charging stations available throughout the day and implement sufficient security measures to discourage theft.

scanners and tablets with mobile inventory management systems

9. Develop a Warehouse Plan that Prioritizes Stock

Developing a warehouse plan that considers the priority level of certain stocks helps to ensure that you always have the right products on hand. We’ve talked about prioritizing inventory when doing an inventory assessment, but that has even wider applicability.

The idea is that fast-selling, high-priority items are at the front of your warehouse, where they are easily and readily accessible. Whereas slower-selling stock, which you are less likely to need access to, can be situated further back in the warehouse.

10. Ensure Low-Stock Alerts are In Use and Maintain Reorder Quantities

While you’re categorizing items by priority and reorganizing warehouses, something else to consider is whether the current inventory levels make sense.

Once you’ve determined inventory levels do make sense, it’s advisable to set low-stock alerts in place for more effective management of your inventory. That will ensure you never run out of stock without incurring the expense of overstocking, as discussed earlier.

And, while you’re implementing those low-stock alerts, clearly delineate who is responsible for responding to them and making the new stock order.

Safety stock is often 10% or so of the total inventory that you carry. This is something that you should have for high-volume sales items that you’re more likely to run out of.

Safety stock should also be occasionally turned over so that nothing sits on the shelf for too long and that you don’t get caught with dead stock. For more on safety stock, click here.

warehouse low quantity alerts

11. Use Cloud-Based Software

For best practice inventory management, a cloud-based software system can transform your inventory. It offers real-time analytical information that helps you make more informed decisions faster and with more information available to you.

12. Use Inventory Management Software

Cloud-based software isn’t your only option, though. Inventory management software like Scout helps give visibility and accuracy to your inventory management.

What’s more, a good software inventory movement system integrates with your existing software for smooth and easy running. The main difference is that your employees are better-informed, and the best practices employed have varied to reflect that.

warehouse worker using inventory management system

13. Monitor All Inventory Aspects and Levels

The other benefit of cloud-based software and inventory management software is that it simplifies your ability to monitor and assess stock. As a result, you’ll have a heightened sense of what sells, what doesn’t, and why.

That, in turn, can help you more accurately judge what your inventory needs to keep your business operating as it should.

14. Order Your Own Restocks

Some vendors give businesses the option to do the reorders for them. On paper, this looks as though it should save time. But vendors have a less thorough grasp of your inventory levels and requirements.

For best practice and more effective inventory management, do your own restocking orders. And if you can’t do them, task an employee with regularly reordering inventory when needed.

warehouse picking. A team working to pick items throughout a warehouse

15. Plan for the Future

Finally, whatever inventory management approach you take, you must plan for the future. Businesses are naturally forward-looking, and the only way to effectively manage your inventory is to anticipate the needs and demands of your customers.

More than that, you must allow for the possibility of business growth and prepare accordingly. Otherwise, you will find it difficult to adapt when expansion becomes possible or even necessary.

Each of these tips can be integral to the success of your warehouse and inventory management system. By acting on each of them and finding what works best for your warehouse, you’ll soon have a more effective warehouse. Keep your business running smoothly and your inventory optimized; it will always be worth it.

Why Use an Effective Inventory Management System?

Now that you’re well underway to developing a more effective inventory management system, you may begin to wonder why it’s so important. A good inventory management system helps you:

  • Track inventory levels
  • Gauge what sells
  • Reassess the importance of existing stock

Obviously, a lot goes into effective inventory management, but even more important is finding a good software system that can help you stay on top of everything. TopShelf from Scout is one of these products that offers a completely cloud-based, customized inventory or warehouse management system. You’ll have everything you need from tracking employees to tracking inventory throughout the entire supply chain.

warehouse worker holding a clipboard and scanning an item

Warehouse Inventory Management Solutions

Among the different solutions for more effective warehouse management are software and artificial intelligence. Many warehouses have embraced technology as a way to limit the number of employees needed for completing tasks and even to pick and pack items just like employees would.

But, because most warehouse companies aren’t in a position to use technology solutions such as AI software solutions have been making the largest impact lately. Warehouse management tools can allow you to track inventory throughout the entire supply chain and even between multiple warehouses while also keeping up with order tracking, accounting, and reorder times.

A good software solution will allow you to understand and do more than you thought possible without ever having to create an excel spreadsheet on your own.

If you’re ready to learn more about some of the different inventory management solutions on the market, reach out to us. At Scout, we specialize in customizable software solutions that can track your inventory, print labels, and seamlessly integrate across your sales platforms to help produce reports and forecast demand for the products that you’re selling.

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