Automation, E-commerce

Why You Need Inventory Management

Inventory Management

Ever had these types of inventory management problems? You have too much stock of a particular product, and it was just stuck in your inventory not doing anything? Or maybe there was a spike in demand for an item that you sell, but you weren’t prepared and there isn’t any more stock to sell to your customers?

Well if you’re selling products, then inventory management is a crucial element of your business that you need to know about.

What is Inventory Management?

Going straight to the point, inventory management is the handling of your inventory, and stock of inventory. The process of inventory management controls the flow of goods coming in from suppliers to your warehouse, and from your warehouse to your customers, as well as the process in reverse.

A key rule to proper inventory management is to keep a record of new and/or returned items that go in or out of storage and your customers’ possession.

The Benefits of Inventory Management

At a glance, the benefits of inventory management are:

  • An Organized Warehouse 
  • Saves You Time & Money
  • Increases Efficiency and Productivity
  • Getting Your Customers Coming Back

An Organized Warehouse

An organized warehouse can be bolstered by good inventory management methods. It will be hard to manage your stocks if your warehouse is not organized.

Numerous organizations enhance their warehouses by arranging their products according to their sales and at the places that can easily be accessed in the warehouse.

Thus, it helps to accelerate the order fulfillment process and keep clients updated.

Saving Time and Money

The management of stock can bring monetary benefits and help in saving time. By monitoring products that are available or ordered, you can spare yourself the effort to do a stock recount to make sure that your data are precise.

A huge amount of money can be saved by using a decent inventory management strategy as it helps in reducing the expenses that wasted on slow-moving items.

Increases Efficiency and Productivity

Inventory management tools, for example, barcode scanners and stock administration program can help to enhance your effectiveness and productivity.

As these tools will help in eliminating manual procedures, your employees can concentrate on other areas of the company, which are more essential.

Getting Your Customers Coming Back

A good inventory management strategy will lead you to the ultimate goals, striving for – repeat customers. You will need to fulfill your customers’ needs as soon as possible to ensure that your customers come back to you for your products and services.

By allowing you to have the products available when your clients need them, inventory management can then help you to meet their demand at the same time achieve your goal. 

As we can see, these benefits are great at keeping us, and our customers happy; as well as reducing problems and headaches.

Inventory Management - Successful Ecommerce TransactionInventory Management Techniques

Now that we know the benefits, let’s go into some techniques to help with inventory management.

Setting Par Levels

Set “par levels” for every product to manage inventories easier. Par levels are the minimum amount of products that need to be available at all times. By tracking the predetermined levels of products, you will easily manage the time for you to order more.

You will commonly request the minimum amount of products that can bring you back above par. Par level can be different by-products as it depends on how fast the product sells and how long the period needed for restocking the product. Even though setting par levels needs effort in doing research and upfront decision, it will definitely help in systemizing the process of ordering.

By setting par levels, your employees will have the chance to make decisions on your behalf while it will be easier for you to make decisions as well. Always remember that conditions will change as time goes.

Therefore, it’s important to check on par levels overtime throughout the year to make sure they bode well. If uncertainty happens, you can always adjust your par level accordingly.

The First-In First-Out (FIFO) Principle

“First-in, first-out is an essential concept to manage your stocks well. It suggests that the older stock (first-in) should be sold first (first-out), instead of the newest stock. This is particularly significant for short-lived items to prevent the situation that you end up with unsellable spoilage. Not only for perishable items, but FIFO can also be used for durable items as well.

Non-perishable products are prone to get worn out if the boxes are always placed at the back. In addition, most of the design and elements of packaging will change over time. Thus, you would not want to wind up with the products which are out of date and you are not able to sell.

An organized warehouse is important to start practicing FIFO system as the new stocks will be arranged from the back, or otherwise ensure the old products to remain at the front. It’s always a good idea to call a warehousing and fulfillment company that you’re working with to confirm that they are practicing FIFO principle.

Manage Relationships With Suppliers

Apart from setting par levels and practicing FIFO system, having a strong relationship with suppliers is also one of the crucial factors for successful inventory management.

It will help you to adapt faster to uncertainty, whether you should make room for new items by returning slow-selling products, restock a fast-selling product in limited time, investigating manufacturing issues, or even temporarily grow your storage space. A supplier with strong bonds will be more willing to help you in solving those problems.

Specifically, it will be even better for your business if you have a good relationship with your suppliers. It will be easier for you to negotiate the minimum quantities per order. It will always be good for you to have a lower minimum so that you don’t have to hold as much stock in your warehouse.

Maintaining a solid relationship is not just being friendly but also having clear and proactive communication between each other. Inform your supplier so they can modify production when you expect to have an increase in sales. In the other way round, have them to inform you if a product is delayed so you can stop the promotions or search for other temporary substitutes.

Having a Backup Plan

A ton of issues can spring up regard to inventory management. These sorts of issues can cripple businesses that are not well prepared. For instance:

  • The number of products sold spike unexpectedly and you oversell your stock
  • You run into a shortage of cash flow and unable to pay for items that are mandatory to you
  • Your warehouse cannot accommodate your seasonal spike in sales due to the limited space
  • An error in the calculation of stock that you have fewer products than you expected
  • Most of the space in the warehouse is occupied by the slow-moving products
  • You have orders to fill but your manufacturer is running short for your items
  • Your manufacturer stops your products all of a sudden

It doesn’t matter of which these issues arise, but when. Resolve your risks and prepare a contingency plan beforehand on your reaction, ways to solve the issues and the impacts on other parts of your business. Keep in mind that a strong relationship goes a long way here.Inventory Management - Contingency Plan

Auditing Regularly

Regular stock counting and checking are very crucial for a business to run in a long way. In most cases, you will only know the number of products you have stock by depending on software and report from the warehouse.

Nevertheless, it is essential to ensure the facts match up. There are a few ways to practice this.

Physical Inventory

A physical inventory will usually be done at the year-end by many businesses as it relates to accounting and income tax filing. Physical inventory is carried out by counting all your stocks at one. It can be extremely troublesome to the business and trust me, it’s dreary even though it is commonly done once a year.

As physical inventory will usually be done at the end of the year, it will be harder to track the issues looking back at an entire year if you find a discrepancy.

Spot Checking

While a full physical inventory can be problematic, you may want to try spot checking throughout the year. It can be done without a schedule and by just choosing a product, counting it, and comparing the number of products that you should have in hand.

It is supplemental to a physical inventory, specifically, you might need to spot check on problematic or fast-moving products.

Cycle Counting

Aside from doing physical inventory at the year-end, some companies will choose cycle counting to check their stocks. Cycle counting spread reconciliation consistently. A rotating timetable will be set to check different products each day, week, or month.

Even though which products and when will the products be counted can be determined by different methods, high-value products will usually be checked more frequently compared to others.

Prioritize with ABC

Some of the products will require us to prioritize more. Using an ABC analysis will determine which products need more attention than others by separating them. You can practice ABC analysis by scanning through your products list and categorize them into these three categorizations:

  1. High-value productslow frequency of sales
  2. Moderate value productsmoderate frequency of sales
  3. Low-value productshigh frequency of sales

Products that fall under category A require regular attention as their sales are unpredictable even though their monetary effect is crucial. Products in Category C require less oversight as their monetary effect is smaller and they’re turning over constantly. Products in Category B fall somewhere in the middle.

Accurate Planning & Forecasting

A major part of good inventory management boils down to precisely forecasting the demand. It is very difficult to do it without a mistake. There are many uncertain factors that involved and you will never know precisely what’s coming without a doubt, yet you can try to get close. Here are some factors that you can refer to when predicting your future sales:

  • Market’s trends
  • Same week sales in last year
  • The growth rate in this year
  • Guaranteed sales from contracts and subscriptions
  • Seasonality and the overall economy
  • Upcoming promotions
  • Planned ad spend

Feel free to expand this list to help you in creating a more accurate prediction.


Dropshipping is almost a perfect way to manage inventories. Basically, it means that you can totally remove inventory management from your business.

Instead of carrying and shipping products by yourself, the manufacturers and distributors will help you in managing the stocks – whether internally or external coordination. It is a great inclusion to your business, even if you want to try it for new products before investing.

The main downside would be that you have less control of the delivery time of items, and will still be held responsible by your customers if orders are late.

Main Takeaways

Effective inventory management has benefits that will not only help smooth out your business operations but also reduce your pains of dealing with inventory management problems. That said it will take time and practice to get the inventory management process down.

With technology, some processes of inventory management can be simplified. Bundled together with multi-channel integration and order management, Dinosync offers these to help you with your e-commerce business.

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May 2024


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