• Share

How to Improve Inventory Management: Top Strategies

Managing stock effectively is a must for any business, and understanding how to improve inventory management can have a noteworthy effect on your profits. With an ever-changing market landscape, it’s essential to stay ahead of the curve by implementing advanced techniques and strategies.

In this blog post, we will delve into various methods that can help you optimize your inventory management process. From setting minimum stock levels and scheduling reorders to classifying inventory items by value, our comprehensive guide covers a range of approaches tailored for businesses of all sizes.

Furthermore, we’ll explore how to improve inventory management by tracking sales data and collaborating with vendors while emphasizing the role technology plays in streamlining these processes. 

We’ll also discuss SKU systems and forecasting sales based on historical data, along with best practices for receiving shipments promptly and conducting periodic checks.

Table of Contents:

The Basics of Improving Inventory Management

When learning how to improve inventory management, you’ll find that 3 of the most important things that your eCommerce shop can do are:

  1. Set minimum stock levels
  2. Determine optimal reorder points
  3. Collaborate closely with vendors

Setting Minimum Stock Levels and Scheduling Reorders

Don’t let slow-moving inventory or stock-outs disrupt your supply chain. 

Establish minimum stock levels and schedule reorders to keep your inventory flowing.

Determining Optimal Reorder Points

Calculate the ideal reorder point for each product category based on lead time, demand variability, and desired service level.

You can find your optimal reorder point with the following formula:
Reorder Point = (Average Daily Usage x Lead Time) + Safety Stock

Collaborating with Vendors for Efficient Restocking

  • Negotiate flexible payment terms to help manage cash flow.
  • Create open lines of communication to keep suppliers informed of changes in demand.
  • Leverage technology like inventory management software to share real-time data with suppliers.

Classifying Inventory Items by Value

If you’re not sure how to improve inventory management and are looking for an easy way to get started, simply organize your inventory into three categories based on their worth.

High-value items (A group) require fewer stocks while lower-value items (B and C groups) need larger quantities.

This approach ensures that 80 percent of your profits come from 20 percent of your stock.

Implementing the ABC Analysis Method in Inventory Management

The ABC analysis method is a popular technique for classifying inventory items according to their importance.

To implement this method, start by calculating the annual consumption value for each item in your inventory – multiply its annual demand by its unit cost.

Next, rank all products from highest to lowest based on their annual consumption values.

  • A Group: Top 20% of products with the highest annual consumption values
  • B Group: Middle 30% of products with moderate annual consumption values
  • C Group: Bottom 50% of products with low or minimal annual consumption values

This classification helps you prioritize resources and focus more attention on high-impact items that generate most revenue.

Balancing High-Profit Margin Products With Fast-Moving Lower-Margin Ones

In addition to using ABC analysis, it’s essential to strike a balance between high-profit margin products and fast-moving lower-margin ones.

While high-margin goods contribute significantly towards overall profitability, they may have slower turnover rates compared to low-margin but fast-selling merchandise.

To achieve an optimal mix within your inventory assortment:

  1. Analyze sales data regularly to identify top-performing SKUs in each category.
  2. Monitor inventory turnover rates for high-margin products and adjust stock levels accordingly to prevent overstocking or understocking situations.
  3. Consider offering promotions, discounts, or bundles on slow-moving high-margin items to increase their sales velocity and free up storage space for faster-selling goods.
Key Takeaway: 

Effective inventory management techniques, such as the ABC analysis method and balancing product assortments, can help you optimize your stock levels while maximizing profitability.

How to Improve Inventory Management With Tech

So far, we’ve examined the basics of how to improve inventory management, and we’ve delved into the ABC approach. The next step is implementing inventory management technology.

Popular Inventory Management Software Options

Evaluate inventory management technology based on the following criteria:

  • Ease of use
  • Scalability
  • Integration capabilities
  • Customer support
  • Pricing flexibility

Popular choices include QuickBooks Commerce, Zoho Inventory, Cin7, and our favorite: Inverge.

Key Features to Look For

  • Data import/export: Ensure easy importing/exporting of inventory data from/to various formats.
  • Inventory forecasting: Opt for inventory software that offers advanced analytics tools to predict future sales trends.
  • Multichannel selling: Choose an integrated platform that supports all your sales channels.
  • Inventory tracking: Look for a system that offers real-time inventory updates, barcode scanning capabilities, and automated stock alerts.
  • Reporting and analytics: Comprehensive reporting features will help you analyze your inventory performance and make data-driven decisions.
Key Takeaway: 

Investing in the right inventory software can significantly improve inventory management processes while saving time and resources. When evaluating your software options, prioritize key features based on your specific needs.

How to Improve Inventory Management With Spreadsheets

Spreadsheets are great for tracking inventory data, but as your business grows, consider investing in an integrated system.

Inventory Tracking With Inverge

Inverge is a great example of how to improve inventory management by using an integrated system. Inverge helps eCommerce brands like yours manage inventory across stores, warehouses, and 3PLs. In addition to tracking, Inverge also provides stock level monitoring and alerts.

how to improve inventory management

Comparing Integrated Systems for Small Businesses

While we believe that Inverge is the best solution for inventory tracking, there are other inventory management systems on the market today: 

  1. Square POS is a cloud-based point-of-sale system ideal for retailers with free and affordable paid plans.
  2. Lightspeed is an all-in-one POS system for retailers, restaurants, and eCommerce businesses with robust inventory management tools and integration with accounting software.
  3. Clover is a versatile POS solution for small businesses with customizable hardware options and comprehensive inventory tracking tools.
Key Takeaway: 

Inverge offers powerful inventory management features like multi-location tracking and alerts, which we’re sure can help your business go to the next level. However, remember to choose the right option based on your business needs and budget.

SKU System: The Key to Streamlined Inventory Management

An efficient Stock Keeping Unit (SKU) system is crucial for businesses to manage inventory items effectively and meet customer demand.

Create a Logical SKU Numbering System

Assign unique identifiers to each product based on factors like brand name, product type, size, or color variations to create a logical SKU numbering system.

  • Begin with broad categories.
  • Add specific attributes.
  • Maintain consistency.

Benefits of Using Barcodes or QR Codes for Product Identification

Incorporating barcodes or QR codes into inventory control processes offers several advantages:

  1. Faster processing times: Scanning barcodes speeds up processes.
  2. Improved accuracy: Barcode scanning minimizes human error, ensuring correct product information is recorded.
  3. Better tracking capabilities: Barcodes or QR codes can track items throughout their lifecycle, providing valuable insights into supply chains.
Key Takeaway: 

Implementing an efficient SKU system with barcodes or QR codes is a crucial step in improving inventory management systems for small businesses and fulfillment centers.

Forecasting Sales to Manage Inventory Levels

Predicting sales for specific periods of time helps maintain optimal inventory levels while reducing the risk of overstocking or understocking.

Techniques for Demand Forecasting

Popular techniques include time series analysis, moving averages, causal methods, and judgmental forecasting.

  • Time Series Analysis: Analyze past sales data to identify patterns and trends.
  • Moving Averages: Calculate average sales over a specified period and project it forward.
  • Causal Methods: Identify factors that influence demand and incorporate them into forecasts.
  • Judgmental Forecasting: Rely on expert opinions from team members who understand customer behavior and market conditions.

Select a technique based on your business type, product offerings, available data sources, and internal expertise. 

Incorporating Seasonality and Market Trends into Forecasts

Analyze seasonal variations and monitor market trends to create accurate forecasts that account for fluctuations in consumer behavior.

  1. Identify patterns related to holidays, weather changes, or other factors that impact sales.
  2. Stay informed about industry developments, competitor actions, and consumer preferences.
Key Takeaway: 

By analyzing historical sales and product data, you can better anticipate customer needs and manage inventory levels effectively. It’s also a good idea to consider seasonal trends and important industry developments.

Conducting Periodic Checks and Annual Counts

Regularly checking your inventory levels ensures accuracy and prevents discrepancies from becoming larger issues.

Perform annual counts as well as periodic spot checks to correct errors before they escalate.

In this section, we’ll discuss best practices for conducting accurate physical inventories and utilizing cycle counting methods to minimize disruption.

Best Practices for Conducting Accurate Physical Inventories

  • Create a plan: Develop a clear plan that outlines the schedule, responsibilities, and areas to be counted.
  • Schedule downtime: Choose a time when business operations are slow or closed to avoid interruptions during the count.
  • Organize inventory: Ensure all items are properly stored in their designated locations with labels clearly visible.
  • Distribute tasks evenly: Assign different sections of your warehouse or storage area to individual team members.
  • Audit results: Compare results with your existing records in your inventory management system and investigate any discrepancies immediately.

Incorporating Cycle Counting Methods into Inventory Management

Cycle counting is an alternative method where you regularly audit specific portions of your inventory instead of performing full-scale annual counts.

This approach allows you to maintain up-to-date inventory control without disrupting daily operations.

  1. Determine the frequency of counts based on your business size, inventory turnover, and industry standards.
  2. Divide your inventory into categories and prioritize which sections require more frequent checks.
  3. Assign a dedicated team member responsible for conducting cycle counts regularly.
  4. Analyze results from each count to identify trends in discrepancies or errors that may indicate underlying issues with storage practices or supplier management.
Key Takeaway: 

To improve inventory management, it is important to conduct periodic checks. This can be achieved by creating a plan, scheduling downtime, organizing inventory, distributing tasks evenly and auditing results. 

Maintaining Emergency Stock Supplies

Supply chain disruptions are inevitable, so it’s essential to maintain an emergency stock buffer to ensure continuous product availability and mitigate risks.

Determining Appropriate Safety Stock Levels

Calculate safety stock levels based on lead times and demand variability using inventory management techniques like the Economic Order Quantity model.

  • Analyze historical sales data to identify demand patterns.
  • Calculate average lead times for each product or supplier.
  • Find ideal safety stock levels that balance cost efficiency with risk mitigation.

Strategies for Managing Emergency Supplies

Effective management of emergency supplies involves regular monitoring and adjustment based on changes in market conditions or company operations.

  1. Maintain clear communication with suppliers: Establish strong relationships with vendors to prioritize your orders during emergencies.
  2. Monitor inventory levels closely: Use inventory management software to track safety stock and receive alerts when levels dip below the established threshold.
  3. Diversify suppliers: Reduce the likelihood of supply chain disruptions by relying on multiple vendors.
  4. Create contingency plans: Develop alternative sourcing strategies or backup suppliers in case primary sources are unable to meet demand during emergencies.
Key Takeaway: 

Supply chains can be slowed or halted for any number of reasons. Maintaining emergency stock supplies is crucial to ensuring that you can meet customer demand – even if the face of supply chain disruption.

FAQs in Relation to How to Improve Inventory Management

What Are Some Tips for Improving Inventory Management? 

  1. Set minimum stock levels.
  2. Classify items by value.
  3. Work closely with vendors.
  4. Invest in technology and software solutions.
  5. Use spreadsheets or integrated systems.
  6. Implement an efficient SKU system.
  7. Conduct periodic checks.

What Is the 80-20 Rule?

The 80-20 rule is all about focusing on high-value products. 

Per the 80-20 rule, approximately 80% of a company’s revenue comes from just 20% of its products.

What Are Some Techniques for Managing Stock Levels?

Just-In-Time (JIT), Economic Order Quantity (EOQ), and ABC analysis help minimize costs associated with holding excess inventories.


Learning how to improve inventory management isn’t always easy, but by following the best practices we’ve outlined here, you can get your eCommerce store moving in the right direction.

In addition, there are all-in-one solutions like Inverge that can help your store:

  • Track inventory across locations
  • Implement a barcode-based monitoring system
  • Make and receive smart purchase orders based on real-time needs
  • Analyze fulfillment data
  • Create custom alerts to prevent stockouts

Featured image source: Image by <a href=”https://www.freepik.com/free-photo/medium-shot-woman-with-tablet_13291105.htm#query=inventory%20management&amp;position=1&from_view=search&track=ais”>Freepik</a>

Second image source: <a href=”https://www.freepik.com/free-photo/woman-standing-working-laptop-workers-warehouse_20879358.htm#page=2&amp;query=inventory%20stock%20stadistics&position=42&from_view=search&track=ais”>Image by zinkevych</a> on Freepik