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What is Inventory Management? Systems & Tactics for 2022

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Without inventory management software, companies are more likely to make mistakes in the supply chain. This can lead to customer disappointment and increased costs.

In this article, we’ll look at the importance of managing your inventory and review some ways to do so.


What is Inventory Management?

Inventory management is crucial for businesses to ensure that they maintain optimal inventory levels at all times to minimize costs. Click To Tweet

The system organizes sourcing, storing, and selling raw materials and finished products.

Businesses can use inventory management techniques to monitor the production of raw materials and finished products and regulate how they are stored.


Why is inventory management important to a business?

inventory management

Implementing a sound inventory management system is critical to the success of companies. Many small businesses neglect to track their inventory levels, making it hard for them to grow and be successful in different departments. With an effective inventory management strategy in place, your company can optimize supply chain management and manage its assets more effectively.

Customize inventory tracking and fulfillment

Keeping your inventory levels up and ordering enough to avoid running out of stock are two crucial parts of optimizing fulfillment potential. Inventory management systems can help you with this by ensuring that orders are fulfilled on time, which will make customers happy.

Reduce costs

When it comes to your business, the products you sell make up most of what you do. Yet if there is one thing that can be overlooked and cost a company money in lost profits over time, its inventory management.

Improve inventory turnover

Companies are turning to track inventory in real-time, which prevents surplus and waste. This way, they can prevent aging stock from getting lost or spoiled.

Give better customer service.

Providing excellent customer service is not always easy. It’s tough if you don’t know what your customers are buying and when they need it. The best way to provide consistent, proactive customer service? Keep track of inventory levels by product type.

When customers reach out to your call centers, they expect answers on the availability of products. If you cannot promptly provide this information or sell their items, then there is no reason for them to continue shopping with you.


6 Inventory Management Examples and Techniques

inventory management

With the rise of eCommerce, there are new ways to manage inventory more efficiently than traditional methods. For example, using an automated system like Forecast can avoid having too much or not enough stock on hand, which is often a problem with manual management systems.

1. Economic order quantity (EOQ)

The EOQ is a term for the ideal quantity of an item purchased to minimize inventory costs. This formula aims primarily to decrease spending, and it can help identify how many units need to be ordered per order to reduce the total purchase price.

2. ABC analysis

ABC analysis is a technique that categorizes products into three categories based on how profitable they are and their impact on inventory. Category A includes the most valuable items with high profit, while category C represents small transactions necessary for overall profits but not as important to individual companies.

3. Just-in-time (JIT)

JIT inventory management is a great way to reduce costs because it allows companies to order raw materials from suppliers in conjunction with production schedules. This will help them be more efficient and reduce waste by only receiving goods as needed for the production process.

4. Safety stock

Safety stock is a technique where extra inventory orders are placed to prevent running out of goods due to unforeseen changes. This can be seen as an insurance plan, protecting companies against uncertainties in supply and demand or manufacturing yield by having enough inventory at all times so that daily operations run smoothly even when there are unexpected fluctuations.

5. Reorder point

The reorder point is the minimum number of units a company should have in stock before placing another order. This idea is based on how quickly different products are sold and purchased, which will vary per product. Typically, this value for ROP is higher than safety stocks as it has to factor in lead time (the amount of time between when an item was ordered and arrives). Placing orders at the ROP ensures that replacement items arrive promptly, so there aren’t any out-of-stock problems or warehouse pileups.

6. FIFO and LIFO

FIFO and LIFO are inventory management methods. FIFO is selling old goods first, while LILF assumes that newer items should be sold before older ones.


4 Obstacles Common to Inventory Management

inventory management

With inventory management, you can save time and money. It also helps mitigate mistakes in customer service because it allows for more accurate record-keeping of what is needed when the product is sold out or if a new shipment arrives.

1. Deciding who’s in-charge

The company needs to decide who is in charge of inventory decisions before anything else can happen. Will one person be responsible for this, or will a team work together? When the structure and authority are outlined early, accountability increases, and confusion about roles becomes less likely.

2. Managing people and spaces

To run a smooth operation, the warehouse team must be managed appropriately. This includes ensuring everyone has clarity on all operating procedures and is working from the same page.

3. Accurate forecasting demand

Overselling products can not only hurt your bottom line, but it will also lead to unsatisfied customers. If you find yourself in this situation and need more inventory for that product immediately or want to let the customer know about any delays, then you’ll have a costly order on your hands.

4. Running out of stock

Stockouts are just as bad for business as overselling. If a product is out of stock, customers might go to your competitor and never return. You must remedy the situation right away.

NetSuite is a company that provides cloud-based business management software and related services. One of the benefits of this program is increased productivity because you can do everything from your computer, including managing inventory.


4 Examples of Successful Inventory Replenishment Process

inventory management

A few companies have been able to take advantage of inventory management software to grow exponentially and excel. These brands include: 1) Amazon- The e-commerce giant has utilized an automated system designed by robots to determine when products should be restocked, which is how they could break away from traditional brick and mortar stores.

1. Toyota

Toyota is the first company to implement just-in-time production successfully. They do this by only bringing raw materials onto the factory floor when needed for a customer order, which lowers costs and ensures that Toyota can quickly react to changes in demand.

2. Apple

Apple is another company that has implemented JIT principles in its manufacturing process. Unlike Toyota, Apple’s approach was to leverage suppliers rather than use them as a bottleneck for production goals. This resulted in reduced costs and less product overstock because they could outsource work with solid relationships with suppliers.


IKEA has an advanced inventory management system that allows managers to access point of sale data for each product quickly. This enables them to optimize their supply chain and manage their inventory efficiently, essential in a saturated market.

4. Glossier

Glossier is a direct-to-consumer beauty brand that released its first four products in late 2014. The company was able to sell its entire inventory of products within three months and has since hired experts to oversee the levels, assist with forecasting, and overcome supply chain challenges.

Skubana + Inventory Management

Skubana helps companies manage their inventory by integrating products, fulfillment centers, and sales channels into one seamless platform. With Skubana, you can introduce clarity across multiple channels with real-time inventory counts to streamline your operations. Request a demo today and see how Skubana will help you grow.



Inventory management is not only about the efficiency of your warehouse but also quality control. Click To Tweet

This means tracking products as they enter and exit your supply chain to meet customer needs.

Frequently Asked Questions

  • How does inventory management work? Unlike Enterprise Resource Planning (ERP), inventory management focuses on one supply chain process. It optimizes the entire supply chain spectrum, from purchase orders with the vendor to order delivery to the customer, mapping the complete journey of a product across a multichannel network. Plus, inventory management programs often integrate with other software, like the point of sale or channel management, so you can customize the system to meet your specific needs.

Inventory management software focuses on one supply chain process: purchasing a product from a vendor and its delivery to the customer. It optimizes this entire spectrum, so you can customize it to meet your specific needs.

  • What are the methods of inventory management? There are many inventory management methods on the market, mainly used as single entities but sometimes used in collaboration. Among these options, the most prevalent techniques are economic order quantity, ABC analysis, just-in-time, safety stock, reorder point, and First-In, First-Out/Last-in, First-Out.

Many inventory management methods are available, but the most popular one is economic order quantity. This method helps you minimize costs and increase efficiency by balancing customer demand and inventory levels.

  • How do you measure to see if you are successfully managing inventory? When it comes to measuring your company’s inventory management success, there are a few key components that’ll help determine if you’re on the right track. These components typically include inventory turnover, average days to sell inventory, return on investment, and relevant carrying costs. By looking closely at each of these metrics, you can better decide how and when to scale your business and identify critical areas for improvement.

To measure your company’s inventory management success, you need to consider a few key components. These include the average days for an item in stock to sell and how much profit is made from this sale. It would help if you also considered the cost of storing these items and what happens when customers return them.