What Is Inventory Management? Benefits, Types, & Techniques

Inventory is often one of a business’s largest expenses, yet it doesn’t generate revenue until goods are sold and delivered. Until then, managing inventory is more complex than it seems, especially for companies that rely on complex supply chains or deal in fragile, perishable, or otherwise hard-to-store wares.

Companies that master inventory management can significantly cut costs and improve cash flow without compromising product availability or quality. This guide explores the fundamental principles, techniques, and technological innovations that help maximize inventory efficiency—turning what’s often seen as a cost center into a source of competitive advantage.

What Is Inventory Management?

Inventory management is the process of tracking and controlling the flow of goods—raw materials, works-in-progress, and finished products—through every stage, from initial purchase through final sale. It helps businesses keep the right amount of stock on hand, across multiple locations, to consistently meet customer demand.

Done well, inventory management reduces the risk of stockouts that disappoint customers, or overstocking, which ties up capital, increases carrying costs, and can cut into profits. It also helps companies stay agile amid fluctuations in demand, supply chain disruptions, and other unexpected challenges that can impede operations.

Key Takeaways

• Inventory management focuses on keeping enough products in stock to meet customer demand, while minimizing excess inventory and associated carrying costs.
• Inventory management methods include just-in-time delivery, ABC analysis, and specialized models like dropshipping.
• Technologies, including RFID tags, predictive analytics, and ERP software, enhance tracking accuracy, automate operations, and underpin data-driven inventory decisions.
• Advanced inventory systems help businesses allocate stock more efficiently throughout the supply chain.

Inventory Management Explained

Inventory management bridges procurement, production, and fulfillment operations so businesses can manage the flow of goods and materials both internally and across their supply chains. At its core, inventory management balances competing priorities, as financial teams try to limit the amount of capital tied up in unsold inventory while sales departments clamor for guaranteed product availability when they’re promising quick delivery to customers.

Success requires strategic planning, data-driven forecasting, and cross-functional collaboration—all reasons why more companies are investing in modern inventory management systems. Indeed, the market is projected to be worth $2.51 billion in 2025 and reach $4.79 billion by 2032, according to Fortune Business Insights. Such solutions—whether integrated with existing business software or part of a comprehensive ERP system—combine sophisticated mathematical models with predetermined internal rules to align suppliers, lead times, market fluctuations, and shifting customer preferences with the business’s operations and goals. The resulting visibility allows businesses to make informed decisions about stock levels, supplier relationships, and fulfillment strategies across their entire supply network to ultimately increase profitability, customer satisfaction, and operational efficiency.

What Is Inventory?

Inventory is a broad term used across industries to describe the goods needed to produce an item or finished products that are ready for sale. There are myriad types of inventory, including raw materials, components, packing supplies, safety stock reserves, and in-transit items.

For most businesses, inventory represents their primary source of revenue. Inventory is recorded on the balance sheet as a current asset; its value reflects the cost to acquire or produce goods. Though inventory contributes to potential sales, it also requires capital and other resources that could have been used for other purposes—demonstrating its dual nature as both an opportunity and a potential financial burden.

How Does Inventory Management Work?

Inventory management involves knowing where items are, where they’re going, and when more are needed. This level of tracking involves a series of interconnected processes that begin with counting what’s already in stock, either through actual physical counts or by using an automated tracking system. When inventory dips to predetermined minimum stock levels, new orders are placed with suppliers. Upon delivery, items are received, inspected, recorded, and stored in designated locations where they await use in production or for sales to customers.

Many of these steps can be automated with inventory management software that integrates demand forecasts, procurement information, production schedules, and warehouse data into one system. Many companies also use barcode scanners, cloud-based platforms, Internet of Things devices, and other technologies to automate tracking and quickly spot inefficiencies.

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Why Is Inventory Management Important?

In 2024, inventory distortion—the imbalance of having too much or too little stock in relation to demand—was estimated to have cost retailers $1.7 trillion, according to IHL Group. The potential for steep losses underscores the importance of inventory management. Organizations that get it right can improve in three major areas: financial performance, operational efficiency, and customer satisfaction:

• Financial performance: An organization’s bottom line benefits when inventory is well managed. Doing so helps optimize cash flow, reduces storage-related expenses, and protects inventory value. Products are also available when needed, eliminating having to pay expedited shipping costs to replenish unexpectedly empty reserves.
• Operational efficiency: Companies run better when they know exactly what products they have in stock and where those products are located. In fact, the entire supply chain benefits from shorter lead times and by eliminating bottlenecks that can disrupt production, distribution, and fulfillment. This efficiency also helps decision-makers refine workflows and weed out waste.
• Customer satisfaction: Understandably, consumers become annoyed when desired items are out of stock—especially when that fact only comes to light post-purchase—or shipping is delayed. Companies with strong inventory management practices are better able to please customers, not only by maintaining accurate stock levels but also through real-time website updates and strategic inventory allocation for fast fulfillment.

Of note, public companies are obligated to track their inventory to comply with Securities and Exchange Commission rules and the Sarbanes-Oxley Act. Noncompliance can result in significant fines.

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Inventory Management Step-by-Step Process

Inventory management requires clear guidelines for every stage involved in procuring, receiving, storing, and fulfilling orders. The following steps serve as a general framework:

1. Demand planning: Demand planning analyzes historical sales data, market conditions, seasonal fluctuations, and a host of other factors to estimate future sales. Accurate forecasting helps businesses avoid overstocks and stockouts by setting a reasonable baseline for inventory needs.
2. Ordering: Based on the prior demand analysis and current stock levels, orders are placed, either manually by procurement teams or automatically with software. Timing considerations also include supplier lead times, minimum order quantities, storage constraints, and holding costs.
3. Delivery: When goods arrive, receiving teams verify that shipments match their invoices and are in expected condition. Some businesses use automated weighing systems or robotic equipment to speed up the process and to allocate goods to their designated locations.
4. Inventory tracking and storage: Inventory is recorded and moved to storage. Some companies rely on centralized storage to keep costs down, while others have multiple facilities to position inventory closer to customers, reducing delivery times. Tracking systems, such as barcodes and inventory management software, monitor stock levels and product whereabouts.
5. Sale: Those same tracking systems aid fulfillment teams in quickly finding, selecting packaging for, and shipping orders. They also automatically update inventory counts after orders are processed and notify customers and businesses as their items pass specific checkpoints.
6. Reviewing, reporting, and optimization: Ongoing inventory audits, quality-control checks, and key performance indicator (KPI) reports can uncover inefficiencies that may be impeding the inventory management process. Common areas for review include lead times for different locations, perfect order/return rates, shipping costs (both incoming and outgoing), and inventory turnover.
7. Replenishment: Automated inventory systems alert staff or trigger reordering when stock levels dip below predetermined thresholds. Many businesses periodically assess their suppliers’ prices and overall performance, as well as staying on top of competitive offerings, to verify they’re getting the best value and maintaining a reliable supply chain.

Calculating Inventory Management

How well inventory is being managed can be measured through a series of formulas and KPIs that highlight areas of strength, concern, and opportunities for improvement. Real-time, continuous analysis uncovers patterns and trends that point the way toward better processes, resource allocation, and strategic planning.

Inventory Management Formulas

Inventory management relies on a set of proven formulas that helps businesses monitor performance, control costs, and maintain optimal stock levels. The formulas support day-to-day decisions and long-term planning. For example, lead time—the average time between order placement and delivery—helps companies understand how long it takes for customers to receive an order, which is essential for avoiding stockouts. Inventory usage (calculated as beginning inventory plus purchases minus ending inventory) reveals how much product was actually used or sold over a period. Another critical metric, sell-through rate (the number of sold units divided by beginning inventory), shows how efficiently inventory moves through the business and helps flag overstocking or underperformance.

Modern inventory systems can automatically calculate and track these and other formulas and generate data-driven reports that guide inventory management decision-making.

Inventory Management KPIs

The “right” selection of inventory management KPIs depends on an organization’s strategic goals and its staff’s understanding of what they’re working toward. Every KPI ultimately ties into a company’s financial performance, as well. Among the most commonly tracked:

• Inventory turnover ratio measures the number of times a company sells and replenishes its inventory during a given period of time. It is calculated by dividing the cost of goods sold (COGS) by the average value of inventory. A high inventory turnover ratio usually implies strong sales but may also point to untapped revenue if goods are frequently selling out before demand is met.
• Stockout rate is the percentage of sold-out inventory at any given time. To calculate, divide the number of out-of-stock items by the total number of items in inventory. A low stockout rate could signal effective inventory control, but it could also imply low sales or overstocking.
• Carrying cost is the sum of all expenses associated with owning and storing inventory until it’s sold. Carrying costs include warehouse space, insurance, and material handling. High carrying costs cut into margins and tie up capital that could otherwise be used to grow the business.
• Order accuracy, also known as the perfect order rate, measures the percentage of orders shipped exactly as customers expect them to be, without damage, in the correct quantities, and delivered on time. Order accuracy is determined by dividing the number of perfect orders by the number of total orders. If this rate decreases, root causes may be a disconnection between the ordering and fulfillment processes or poorly labeled and disorganized inventory.
• Fill rate is the percentage of orders a business immediately completes using available inventory over a given period. It is calculated by dividing the number of total shipped orders by the number of total placed orders. A high fill rate typically correlates to higher levels of customer satisfaction, though lower fill rates are understandably more common (even expected) with customizable goods.
• Days sales of inventory (DSI) reflects how long, on average, it takes a business to sell its inventory. The lower the DSI—also known as days in inventory—the faster the turnover. DSI is calculated by dividing average inventory value by COGS and multiplying the result by the number of days in the period being measured. Businesses can use DSI to plan reorders, allocate stock, and assess the impact of marketing strategies on the selling pace.

Inventory Management Methods and Techniques

Businesses have multiple ways to manage inventory. Selection—and they can employ as many as they see fit—will depend on the product type, seasonal needs, and other factors that can affect demand. Here are some common inventory management methods and techniques:

• Just-in-time (JIT) cues orders and deliveries to arrive exactly when they are needed—i.e., just in time. This method helps reduce waste, lower costs, and improve efficiency, but it also requires accurate demand forecasts and close supplier relationships, especially in industries where supply chains are complex or prone to disruption.
• ABC analysis sorts inventory items into three categories, A, B, and C, according to their value. On one side, “A” items hold the most value but represent a small percentage of total inventory, while on the other side “C” items offer the least value but often constitute a significant percentage of inventory. This multitiered categorization assists in prioritizing investment, marketing, storage, and management decisions.
• Material requirements planning (MRP) is a system used primarily by manufacturers to predict the quantity and timing of materials needed for production so that companies can maximize their resources and meet demand, without tying up capital in excess inventory. MRP systems are often integrated into broader ERP systems for comprehensive resource management.
• Safety stock is extra inventory kept on reserve to cover a company’s production and sales needs in the event of a supply chain disruption, delivery delay, or unforeseen spike in demand. The ideal level of safety stock will depend on inventory turnover rate, current and expected demand, and supplier lead time, among other factors.
• Economic order quantity (EOQ) is the ideal amount of inventory a business should order to maximize its profits. Its formula assumes constant demand and fixed costs for ordering and holding goods, but it can be adjusted to account for quantity discounts, storage constraints, or seasonal fluctuations. EOQ is calculated by doubling annual demand, multiplying that number by order costs, dividing the product by holding costs, and finally determining the square root of that quotient.
• First in, first out (FIFO) is a commonly used inventory valuation method—especially among businesses with perishable goods—in which inventory that has been on hand the longest is sold first. During inflationary periods, FIFO typically results in lower COGS and higher reported profits. Remaining inventory is valued at the most recent purchase prices.
• Last in, first out (LIFO) assumes the newest inventory is sold first. During inflationary periods, LIFO generally leads to higher COGS and lower recorded profits, which potentially results in tax benefits—at least, in the US—because it lowers taxable income.
• Reorder point (ROP) is the moment when inventory drops below a designated level and needs to be restocked. ROPs may fluctuate throughout the year or for different products due to factors like seasonal trends, changes in delivery times, and evolving sales patterns, so it’s important to reassess them periodically.
• Lean manufacturing seeks to trim any activities that don’t directly benefit customers through continuous improvements. For inventory management, lean means regularly identifying excess stock that wastes space and capital, reducing quantities to minimum viable levels, and then tweaking these levels so customers don’t bear the brunt of paying higher prices for unnecessary inventory.
• Dropshipping is a retail model in which sellers don’t store physical inventory but, rather, contract with third parties to house and ship the items straight to customers. For retailers, the benefits of dropshipping include lower capital investment and fewer carrying costs, as well as the ability to quickly scale through use of multiple suppliers. Visibility into suppliers’ stock levels thanks to integrated systems is critical for accurate delivery estimates.

Inventory Management Types

There are several types of inventory management systems that businesses use depending on how they operate. Three examples are manual inventory, periodic inventory, and perpetual inventory. Manual methods are the least sophisticated and least accurate, and perpetual systems are the most sophisticated and most accurate.

• Manual inventory system: This involves physically counting items and recording them on paper or in a spreadsheet. Small businesses may use manual systems.
• Periodic inventory system: Periodic inventory systems include manual and periodic counts. Periodic counts record item details as items move in and out of stock. Barcodes simplify stocktaking. A database contains the records of stock levels and locations.
• Perpetual inventory system: Perpetual inventory systems provide real-time stock data, as they rely on automated scanners and trackers that continuously send updates on item movements.

How Is Inventory Management Different From Other Inventory Processes?

People sometimes confuse inventory management with related practices. Inventory management controls all stock within a company. Supply chain management manages the process from supplier to delivering the product to the customer. Warehouse management is a part of inventory control and focuses on stock in a specific location.

Inventory Management vs. Inventory Control

Inventory control is a part of the overall inventory management process. Inventory control manages the movement of items within the warehouse.

Learn more about how these practices work together in our article on inventory control vs. inventory management.

Inventory Management vs. Inventory Optimization

Inventory optimization is the process of using inventory in the most efficient way and, as a result, minimizing the dollars spent on stock and storing those items.

You can also think about inventory optimization as seeing inventory across all locations and selling channels and being able to use any of it to fulfill customer orders—in doing so, you can hold less stock overall.

Learn more about the goals and benefits of inventory optimization.

Inventory Management vs. Order Management

Inventory management handles ordering and tracking stock as it arrives at the warehouse. Order management is the process of receiving and tracking customer orders. Software often combines both tasks.

Inventory management plays an important role in order management. As orders are received, inventory can be allocated to specific orders, and then the status can be changed in the inventory record to essentially put it “on hold” for that order. Furthermore, when the order management system and inventory system are integrated, the inventory system can recommend which location should fulfill the order, based on where all the items in the order are available—this eliminates multiple shipments for a single order.

Learn more about order management and how it works.

Inventory Management vs. Supply Chain Management

Supply chain management is the process of managing supply relationships outside a company and the flow of stock into and through a company. Inventory management may focus on trends and orders for the company or a part of the company.

Inventory management is essential for a properly running supply chain. Inventory management follows the flow of goods to, through, and out of the warehouse. The supply chain includes demand planning, procurement, production, quality, fulfillment, warehousing, and customer service—all of which require inventory visibility.

Learn more about supply chain management, its components, and key processes.

Inventory Management vs. Warehouse Management

Warehouse management complements inventory management. Warehouse management organizes stock in a warehouse. Inventory management manages stock and trends for many warehouses or an entire company.

The key to streamlining your warehouse operations is a thoughtfully laid out and meticulously organized facility. When each product has a specific place in the warehouse, it prevents staff from moving about inefficiently and maximizes labor usage. But these processes are only as good as the inventory records that drive them.

Learn more about how warehouse management and inventory management work together.

Benefits of Inventory Management

The two main benefits of inventory management are that it makes sure businesses are able to fulfill incoming or open orders and raises profits. Inventory management also:

• Saves money: Understanding stock trends means you see how much of and where you have something in stock so you’re better able to use the stock you have. This also allows you to keep less stock at each location (store, warehouse), as you’re able to pull from anywhere to fulfill orders—all of which decreases costs tied up in inventory and decreases the amount of stock that goes unsold before it’s obsolete.
• Improves cash flow: With proper inventory management, you spend money on inventory that sells, so cash is always moving through the business. Additionally, if a business sells goods on credit, faster order fulfillment can shrink the gap between order placement and final payment.
• Satisfies customers: One element of developing loyal customers is making sure they receive the items they want in a timely fashion. By offering a reliable ordering experience and meeting or exceeding expectations for both quality and timeliness, businesses can increase customer retention and order size.
• Improves efficiency: Transferring inventory from one location to another takes time and resources. Inventory management aims to reduce unnecessary movements, expedited shipping fees, and time staff spends on searching for missing items.

Inventory Management Challenges and Limitations

The primary challenges of inventory management are having too much inventory and not being able to sell it, not having enough inventory to fulfill orders, and not understanding what items you have in inventory and where they’re located. Other obstacles include:

• Getting accurate stock details: If you don’t have accurate stock details, there’s no way to know when to refill stock or which stock moves well.
• Poor processes: Outdated or manual processes can make work error-prone and slow down operations.
• Changing customer demand: Customer tastes and needs change constantly. If your system can’t track trends, how will you know when their preferences change and why?
• Using warehouse space well: Staff wastes time if products are hard to locate. Mastering inventory management can help eliminate this challenge.

Learn more about the challenges and benefits of inventory management.

Inventory Management Technologies

Businesses have many tools at their avail with which to manage inventory efficiently and accurately in real time. The following five technologies can enhance inventory control, automate operations, and support faster, data-driven responses.

• Barcode scanners:

  Barcodes and the scanners that read them have been used for decades, converting printed patterns of lines or dots into digital data that inventory systems can process to monitor an item’s whereabouts in real time. These devices range from simple handheld units to sophisticated fixed-mount scanners that automatically read codes as items pass by. Used in conjunction with automated checkpoints, mobile devices, and cloud-based software, barcode scanners facilitate faster stock counts and provide detailed tracking across multiple locations.

• RFID tags:

  Radio frequency identification (RFID) tags are small microchips that are affixed to products and contain item-specific information. Using radio waves to communicate with specialized scanners, tags can be read without a direct line of sight, so, for example, inventory inside containers, behind other products, or otherwise out of view can be accounted for. RFID tags also help decrease the likelihood of theft and locate missing items without staff having to unpack boxes or rearrange warehouse shelves.

• Automated guided vehicles (AGVs):

  AGVs are driverless machines that use magnetic strips, sensors, and other navigation aids to transport inventory along optimized routes in a warehouse. They can also place items in warehouse racks, unload materials from trailers, move pallets to storage areas, and handle vertical and horizontal reel storage. Another benefit of AGVs is that they can be used to remotely monitor floor operations.

• Predictive analytics:

  Predictive analytics—one of four main types of business analytics—focuses on what’s likely to happen in the future. It uses historical data, market data, and advanced algorithms (often powered by AI and machine learning) to forecast demand and predict the potential for supply chain issues. These tools can model a range of scenarios and offer actionable suggestions to mitigate risks and develop contingency plans, such as expanding safety stock before a supply chain slowdown.

• ERP software:

  ERP software centralizes inventory data across procurement, demand planning, warehousing, production, logistics, and finance, giving staff a holistic view of inventory levels and movement. Built-in reporting and analytics features allow businesses to track inventory performance over time, uncover the root causes of inefficiencies or bottlenecks, and measure the impact of process improvements. ERPs can also enforce quality checks and guide staff through cycle counting.

What Is an Inventory Management System?

An inventory management system oversees the movement of goods across numerous supply chain touchpoints, keeping real-time tabs on stock levels, item locations, and replenishment needs. Core features include:

• Tracking and traceability: Inventory systems track serial numbers and product batches so businesses know exactly where their goods are at all times. This traceability is also valuable should quality issues arise; businesses can isolate affected purchases for repair, instead of issuing a broad and costly recall.
• Multi-location inventory management: For businesses with multiple warehouses, stores, or fulfillment centers, these systems consolidate inventory data into a unified view. This allows for strategic stock allocation based on regional demand patterns, proximity to customers, and fulfillment costs.
• Order management: Integrated features automatically route customer orders through the most appropriate fulfillment locations, based on factors like shipping costs and warehouse proximity. The system keeps customers and internal teams updated throughout the fulfillment process.
• Cycle counting: Modern systems replace time-consuming, physical inventory counts with continuous cycle counting using scanners, robots, and other automated tools to pinpoint discrepancies. As orders are fulfilled, counts are automatically adjusted for accurate recordkeeping.
• Reporting: Customizable dashboards display KPIs tailored to different roles and permissions. Automated alerts flag issues requiring immediate attention and suggest actions to initiate before problems escalate.
• Purchasing: Inventory systems can generate purchase orders based on reorder points and budget thresholds. They also track vendor performance through KPIs, such as on-time delivery rates and order accuracy.
• Inventory visibility: Advanced systems display item-specific details, such as dimensions and expiration dates. Information can also be accessed via mobile devices, so workers can retrieve inventory information wherever they may be, supporting faster decision-making.
• Replenishment: When stock dips below predefined levels, the system can either trigger automatic reorder processes or flag purchases for approval. Reorder points can be adjusted over time as demand evolves.
• Shipping: Systems compare carrier options to identify the most cost-effective shipping methods, container sizes, and configurations that meet delivery specifications. Furthermore, they can automatically generate necessary documentation, including packing slips and customs forms.

How Do You Choose the Right Inventory Management System?

Choosing an inventory management system is a matter of pinpointing the features your business needs. Do you need to track stock movements and location within a warehouse, plan inventory and track trends, or both? Is the system scalable and within the company’s budget? What is the vendor’s track record for updates and support? Can the system be deployed in the cloud to serve a dispersed workforce?

When evaluating a system, businesses might want to prioritize three key features: real-time demand planning, data analysis, and real-time data reporting:

1. Real-time demand planning: Systems with real-time demand planning allow businesses to adjust purchasing schedules and warehouse operations in line with shifting demand levels. Any new software should properly integrate with existing systems, as any delays between shifts in demand and operational pivots can lead to empty shelves or stockpiles of obsolete goods.
2. Data analysis: An inventory management system should be able to collect and analyze a wealth of data about finances, customer satisfaction, inventory, supply chain performance, production efficiency, and warehouse operations to sync inventory strategies with overall goals. For example, a retailer’s inventory system can compare its customers’ buying history with surplus inventory to make targeted recommendations that clean out old stock at the end of the season.
3. Real-time data reporting: Built-in reporting capabilities and customizable dashboards that display inventory data go far to inform decision-making in response to issues or when implementing new strategies. These reports can highlight trends, such as frequent stockouts or supplier delays, providing insights that help teams take corrective action before small issues become costly problems.

The Future of Inventory Management

Inventory management systems continue to grow in sophistication, adding more intelligent and responsive capabilities that help transform how businesses address inventory and supply chain challenges:

• AI: Advanced AI algorithms help businesses identify patterns and analyze complex variables, such as weather events, social media trends, and macroeconomic indicators, that can impact their ability to maintain preferred inventory levels. These systems provide quicker and deeper analyses than traditional methods can achieve, by continuously learning from data and empowering businesses to proactively adjust their processes and operations before problems arise.
• Automation: Autonomous vehicles, drones, and picking robots work alongside humans to help businesses maintain operational continuity, even in remote or hazardous locations. Increasingly smart sensors integrated into self-monitoring systems also reduce response times by automatically replenishing or reallocating inventory when levels run low.
• 3D printing: 3D printers create small batch parts and custom components, decreasing the need for large inventory reserves, warehouses, and associated carrying costs. These tools use digital blueprints to meet exact specifications onsite, tightening supply chains and reducing transportation costs.
• Reverse logistics: By implementing new ways to reintegrate returns through refurbishing, recycling, and reselling goods, companies can trim their environmental footprint and minimize wasted inventory. Advanced inventory management platforms incorporate reverse logistics into their forecasting models to reduce material needs and, therefore, material expenses.

Bring the Benefits of Inventory Management to Your Business With NetSuite

Decision-makers know they need an inventory management system that can grow with them. With automated replenishment and lot tracing and tracking in multiple locations, NetSuite provides cloud-based inventory management solutions that are the perfect fit for businesses of any size. NetSuite offers a suite of native inventory management and control features, including multiple location planning, warehouse and fulfillment management, automated stock replenishment, lot and serial tracking, and cycle counting. Learn more about how you can use NetSuite to manage inventory automatically, reduce handling costs, and increase cash flow.

NetSuite’s Inventory Dashboard

Determining how much inventory to keep on hand is a constant challenge. Too little, and customers will go elsewhere. Too much, and businesses risk tying up capital in inventory that may never get sold. Companies that strike the right balance become privy to improved cash flow, reduced waste, and enhanced customer loyalty. An inventory management system can help businesses take control of their stock through real-time visibility across all locations, data-driven demand forecasting, automated reordering processes, and comprehensive analytics, all of which helps them make informed decisions about purchasing, allocation, and fulfillment.

Inventory Management FAQs

What are the objectives of inventory management?

One objective of inventory management is to keep enough stock on hand to satisfy customer demand. Another is to invest as little as possible in stock while maximizing profits.

How can inventory management be improved?

Keeping accurate accounting records and taking regular physical stock counts can improve a company’s inventory management efforts. A system that provides the organization with real-time visibility into inventory can help stakeholders make critical business decisions.

How does inventory management affect the working capital?

Real goods in warehouses tie up working capital until they sell. Making the supply chain more efficient keeps you from holding too much stock. Improving inventory management processes helps you prevent storing, picking, and shipping errors that reduce sales.

What are inventory management policies?

Inventory management policies are plans for how to use inventory to make customers happy and reduce costs. Policies outline such things as the stock management method the company uses.

What is service level in inventory management?

A service level for inventory management is how much a company believes it can successfully store a particular stock. In other words, it’s the probability a company will avoid stockouts and support sales.

How does ERP help in inventory management?

Enterprise resource planning (ERP) is helpful for inventory management because it tracks and provides insights into supply chain operation, accounting, and purchasing, consolidating the information and making it visible in one place.

What are the markers of poor inventory management?

Poor inventory management is an imbalance between keeping too much and too little stock. The definition of a perfect balance can change as demand changes—Sales change when trends or seasons change. Poor stock management increases costs and thereby reduces profits.

Is inventory management the same as cycle counting?

Inventory management encompasses all the processes involved in ordering, producing, allocating, tracking, and controlling a company’s goods and supplies. Cycle counting is a more focused practice where businesses count a selected set of stock and compare results with documented records. Cycle counting serves as an important aspect of inventory management that confirms that the amount of inventory represented in the system is what is actually in-house.