8 Best Inventory Management Practices

inventory management best practices

Inventory management is critical for keeping businesses running smoothly and the bottom line healthy. Retailers, manufacturers, wholesalers, and distributors can benefit from the best inventory management strategies that expedite operations and processes while maintaining control over inventory, assets, and equipment.

1. Demand Forecasting

Demand forecasting is the process of predicting required inventory levels for a future period by analysing historical data, trends, and known imminent occurrences. Forecasting accurately guarantees that businesses have enough products on hand to meet customer demand while not tying up cash in unneeded inventory. Forecasting is more than simply establishing a reorder point; it is the process of analysing data to uncover patterns and trends in order to respond to changing conditions and satisfy customer demand.

2. Batch Tracking

Batch tracking, also known as lot tracking, is a method for efficiently tracing goods and commodities through the distribution chain using batch numbers. A batch is a group of commodities that were created at the same time and with the same materials.  Use an automatic batch tracking system to record information about all of the items in your batch, and have that information on hand in case you need it immediately, such as in the event of a product recall.

3. Use Inventory Management System

Inventory management systems assist organisations with order fulfilment and inventory tracking. These systems keep track of every product that enters and exits the company during manufacturing, storage, and distribution. The foremost advantage of inventory management software is that it simplifies the process of inventory management, saving you time, and money. Additionally, by utilising inventory management software, you will significantly improve product traceability and will be able to analyze key performance indicators of your suppliers.

4. Maintain Buffer Stock

Buffer Stock is the practice of maintaining excess inventory to account for supply chain fluctuations and minimise the impact on operations. In an ideal world, suppliers and orders would be consistent and reliable, eliminating the need for buffer stock.  Preserving Buffer Stock helps mitigate the effects of demand and supply variations and ensures uninterrupted production in the case of a disruption. Additionally, it increases revenue by reducing the likelihood of missing any order.

5. Follow FIFO or LIFO

The Last-In-First-Out (LIFO) approach implies that the most recent unit added to inventory gets sold first. Whereas, the First-In-First-Out (FIFO) technique implies that the inventory item with the greatest age is sold first. LIFO is typically the default for non-perishable items because it eliminates the need to reshuffle warehouses or rotate batches.  FIFO inventory management prioritises the sale of older products first, reducing the likelihood of a business losing money when products expire or become obsolete.

6. Categorise Your Inventory

Categorising inventory is unique to each organisation, but it is critical, particularly if your business maintains a large amount of stock. Whatever system you choose to organise your inventory, make sure it is flexible, scalable, and reasonable. You can categorise your inventory by splitting it into three groups according to profitability (ABC classification), or by location, item kind, or other visible commonality. Whatever system you use to categorise your inventory, be sure it is one that you can maintain as your firm grows.

7. Maintain Healthy Supplier Relations

It is vital to manage supply chain connections well since working directly with suppliers allows you to frequently anticipate and resolve difficulties. Developing long-term, trusting relationships with dependable suppliers should be a primary objective of every organisation seeking market success. Maintain strong and consistent communication with all of your vendors. A stronger, deeper friendship built on open and frequent conversation allows for more organic communication.

You can invest in supplier management software to centralise all of your supplier information. You may even take it a step further by implementing comprehensive purchase order management software, which will enable you to create, process, and track purchase orders with your suppliers. 

8. Continuous Inventory Monitoring

Conduct periodic audits and monitoring sessions to ensure that your real inventory matches your reports. Monitoring can be accomplished in three ways: physical inventory, spot checks, and cycle counting. 

  • A physical inventory entails counting all of your inventory and should be conducted at least annually, if not more frequently at the end of the year, to coincide with income tax returns. 
  • Spot checking is when you select one or two products at random from the entire inventory, physically inspect them, and compare them to what is documented or stored in your software system. Spot checking is ideal for high-volume products. 
  • Cycle counting distributes reconciliation throughout the course of the year. Each product has its own audit period, although you should do more frequent checks on high-value items.


Inventory management is a significant undertaking in today’s global, omnichannel economy. Rather than relying on outdated principles, supply chain leaders should use proven inventory management strategies and carefully explore upgrading their systems to take advantage of emerging technologies. Using a systematic strategy is the only method to ensure inventory management accuracy and efficiency. To maintain control over the supply chain, businesses must use an inventory management system. This way, the fatal twin dangers of overstocking and understocking can easily be avoided.

Frequently Asked Questions (FAQ)

In retail, inventory is commonly referred to as stock. Managers typically refer to things like garments and housewares as “stock on hand.” Inventory refers to both stored sales goods and raw materials and parts utilised in production across industries.

An inventory management system (IMS) is a collection of different software packages used to keep track of stock levels and movements. The solution is compatible with multichannel sales and fulfilment platforms. Inventory management software optimises inventory levels and guarantees product availability across numerous distribution channels. 

Warehouse management system (WMS), is primarily used for managing warehouse processes. It regulates and optimises inventory movement, storage, and tracking within and outside of a warehouse. Inventory management software, on the other hand, typically takes a broader approach to inventory planning and optimization across multiple sites throughout the supply chain.

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