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Take Control of Your Inventory: Get Started with an Inventory Management System!
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1. What is Inventory Management?

​​Effective inventory management is the process of ordering, storing, and using materials and resources for a business. It is part of supply chain management and includes inventory control, replenishment, forecasting, and warehouse management. It keeps the right amount of resources and materials to meet customer demand, and tracks inventory costs to ensure enough inventory is on hand while avoiding understocking/overstocking. It also identifies which products are selling quickly and which need to be reordered. This helps plan future production, optimize pricing, and develop marketing campaigns. 

Choosing an Inventory Management System 

Choosing an inventory management system is an important decision for businesses looking to streamline their inventory processes. The right system should help businesses accurately track, manage, and control their inventory. It should also be tailored to fit their specific inventory needs, from a small retail store to a large warehouse. The system should be able to provide visibility into the entire inventory process, from ordering and receiving to stocking, tracking, and sales. It should be easy to use and integrate with existing systems, provide accurate and up-to-date information, and offer features such as barcode scanning, automated ordering, and mobile access. An inventory management solution saves businesses time, money, and energy which can all be spent improving operations elsewhere.

Efficient Inventory Management 

Efficient inventory management is a key factor in running everything from a small business to a large global enterprise. It involves maintaining accurate records of inventory items, monitoring stock levels, and ordering new stock when necessary. With proper inventory management, businesses can reduce costs associated with having too much or too little inventory on hand. Additionally, they can make sure they have the right amount of stock to meet customer demand and provide the best customer service possible. By controlling inventory levels, businesses can maximize profits, minimize costs, and improve customer satisfaction. Another goal of inventory management is to help businesses identify potential problems early on and take corrective action quickly. 

Managing Your Inventory  

The best inventory management is essential to keeping track of the products and/or services a business has, as well as tracking stock levels, ordering new items, and tracking sales. It also involves understanding customer buying habits and predicting future demand. Additionally, managing inventory can help a business control costs and improve customer service by ensuring the right products are available when needed. Furthermore, keeping accurate records and tracking inventory helps businesses stay compliant with laws and regulations. 

2. What are the Components of an Effective Inventory Management System? 

Inventory Tracking and Reporting

Inventory tracking involves tracking the goods and products in a business’s inventory, including their quantity, price, and location. Inventory reporting is a component of inventory tracking that involves generating reports about the goods and products in a business’s inventory, such as the total cost of goods, inventory turnover rate, and sales trends. This information can be used to help businesses make informed decisions about their inventory needs and management. As part of an inventory management plan, reporting can also help businesses identify any potential problems and track their performance. This information can help businesses to increase their efficiency and effectiveness in managing their inventories, helping them to remain competitive in the market.

Warehouse Management

Warehouse management is an essential component of an effective inventory management system. Warehouse management involves the efficient storage and retrieval of goods, tracking of inventory levels and movements, and maintenance of inventory accuracy. It ensures that items are stored safely and securely, and that stock levels are managed in a way that meets customer demand. Warehouse management also enables companies to make decisions on when to order new items and when to deplete stock. By making decisions based on accurate data, companies can ensure they’re stocking the right items, in the right quantities, and at the right times. Warehouse management is critical in ensuring an efficient, cost-effective, and successful inventory management system.


Procurement involves the purchasing of goods and services necessary to support a business’s operations. It focuses on getting the right goods and services at the right time and at the right price. By leveraging supplier relationships, strategic sourcing, and cost-saving strategies, procurement is able to ensure that the business has the necessary inventory to meet customer needs. This, in turn, helps to ensure that the business is able to meet production and delivery commitments. Procurement also provides the business with visibility into inventory levels and supplier performance, allowing for more effective decisions on inventory levels and supply chain partner selection. This helps to ensure that the business has the necessary inventory to meet customer needs and minimize the risk of stock-outs.

Quality Control

Quality control helps ensure that the products in inventory are safe, in good condition, and meet the customer's needs. It also helps to reduce the amount of waste in the inventory system by identifying and addressing potential problems before they become major issues. Quality control helps ensure that the products being sold meet the customer's expectations, and that they are not damaged or defective. This, in turn, helps to reduce customer complaints and returns, while improving customer satisfaction. Quality control helps to ensure that the inventory system is operating at its highest efficiency, with minimal waste and maximum benefit to both merchants and their customers. 

3. What Inventory Management Techniques Can Help Businesses Reduce Costs and Improve Efficiency? 

Improve Your Management Process By Automating Inventory Tracking

Automating inventory tracking helps businesses reduce costs and improve efficiency by providing an accurate and up-to-date snapshot of inventory levels. This allows businesses to better manage stock levels, leading to reduced carrying costs. Automation also reduces human labor costs by eliminating the need for manual stocktaking and data entry. Automated systems also improve the accuracy and speed of inventory tracking, reducing the time and cost associated with manual recordkeeping. Automation also provides data that can be used to improve processes, predict demand and optimize inventory management strategies. By providing improved visibility into inventory levels, businesses can better manage their resources and reduce costs associated with unnecessary stock or excess inventory.

Forecasting Demand is a Crucial Part of an Inventory Management Strategy

Forecasting demand is a major inventory management tool for any business owner to reduce costs and improve efficiency. It helps them to predict future customer needs and bring in new inventory accordingly. By accurately predicting demand, businesses can avoid overstocking, keep inventory waste to a minimum, and plan their production and inventory more effectively. It also helps them to manage pricing, optimize marketing efforts, and plan for seasonal variations. In addition, forecasting demand allows businesses to plan for long-term growth and adjust their strategies as needed to ensure they are meeting their goals. 

Optimized Inventory Levels are Key Benefits of Inventory Management

Optimizing inventory levels helps businesses reduce costs and improve efficiency by streamlining their supply chain and inventory management processes. It allows businesses to better predict customer demand, reduce excess inventory, and improve their ability to meet customer orders. By strategically tracking and managing inventory, businesses can reduce the amount of stock needed, thereby reducing storage costs and freeing up funds for other investments. Additionally, optimized inventory levels can help businesses reduce lead times and improve customer service. With better inventory tracking, businesses can quickly identify and replenish items that are in high demand, allowing them to serve customers more efficiently and effectively. Ultimately, optimizing inventory levels helps businesses reduce costs and improve efficiency while providing better customer service.

4. What Types of Software are Available to Manage Inventory? 

Inventory Management Software (IMS)

Inventory management software helps businesses manage their inventory by providing real-time inventory tracking and insights. This software is an essential part of any business, allowing them to easily track their inventory levels and identify the products that need to be replenished. Additionally, inventory software can provide useful insights such as stock levels, stock turnover rates, and in-demand items. Good inventory management software makes sense, as it helps merchants improve their operations reduce costs, and increase customer satisfaction. Furthermore, the software can be used to manage orders and deliveries, providing detailed reports and analysis to identify areas of improvement. 

Warehouse Management Systems (WMS) 

A warehouse management system (WMS) helps businesses manage their inventory in a number of ways. They are designed to keep track of inventory levels, manage inventory movement from receiving to shipping, and track inventory location. The WMS also helps businesses reduce costs associated with inventory management such as labor, storage, and transportation. By communicating continually with inventory management software, a WMS helps businesses increase efficiency, reduce costs, and optimize inventory processes. 

Enterprise Resource Planning (ERP) Systems

Enterprise resource planning (ERP) systems allow businesses to keep track of their inventory in real-time. By having access to up-to-date information, businesses can make smarter decisions regarding when to restock and what items should be prioritized. ERP systems also allow businesses to set automatic reorder points, enabling them to restock automatically at the right times and avoid costly stock-outs. By tracking inventory levels and transactions in one place, businesses can make sure they’re always stocked with the right amount of inventory without overstocking, reducing waste and helping them save money.

Point-of-Sale (POS) & Cashiering Solutions

Point-of Sale (POS) and cashiering solutions offer businesses a great way to keep tabs on their inventory. With these tools, businesses can easily track product information like pricing, inventory levels, and customer purchase history. They can also quickly and accurately process sales transactions, giving them the ability to quickly adjust stock levels in response to customer demand. Additionally, with the help of POS systems, businesses can easily generate reports about their inventory and sales which can be used to make strategic decisions about pricing and placement. 

Barcoding and Automated Data Collection Systems

Barcoding and automated data collection systems are invaluable tools for businesses looking to optimize their inventory management. By using barcodes to track products, businesses can quickly and accurately track product information like stock levels, purchase orders, sales orders, and more. Automated data collection systems also make it easy for businesses to analyze their inventory and make data-driven decisions about what to stock and what to order. This in turn helps businesses reduce their inventory costs and minimize the risk of stock-outs. Automated data collection systems can also help businesses quickly identify potential problems such as theft, damage, and expiration. By leveraging barcoding and automated data collection systems, businesses can efficiently manage their inventory and ensure that their supply chain runs smoothly.

5. What Different Types of Inventory Management Methods Can Be Used to Optimize Inventory Replenishment? 

ABC Analysis is Key to an Efficient Inventory Management System

ABC Inventory Analysis is a powerful tool to help businesses optimize their inventory replenishment practices. By categorizing inventory into A, B, and C levels, businesses can quickly determine which items require the most attention. Items in the A category require frequent reordering and close monitoring, while items in the B and C categories require less frequent monitoring and replenishment. This allows businesses to focus their resources on the items that need it the most, ensuring that their inventory is always up to date and in line with customer demand. Additionally, ABC Inventory Analysis can be used to identify any seasonality or trends in customer demand, allowing businesses to plan for upcoming changes and ensure their inventory is always prepared. 

Use Inventory Management Formulas in an Economic Order Quantity (EOQ) Model 

Economic Order Quantity (EOQ) is a cost-minimizing inventory replenishment model that helps businesses decide how much inventory to order and how often to order it. By considering factors such as ordering costs, holding costs, and lead times, EOQ can provide an optimized solution for businesses to achieve the greatest efficiency and cost savings when replenishing their inventory. With EOQ, businesses can calculate the optimal order size and rate of ordering that will result in the minimum total inventory cost. This helps businesses balance their inventory levels, allowing them to order the right amount of inventory at the right time. In addition, EOQ can help businesses reduce their inventory costs and prevent them from investing too much money in inventory that might not be sold. 

Improve Your Inventory Management By Monitoring and Adjusting Reorder Points

Monitoring and Adjusting Reorder Points (MARP) is designed to monitor stock levels and alert suppliers when those inventory data reach a predetermined threshold. This allows for timely and efficient replenishment of stock, reducing the risk of running out of inventory. MARP can be tailored to the specific needs of an organization, allowing them to adjust the reorder point to fit their desired inventory levels. This can help reduce costs associated with overstocking items, as well as the cost of lost sales due to insufficient stock. Additionally, MARP can be used to set target inventory levels, helping to ensure that inventory is maintained at a level that meets the organization’s business needs. 

Establish Vendor Partnerships For Bulk Purchasing 

Establishing vendor partnerships for bulk purchasing involves sourcing goods in large quantities from a single vendor in order to take advantage of cost savings and faster delivery times. Bulk purchasing allows businesses to order large amounts of goods at once, reducing their need to restock frequently as well as overall inventory costs. Bulk purchasing also allows businesses to have control over their supply chain and better manage their inventory levels. Furthermore, businesses can benefit from better pricing and discounts when negotiating bulk purchase agreements with vendors.

Employ JIT and VMI Replenishment Strategies as Part of an Optimized Inventory Management Process

Adopting JIT and/or VMI can be a great strategy for companies that need to manage inventory replenishment. JIT (Just in Time) allows companies to only order inventory when it is needed, meaning that they can avoid overstocking and having excess inventory. VMI (Vendor Managed Inventory) or "consignment inventory" allows companies to outsource the inventory management process to a third-party vendor, which can help reduce the costs associated with managing inventory. Both strategies can help improve the accuracy and timeliness of inventory replenishment, helping to ensure that the right products are available when needed. Additionally, JIT and VMI can help reduce wastage, as companies are only ordering what is necessary and stocking what is needed. 

6. What Methods are Used in Inventory Demand Forecasting? 

Naive Method

The naive method of inventory demand forecasting is a basic approach to predicting demand that assumes future demand will be equal to current demand. This method does not take into account any external factors or trends that could affect demand.

Moving Average Method

The Moving Average Method of inventory demand forecasting involves taking the average of the past few periods' demand to predict future demand. This is used to identify trends in demand over time and make more accurate predictions.

Linear Regression Method

Linear Regression Method is a forecasting technique used to predict inventory demand by identifying a linear relationship between factors that influence demand and the actual demand. The method uses a linear equation to estimate future demand based on historical data.

Time Series Analysis

Time Series Analysis is a method of inventory demand forecasting that uses historical data points to predict future trends and sales volumes. It analyzes patterns in the data over time to create accurate forecasts.

Seasonal Adjustment Method

The Seasonal Adjustment Method of inventory demand forecasting accounts for the cyclical fluctuations in demand due to seasonal changes. It adjusts demand data to account for the seasonality of the forecast and makes it more accurate in the process. This helps businesses to better prepare for seasonal changes in their inventory and plan accordingly.

Machine Learning Methods

Machine Learning Methods of inventory demand forecasting use algorithms such as regression and decision trees to analyze historical data and predict future demand. They can be used to create very accurate forecasts and identify trends in customer behavior.

7. What are the Best KPIs to Identify Slow Moving or Obsolete Stock Items?

Stock-to-Sales Ratio

This is a vital metric for determining and maintaining optimum inventory levels. Too much will result in increased holding costs: warehousing (rent, utilities, salaries), opportunity cost, and other costs related to things like depreciation, perishability, shrinkage, and insurance. Too little can mean stockouts which will result in both lost sales and lost customers. 

Sell-Through Rate (STR)

A Comparison between the inventory amount sold and the amount received from the manufacturer/supplier. The STR helps gauge the accuracy of demand forecasting, identify popular products, measure supply chain efficiency, and mitigate storage costs. It is a powerful KPI for insights about what your customers want and for minimizing overstocks. An ideal STR is generally considered to be 80 and up.

Inventory Turnover Rate (ITR)

The ratio of how frequently inventory sold and was replenished during a specific time period. Inventory Turnover Rate will help inform decisions about stock levels and/or pricing. The two methods of computing ITR are not equivalent, however, and this must be understood. The COGS ratio is considered more accurate than the sales ratio as it does not incorporate sales markups on top of cost. Regardless of the method used, a low ITR can denote poor sales or excess inventory whereas a high ITR, while preferable if due to strong sales, can also mean pricing levels are too low and need adjustment.

Weeks On-Hand 

Considering how much capital is invested in inventory, this KPI is an excellent measure of not only how smartly a company is allocating resources, but also of its overall financial position. A low weeks on-hand number means efficient product movement, extremely low carrying costs, and improved cash flow. 

Backorder Rate

The Percentage of customer orders a company cannot immediately fulfill from inventory. Since backorders are viewed both positively and negatively depending on the scenario, this KPI can reflect a broad range of situations. On the plus side, a high backorder rate may mean overwhelming demand, and a low backorder rate can signify excellent demand planning. In contrast, a high backorder rate can also mean poor demand planning while a low rate suggests lethargic demand. As backorders may also be used by brands to test demand for new products, this KPI can serve as a superb market research tool.

Days Sales in Inventory (DSI)

Time it takes to turn inventory into sales. A further distillation of the Weeks On-Hand KPI, this liquidity reading is more meaningful for merchants selling lower-priced, high-volume items. A high number may signify inefficient movement, particularly if no secondary contributing factors are identified. However, in situations where projected supply is forecast to be diminished, a company might accept a high DSI in the near term, hold its inventory, and then raise prices to meet future demand. 

8. What Techniques Should Be Used to Minimize the Risk of Overstocking or Understocking Items?

Establish a Reorder Point System

Establishing a Reorder Point System allows a business to determine when inventory levels reach a certain point, and when to order more to avoid running out of products. This system can also help ensure that excess stock is not kept in the warehouse and is instead sent to customers when needed. By utilizing this system, businesses can ensure they have the right amount of stock on hand.

Utilize Automated Inventory Management

Automated inventory management systems detect and alert businesses when stock levels get too low or too high, allowing them to adjust their inventory accordingly. This helps businesses ensure they are stocking the right amount of items and not too much or too little. Automated inventory management also helps businesses track the movement of goods and inventory in order to make more informed decisions.

Analyze Demand Patterns

Analyzing Demand Patterns provides businesses with data-driven insights into the historical sales performance of their products. This helps them to better predict the amount of inventory they should maintain for each item, ensuring that they have just the right amount of inventory to meet customer demand. By understanding the demand patterns for their products, businesses can save time, money, and resources, as well as reduce customer frustration due to the unavailability of items.

Leverage Technology to Track Inventory

Technology can provide real-time data to help businesses better understand their inventory levels and more accurately predict customer demand. This can help ensure that businesses stock the right amount of items. In addition, technology can be used to automate the inventory and supply chain tracking process, saving businesses time and effort.

Use Inventory Forecasting

Inventory forecasting allows businesses to anticipate consumer demand for certain products and store inventory accordingly. By using data-driven insights, businesses can accurately predict future demand and adjust their stocking levels to ensure that they always have the right amount of inventory on hand. 

9. What are the Methods Used for Accurate Inventory Reconciliation?

Inventory Reconciliation

While barcode scanners are powerful weapons in the inventory accuracy arsenal, brands need to develop their own systems of inventory reconciliation. A range of processes are used to reconcile inventory, i.e. match record with reality, and some, or all, may be needed to determine exactly where any discrepancies may lie.

Physical Counts

As much as we embrace technology and automation within the eCommerce backend, inventory accuracy demands that we get physical on occasion. There are two types of inventory counts: Full and Cycle.

Full Inventory Counts

This is what is generally thought of when one thinks about “taking inventory.” A full count involves shutting down a warehouse and counting every item. These counts can be tracked with anything from pen/paper to barcode scanners to RFID tags, but the result is the same: the entire physical inventory will be counted.

On the upside, this method provides a comprehensive, current count of your stock. On the downside, a full closure can be extremely disruptive (and costly), not to mention a potentially massive undertaking that can itself result in errors. 

Inventory Cycle Counts

Cycle counting is a method of counting certain products on a regular basis to help companies confirm the inventory levels reflected in their IMS. As opposed to full counts, the limited scope of cycle counts allows businesses to save money by performing them during normal working hours. It should be stated that regular basis can mean every day. Daily cycle counts and reconciliation of inventory variances can be useful to track high-volume items, investigate suspected theft, or simply to manage a facility with a large number of different SKUs. Several methods of cycle counting exist, but the most common ones involve counting the highest-in-value items to the company (revenue-generating, most frequently ordered, etc.). Other options include conducting counts for random SKUs scattered around the warehouse or focusing on a specific area. 

Further Reconciliation

Once the inventory check has been completed, more steps lie ahead. First, physical stock gets compared to the digital record. Any discrepancies must then be examined, and all possibilities considered and investigated. This can be a difficult process, however the long-term pluses to your business far outweigh the short-term headaches. Conducting counts and reconciliations on a regular, scheduled basis yields increased inventory accuracy and serves to further improve inventory management and inventory control processes.

10. What tips are available for implementing an effective inventory management system?

Choose the Right Inventory Management System

The right inventory management software system is critical for optimizing product availability and meeting customer demands while keeping excess inventory costs low. Consider several types of solutions, such as cloud-based systems or those that integrate with your existing eCommerce platform, to find one that meets all of your unique business needs.

Keep Track of Your Items

An effective inventory tracking system should allow you to accurately keep track of your inventory levels at all times, ensuring that customers can always place orders and that you never run out of stock unexpectedly, especially during peak seasons or when running promotions.

Spend Time Managing Stock Levels

Make sure you spend more time managing the levels within each item category and track how often they need replenishing versus relying solely on periodic counts once a quarter, etc. Using real-time data analysis instead of relying on guesswork will help guarantee that adequate levels are maintained throughout the year without unnecessarily overstocking and wasting resources. Additionally, it will provide improved forecasting accuracy in the future.

Use Good Software When Possible

Inventory management is a crucial part of any business and it demands Investing in quality software. Utilizing technology reduces human error associated with manual processes involved in all manner of operations, from counting physical inventories to incorrectly entering data into spreadsheets, etc. 

Separate Inventory into Three Categories

To best understand which products are selling faster than others, separate them into three categories — slow-moving items, medium-speed movers, and fast sellers. This way, it's easier to manage different stocking strategies accordingly so you don't run out of high-demand goods prematurely, but still have an ample supply available whenever necessary.

Have a Backup Strategy in Place in Case of Emergencies

It's important to be prepared if something unexpected happens—like supplier delays natural disasters, etc.—by having contingency plans lined up ahead of time. This means establishing relationships with reliable distributors, securing alternative transportation methods, and having efficient ways to store extra supplies securely until needed again. This can ensure a smooth transition back to normal operations as soon as possible in the event of unfortunate circumstances.

Manage, Control, and Optimize Your Inventory with SkuNexus

Inventory management plays a vital role at the heart of any merchant's business, and the inventory management solutions on the market vary widely in both quality and functionality.

At SkuNexus, we believe that a central goal of inventory management is to keep businesses lean and efficient as they grow, scale, and thrive. To that end, we design our management software to help companies streamline operations, automate processes, and improve accuracy throughout their entire inventory. If your business is facing challenges on any level in this area, you have come to the right place.

Your inventory, and every system you use, can be connected to SkuNexus. Our management software can provide real-time inventory visibility, tracking, and control across all channels and locations.

If you would like to learn more about how our order management solutions can transform your entire business, please contact us to schedule a personalized demo.