Inventory management, the most crucial element of the supply chain, involves tracking of inventory from manufacturers to warehouses and then to point of sale. It requires exceptional tact to assess exactly what items are needed in the stock to fulfil customer demands without overstocking items that may turn bad. Effective inventory management reduces cost by minimizing losses and maximizing sales. Inventory Management Technique, thus, refers to the management of inventory with a solid strategy and a streamlined supply chain flow.

The ultimate goal of inventory management is to have the right products in the right place at the right time so that the final deliveries are quick and hassle-free. The process requires the person in charge to know when and what to order, the quantity to order, and the place where the orders are to be stocked. Broadly, it can be broken down into five steps-

1. Purchasing- Buying raw materials for production, or buying products for direct sale with no production required.
   
2. Production- Manufacturing of products from the raw materials. This step isn't applicable to people who are not into production, for instance, the wholesalers.
   
3. Holding- Storing the inventory until needed. Raw materials are stored till they are required for manufacturing, and finished products are stored till they are shipped to the next stop (the retailers, for instance).
   
4. Sales- The final or finished products are shipped or sold to customers for a transactional value that leads to profit.
   
5. Reporting- The final stage is usually making a note of the business that has happened. It includes taking into consideration the number of products sold or unsold, the money made on each sale, and making a note of products that have gone bad because of not selling.
   

The building block for any business is to have the right talent with the right knowledge, skills, and abilities (or, KSAs as its popularly known) in the domain they are required to work in. If someone has to manage inventory, the knowledge in supply-chain management and the skill to optimize it is a must. For a public limited company, one should have the know-how for documentation and the ability and skills to comply with the Securities and Exchange Commission (SEC).

The right KSAs in inventory management ensures that there is rarely too much or too little stock on hand, basically the right knowledge of EOQ. The economic order quantity (EOQ) refers to the ideal order quantity a company should purchase in order to minimize its inventory costs, such as holding costs, shortage costs, and order costs. It limits the risk of stockouts and inaccurate records. To sum it up, the right skills and knowledge in inventory management help in fulfilling incoming or open orders, thus raising profits.
These are some of the most important KSA one should have to be prolific in inventory management-

1. The knowledge of tracking inventory systems to record deliveries, shipments, and stock levels.
   
2. Skill to evaluate deliveries, shipments, and products to control inventory.
   
3. Skill to analyze the daily supply and demand to meet requirements in the foreseeable future.
   
4. Equipped to optimize operations by suitably managing employees, deliveries, and shipments.
   
5. Clear communication skills to meet business goals and address personnel issues.
   

Having the suitable KSAs in Inventory Management helps in-

1. Saving Money- Having the knowledge of stock trends ascertains that you are aware of the stocked up products at different locations (warehouse management). It ensures that the old stock is used to fulfill orders before newer ones are ordered. It reduces costs tied up in inventory and mitigates the risk of unsold stock.
   
2. Improving Cash Flow- Efficient inventory management ensures cash inflow in the business.
   
3. Building a Satisfied Customer Base- Timely deliveries without delay is a result of efficient inventory management and leads to happy, long-term customers.
   

The most basic and one of the recurring challenges of inventory management is having too much inventory and not enough buyers. Sometimes, it is the other way round, that is not enough inventory to fulfill orders, or not having an understanding of the items you have in inventory and the location they are stored at.

The cost of poor inventory management can be as stark as failure of a business. When businesses don't have a grip on the activity of their inventory. Or, tracking is done with outdated spreadsheets and data entry, it causes inefficient inventory management. Poor inventory management could lead to-

1. Missed sales because of under stocking- If an ordered item is out-of-stock, a business often loses out on sales. It also means that the customers will look for the same product at different places and in the long run, your business might lose customers too.

2. Tied-up money in surplus inventory- To have money tied-up in inventory that isn't circulating or selling enough is another reason for business failures. Businesses usually overestimate demand and stock up products that may not sell in time. If the money is invested in perishable items or items that may go out of trend soon, it could lead to huge losses. The money could have been put to better use buying inventory that is selling, paying wages, debts or expanding the business.

3. Unnecessary warehousing costs because of over stocking- Storing inventory is a costly affair. To store excess inventory means paying rent for warehouses. Plus, its management requires labor cost. To minimize these expenses, it is necessary to have a balanced calculation of demand and supply.

The main goal of Inventory Management is to increase visibility while also having an organized inventory activity and a streamlined pick, pack and ship features. If you have these sorted in your inventory management, it may help your business grow and increase the customer base. The first step before implementing any inventory control technique is to understand your demand.

Thus, it becomes a crucial exercise to invest time, as well as money if required to set up advanced inventory forecasting models and be aware of reorder points. It will help you get accurate demand forecasts -- take product life cycles into consideration, identify seasonal demands, identify trends, take stock levels into account, and consider other factors such as competitor activities.


If you are a small business, implementing smart inventory management strategy clubbed with an apt inventory management software, is all you need to run smoothly. These are some of the techniques that could help grow your business.

1. ABC Analysis
Some products sell more than others. ABC analysis lets you prioritize the most important items in your inventory, putting products into categories in order of importance, with A being the most valuable and C being the least. The technique analyzes annual consumption, inventory value, and its price significance. When each category is separately analyzed, you can control the stock, allocation of funds, and human resources, in turn optimizing your business requirements.

2. Just-In-Time Stocking
For small businesses, this technique may work really well. It is easy to avoid the costs of overstocking with just-in-time (JIT) stocking. This strategy lets you order only what you need to meet immediate demand. You can always have a back-up safety stock, but this technique can help you save a lot of money by reducing warehouse costs, human resources, etc. The only issue with this technique is that it hinders the prospects of meeting increased demands as there's no back-up inventory.

3. Dropshipping
This technique allows businesses to sell products to their customers without the need to stock and send the items themselves. The vendor becomes a middleman between the customer and the supplier. This technique is great for aspiring/growing entrepreneurs who are still trying different business techniques. It gives a business owner access to a multitude of products and an opportunity to test different business ideas with limited downside. You learn a lot about market trends and customer demands and can grow your business accordingly.

If you are still a growing business with mid-sized capital, you would want to apply techniques that help you save money and also result in good returns. These are some of the Inventory Management techniques to use-

1. Two-Bin Method
The two-bin inventory control system determines when items should be replenished. In this technique, items are stored in two areas or bins, depending on how large the item is. When a bin becomes empty, new products are moved into it. When the inventory from the second bin is used, it is time to order new supplies. This technique ensures that companies reduce inventory risks and always have the right level of stock to meet demand. For mid-sized businesses, it creates a semblance between demand and supply.

2. Fixed Order Quantity
This is an inventory technique in which the maximum and minimum inventory levels are pre-determined. When the stock reaches a fixed minimum number, the company can order a fixed number of new items. This prevents the company from over-ordering while avoiding the risk of running out of inventory. This technique is really helpful in managing Restaurant Inventory, in which you are usually able to predict the demand for the day or week.

3. Cycle Counting

Cycle counting involves performing a regular count and recording the adjustment of specific products throughout the year. A different product is checked on a rotating schedule weekly, monthly, quarterly or annually. By implementing different methods, it is determined which items to count at what period of time. Cycle counting is significant because it is less disruptive. As only a small percentage of the inventory is being counted at any given time, the business can operate as usual with other stocked inventory. Effective cycle counting clubbed with a smart Inventory Management software, can reduce expenses, increase profits, improve customer service, and enhance warehouse efficiency.

If you are a business with high inventory turnover, the biggest risk is of ending up with a huge pile of dead stock. Since you are dealing with excess inventory, overlooking some of the products may become a constant in your inventory management.

It is, thus, crucial to implement inventory solutions or techniques that take into account the existing stock and also prepare you for demand surge. The best way is to eliminate the use of manual Excel Inventory management techniques and opt for Best Inventory software solutions. For now, here are some Inventory Management techniques that can help you in optimizing your business.

1. First-In, First-Out (FIFO)

FIFO is an important technique to control excess inventory. The technique prioritizes oldest stock (that was first entered in the system) and ensures it gets sold first (first-out), not the new stock. This is really helpful in businesses dealing with perishable products. It reduces the risk of ending up with unsalable dead stock.

2. Bulk shipments

This method hinges on the concept that bulk purchasing and shipping is cheaper as compared to small quantity purchases. For businesses with high-customer demand, bulk shipping is one of the predominant techniques. This technique has high profit potential as fewer shipments mean lower shipping costs. It works really well for products with predictable demand and long shelf lives.

To take control of your inventory and stop losing money, you need to closely pay attention to the factors causing inefficient inventory management. Choosing the right inventory management techniques for your business can-

1. Build and sustain an efficient system that saves time and money.

2. Reduces the risk of ending up with unsalable dead stock.

3. Helps you control the stock, allocation of funds, and human resources. Thus, optimizing your business requirements.

4. With an effective technique, you learn a lot about market trends and customer demands and can scale up your business accordingly.

5. Streamline your process that includes pick, pack and ship features.