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How To Manage Inventory – Top Tips & Advice

What is inventory management?


Inventory management is the process of keeping on top of the amount of inventory that is in your warehouse. It covers things like purchasing goods and raw materials and the way they are managed until being used or sold. Other processes include setting par levels, auditing inventory levels and reordering inventory.

It’s a complex undertaking that needs to be handled effectively. Common approaches include the ABC method and materials requirement planning. Whatever approach you choose, here are some tips to help you along.


Inventory Management Tips & Advice


Your inventory methodology should incorporate three priorities:


  1. Generate maximum profit when selling inventory.
  2. Always hold the smallest possible amount of inventory.
  3. Keep customers happy at all times.


Here are some tips on making those things a reality.


1. Understand the Different Types of Inventory


Different industries involve holding different types of inventory. It revolves around the materials, parts and finished products that your business uses or sells. There are four main types of inventory:


  • Raw Materials: These are what you use to manufacture products. Not all businesses store this themselves, but some need raw materials to make components as well as finished products. Different materials must be stored in different ways.
  • Maintenance, Repair and Operating Supplies (MRO): You need these materials to keep the warehouse running seamlessly. They don’t make products, but they are essential. You need these items to keep machines and the assembly line up and running, so it includes things like fuels, tools and safety gear.
  • Unfinished Products: These are held to create finished goods. Think of all the components that go into car manufacture. They must all be stored and warehoused but they are not usually sold individually.
  • Finished Products: Anything that is sold directly to a consumer or another business. Finished products are the things that you sell in your store or on your website.


2. Always Be Prepared


Markets fluctuate and customer demand changes. Software like ERP systems can analyse trends and customer data to forecast these things, and optimise processes to make you more adaptable. You should have contingency plans for when the unexpected happens:


  • Spikes in Consumer Demand: This leads to stock shortages. Observe trends to predict these things and have mechanisms in place to ramp up production when needed.
  • Cash Flow Issues Causing Product Shortages: Many businesses experience cash flow issues. It’s good to prepare for this by having a line of credit and improving the efficiency of accounts receivable.
  • Your Warehouse Reaches Full Capacity: Warehouse management is crucial to avoid this happening. An ERP system with good warehouse management capabilities like barcoding and real-time visibility of stock movements so you never exceed your limits can take care of this.


3. Manage Relationships with Vendors and Suppliers


You need to be on good terms with these people. You will often need to make special requests from them and a good relationship will probably lead to more prompt and positive responses. Here are some things to consider:


  • Treat Them Like Partners: Allow plenty of lead time when you can and always pay your bills in a timely manner. Don’t burn bridges when relationships end – you may need them again.
  • Develop an Understanding: Learn how they operate and what they have to do to produce what you need. This builds trust and understanding.
  • Communicate: Keep in touch regularly and keep them in the loop. Let them know in advance if you expect a higher inventory turnover down the line. And share KPIs so they can understand your goals better.


4. Create an Inventory Hierarchy


Inventory that moves faster should be stored in ways that make it easier to move. Likewise, slow-moving inventory should be stored further away from the loading dock. Assess the priorities of different inventory types so that you can organise your warehouse in a way that is conducive to efficient operations.


5. Receive Stock in a Consistent Manner


Make full use of your warehouse management system (WMS) when you receive stock. Doing this in a consistent way maintains your records and helps avoid discrepancies between your records and the actual status of your warehouse. Software like ERP is a great way to integrate storage keeping units (SKUs) with your WMS to keep track of everything in real-time.


6. Remember The 80/20 Rule


Generally speaking, around 20% of your inventory generates around 80% of your profits. With that in mind, you should work to make that 20% reach its full potential. Never allow inventory levels to run out for these products – handle them carefully and make them easy to access at all times.


7. There is No ‘One-size-fits-all’ Solution


Inventory control is a delicate balance. There should always be sufficient inventory to hand without having to tie up too much cash in warehouse space and goods. The means of achieving this will be unique to you – what works for someone else may not apply to your business.

Supply chains and inventory are impacted by things like geopolitical events and technology changes. You need to find the methodology that works for you and use software to track metrics and keep on top of the data.


8. Learn About Economic Order Quantity (EOQ)


This is the optimal quantity you would order to meet customer demand perfectly without having too much stock. Fast-selling items need large quantities, slower-moving items can be kept in lower quantities. But it’s about more than velocity. EOQ also considers costs relating to:


  • Production.
  • Shipping.
  • Storage.
  • Handling.


Relate EOQ to minimum order quantity to avoid running out of stock. You can then set par levels (the smallest amount of inventory you can have before a reorder is needed).


9. Audit Inventory Regularly


An inventory audit starts with looking at what you actually have and comparing it to what your software says you have. But it goes beyond this, looking at performance metrics like turnover ratios and historical costs. This allows you to identify areas for improvement and keep an eye on shrinkage.


10. Use ABC Analysis When Needed


ABC management looks like this:


  • Category A: The top 25% most profitable inventory.
  • Category B: The middle 50%.
  • Category C: The bottom 25 %.


For inventory management, you can replace ‘profit’ with ‘velocity’. Identify the items that are selling the fastest and adjust ordering and stocking to make savings and increase efficiency.


11. Consider Just-in-time Inventory Management


This is an approach that means ordering only what you need for production. It involves knowing the quantities you need and the time it will take to consume them. Make the order of the right amount at the right time and you will never be holding inventory for longer than necessary. However, there is some risk in this approach.


12. Data, Data, Data


Accurate data collection is the foundation of useful analytics. Use an ERP system with a good warehouse management solution that allows real-time collection of data to keep your systems up-to-date. Things like UPC scanners cut down manual data entry.

This data enables automatic reporting and forecasting. These are powerful resources for inventory management, but they rely on accurate data. With dashboards about sales and velocity, you get a better idea of managing your inventory. This enables you to:


  • Monitor sales trends.
  • Calculate lead time demand.
  • Create automatic reorder points.




Inventory management is fundamental when it comes to business success and profitability. It’s essential to have a firm grasp on inventory management and use all tools available to ensure everything runs smoothly.

Invest in high-quality software for inventory management and work out the integrations you will need. By expanding your technological horizons this way, you could find new efficiencies in warehouse management that will make a huge difference to your bottom line.


Why choose Eventura as your ERP implementation partner?


Eventura has been providing robust business solutions to countless organisations for over two decades. We are ERP experts and can identify all of your business needs, and deliver a comprehensive ERP solution that works for you.

As Sage 200 Partners and NetSuite Solution Providers, we can help you identify which solution will fit your business needs the best. Our expert team of business analysts, developers, consultants, technicians and support staff can guide you through your entire project, from initial scoping through to implementation and on-going support.

We’re also managed IT service providers meaning we can help you identify your entire IT infrastructure requirements from day one. If you would like to speak to one of our ERP experts to discuss your options or request a free demo, you can request a free call back here.

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