storage and inventory control in business plan

How To Manage Inventory Effectively (2024 Guide)

Updated: Apr 29, 2024, 8:26pm

Table of Contents

What is inventory management and why it’s vital to success, how to manage inventory in 7 steps, best tools for inventory management, bottom line, frequently asked questions.

Learning how to manage inventory efficiently is critical to any business that sells physical goods. Anything that involves your products, from timely ordering to proper receiving, tracking and storage, is part of inventory management. It’s vital to get these things right because mistakes here directly impact your bottom line. By minimizing lost sales, misplaced stock and excess ordering, inventory management boosts your profits and can even reduce your taxes.

Inventory management is the umbrella term for the procedures and processes that affect ordering, receiving, storing, tracking and accounting for all of the goods a business sells.

Inventory Management vs. Supply Chain Management

Inventory management is a key element of supply chain management, but the terms aren’t interchangeable. Supply chain management oversees the flow of products from raw goods and production sourcing through final distribution. Inventory management deals with receiving, tracking and storing the products you hold, plus provides data for informed purchasing.

For a small business or solopreneur, supply chain and inventory management procedures easily meld together. However, it’s important to know the distinctions as you grow and begin delegating supply chain and inventory tasks to staff or outside contractors.

Why It’s Vital To Learn How To Manage Inventory

Any business that sells products must manage goods properly to survive. If you don’t have goods in stock to sell, or if you can’t find items to fill orders, you have no income. It’s that simple.

However, stock shortages are just the first stumbling block caused by bad—or no—inventory management. It’s very easy to order excess inventory when you don’t closely track stock, which leaves you cash-strapped in the short term. Over time, inventory overages also lead to bottom-line losses due to expired, outdated and otherwise unsellable stock.

And let’s not forget business taxes. Too much unsold inventory on hand at the end of the year equals higher business property tax and income tax bills. Luckily, you can avoid these roadblocks by incorporating simple inventory management procedures and tools into your operating plan.

If you find that inventory-related tasks take up a major portion of each day, it’s probably time for a review and reboot. Good inventory management is more than increasing stock accuracy, it makes your day more efficient. Once you have good processes and procedures in place, you’ll soon find more time for business-building activities.

Here’s a seven-step approach to creating an inventory management plan with procedures, controls and tools tailored to your business’s unique needs.

1. Define Product Sourcing and Storage Methods

How you source and store the various products you sell determines how you manage your inventory. If you stock all products in your own facility, your inventory controls and processes are handled internally.

However, if you store goods externally in fulfillment centers or supplier warehouses, or if you use dropship suppliers, you need to tie inventory processes and data tools to their systems.

2. Decide How To Track Inventory Data

Whether you stock goods yourself, use a fulfillment partner or focus on dropship vendors, keeping close tabs on inventory data is vital to inventory management. For this, spreadsheets and inventory management systems are invaluable tools.

Square POS is a free system with a full suite of inventory tools that help you track all types of product data.

The inventory data you’ll want to record and track generally includes:

• Internal and supplier product numbers: product numbers are called stock keeping units (SKUs) and many suppliers also use universal product codes (UPCs)
• Quantities on hand (QOH): the current amount of stock per item in your shop or facility
• Product storage location: assigned areas where items are stored or displayed
• Supplier information: contact information, order minimums, case quantities and delivery times—called lead times
• Product costs: wholesale costs per supplier and quantity discounts
• Retail pricing: current and promotional sale prices for goods

You can use a spreadsheet for simple inventory tracking needs, say for less than 100 items. However, integrated inventory management systems such as Square POS, Lightspeed or Clover are very cost-effective and make handling small business inventory a snap from day one.

These systems streamline customer orders, inventory tracking, supplier data, purchase orders and stock receipts within one system. Plus, most seamlessly connect to retail point-of-sale (POS) systems, online sales channels, fulfillment centers and dropship partners for real-time inventory updates.

3. Create an Internal SKU System

Creating an internal product SKU system is helpful for quickly identifying and tracking products during daily activities. SKUs generally use a combination of letters and numbers which are arranged to deliver key details about an item at a glance.

For example, BW066-3201_RASP is an internal SKU that’s coded to communicate specific information for a home goods company.

• BW: is the internal supplier code for the supplier BentleyWare
• 066: is the internal category code for a dinner plate
• 3: is the internal material code for plastic to direct display, handling and packing
• 201: ties to the last four digits of the supplier’s UPC to cross-check reorders and stock receipts
• RASP: is the internal color code for Raspberry

So, with a glance at the SKU, employees know exactly what an item is and other key details such as where it’s stored and how it displays or ships.

4. Organize Inventory Storage Areas

Having a place for everything and everything in its place makes all of your inventory-related tasks quick and efficient. If you handle inventory in your own facility or store, first organize and identify storage areas, such as racks, shelves and bins, then assign each product to a specific area.

Small inventory items can be sorted and stored by SKU in labeled bins or on sections of shelves, while larger products can be stored on pallets.

Here’s where internal SKUs come in very handy. You can easily connect certain areas of the retail floor, stock room or warehouse using your SKU’s vendor or category codes.

5. Use Forecasting To Order Inventory

Forecasting is predicting how much inventory you’ll need on hand to meet upcoming demand. Naturally, this involves many factors, such as product sales velocity, upcoming promotions, market trends, seasonality and business growth, to name a few.

The goal of forecasting is to have just enough inventory on hand to cover predicted sales for a prescribed period of time, such as 15, 30 or 60 days. Understanding sales velocity for products is critical to forecasting and inventory management systems greatly help with built-in forecasting tools in purchase orders.

Understanding supplier lead times also plays a key role in forecasting. Reliable suppliers that ship quickly let you stock fewer items and order more often, which helps with cash flow. With slower-shipping suppliers or seasonal purchases, you’ll have fewer and larger purchases, which ties up more cash in inventory.

6. Set Up Inventory Receiving Procedures

Promptly receiving inventory shipments is another key element of learning how to manage inventory. You can’t sell or ship inventory that’s not checked in and properly shelved or displayed. So, it’s wise to make inventory receipts a priority in your inventory management plan.

Stock check-in must be accurate, too, since errors directly impact your product QOH data and lead to over-ordering, false backorders and unsold stock. All of this impacts your bottom line.

The best procedure is to receive stock against your purchase order, and open and check all cases and containers to make sure everything is correct. Don’t rely on box labels and supplier packing slips since their staff can make mistakes, too.

After receipt, stock should be quickly shelved in its assigned space. Or, if it’s overstock or seasonal goods, note temporary locations in your inventory management system so you can find it when needed.

When shelving or stocking new inventory, you can use methods such as “last in, first out” (LIFO) or “first in, first out” (FIFO). Generally, it’s smart to use the FIFO method, which stocks new goods behind older stock, so you sell older goods first. This is especially important with perishable foods and goods with expiration dates, such as cosmetics.

7. Keep Track of Inventory Levels

Most inventory-driven businesses do an annual inventory count, called an audit, for tax purposes. This compares a physical count of all goods in stock to the inventory quantity on hand (QOH) shown in the data records. However, discrepancies found in annual counts are nearly impossible to trace and account for since it may be months after the errors occurred.

Physical, hands-on inventory counts spot errors that even the best technology can’t catch.

That’s where interim counts such as cycle counts and spot checks fill the gap. These help you find and remedy small inventory inaccuracies before they become big problems.

• Cycle counts: Break your full inventory into sections that are counted on a rotating schedule. Cycle counts can be run by supplier, item category, stock location or whatever works for your operation.
• Spot checks: Periodic counts of a few items help to spot random errors in stocking, ordering, storage or theft losses.

Simply put, when in doubt—count. Closely monitoring inventory is key to improving your cash flow, spotting theft or other loss issues, and boosting that bottom line.

There are many economical inventory management tools on the market. Some are even free, such as Square POS. Most of these systems deliver everything you need to manage inventory. Plus, they seamlessly connect sales channels and fulfillment sources within one system, so you’re primed for growth.

Here are some top inventory management tools to consider:

• Square POS: free basic POS system with a full suite of inventory tools
• Ordoro: advanced inventory system ideal for multi-warehouse and production operations
• Shopify POS: POS system catering to Shopify online, retail and multichannel sellers
• Lightspeed: advanced POS system for high-volume and multi-store sellers
• Clover: online POS and inventory system that integrates with many e-commerce solutions
• eHopper: designed for restaurants with ingredient-level inventory tracking
• monday.com: a step up from spreadsheets with inventory tools and reorder alerts

It’s easy for startups and small business owners to jump into sourcing products and selling without an inventory management plan. However, if left too long, inventory management shortfalls quickly become headaches that cost you both customers and profits. By putting these seven essential elements in place, you’ll be on the road to learning how to manage inventory and—best of all—set up for profits from day one.

What’s the difference between managing inventory and asset tracking?

Inventory management tracks the goods a company purchases to sell. Inventory is only an asset until it’s sold, then it becomes a cost of goods sold (COGS) expense. Asset tracking accounts for the cost and depreciation of the equipment and supplies that a business purchases to operate.

What is the 80/20 rule for inventory?

The 80/20 productivity rule of thumb states that 80% of your profits come from 20% of your efforts. Applied to inventory, it means 20% of your overall product line accounts for 80% of your profits.

What are inventory formulas?

Inventory formulas are equations that give you insight into the health and profitability of your inventory. Useful formulas to know are inventory turnover, which is cost of goods sold ÷ average inventory, and sell-through rate, which is units sold ÷ units received over a set period of time.

What are the different types of inventory?

There are several types of inventory that businesses track. Raw goods include materials, parts and ingredients used to make or repair finished goods. Assembly units are goods made only when ordered. In-progress units are unfinished items. Finished goods are completed products ready for sale. Product packaging and shipping supplies can also be tracked as inventory items.

How does the retail supply chain work?

The retail supply chain begins with the manufacturer, which creates and makes the product. This can be done by an individual or done by many people in a factory setting. From there, the product travels to suppliers or distributors, which purchase the products from the manufacturer with the intent of distributing them either directly to the customer or, more often, to retailers. When retailers are involved, they get the product from the suppliers, with the intent of selling the product to customers, who purchase the products from the retailers. As mentioned, sometimes retailers are omitted from the process and even distributors or supplies can be eliminated as well, which is known as the direct-to-consumer business model.

What are the types of inventory management software?

There are many types of inventory-driven businesses and each has unique inventory tracking needs. Specific-purpose inventory management software includes manufacturing inventory management systems, e-commerce and multichannel online inventory systems, retail store inventory systems with POS sales features, restaurant inventory software and asset tracking systems for service-based businesses.

• Best Inventory Management Software
• Best Restaurant Inventory Management Software
• Best Supply Chain Management Software
• Best Retail Inventory Management Software
• Inventory Management Techniques
• Inventory Sheet Template
• How To Calculate Inventory Turnover
• Retail Inventory Management Best Practices
• What Is The FIFO Method? FIFO Inventory Guide
• What Is Just In Time Inventory (JIT)?
• What is LIFO?

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Krista Fabregas is a seasoned eCommerce and online content pro sharing more than 20 years of hands-on know-how with those looking to launch and grow tech-forward businesses. Her expertise includes eCommerce startups and growth, SMB operations and logistics, website platforms, payment systems, side-gig and affiliate income, and multichannel marketing. Krista holds a bachelor's degree in English from The University of Texas at Austin and held senior positions at NASA, a Fortune 100 company, and several online startups.

Kelly Main is a Marketing Editor and Writer specializing in digital marketing, online advertising and web design and development. Before joining the team, she was a Content Producer at Fit Small Business where she served as an editor and strategist covering small business marketing content. She is a former Google Tech Entrepreneur and she holds an MSc in International Marketing from Edinburgh Napier University. Additionally, she is a Columnist at Inc. Magazine.

Inventory Control Guide: Definitive Plan for Business Owners

Inventory control is one of the key ways a business can keep its costs low. This in turn can lead to higher profit margins and increased sales.

If you're an inventory control manager or looking to become one, understanding how to control inventory is paramount. We'll walk you through all aspects of inventory control and management. But before that, you can also check out our article on what is inventory .

Let's start with a brief overview of what inventory control is.

Inventory Control Overview

Inventory control is the maintenance of a business's inventory level to fulfill orders and minimize costs. It involves managing inventory storage, movement, and maintenance. It also includes using data to make decisions that can increase the profit you make off this inventory.

The Purpose of Inventory Control

The primary purpose of inventory control is to protect inventory from damage or theft and to track inventory in the financial statements. Inventory control ensures a warehouse operates smoothly while keeping costs low and meeting customer demand. All stock must be recorded and this data can be used to make a variety of decisions.

The Application of Inventory Control Data

Using inventory control in your business requires investing time and money. This is done through either physical inventory counts or investing in a perpetual inventory management software. Both result in the accumulation of data regarding inventory levels and trends to plan for purchasing, controlling, and shipping goods.

The Value of Inventory Control

Inventory control is a vital part of any business' ability to make a profit. The major reasons it is valuable to control inventory are that it increases warehouse efficiency, ensures the accuracy of inventory data, can lower costs and increase revenue, and keeps your customers satisfied.

Without inventory control, a business's warehouse can quickly become a liability. If inventory is allowed to move about with no control, a manager risks running into skyrocketing costs and plummeting profits. This in turn will lead to the loss of their job and possibly the closure of the business.

Invest in Automated Inventory Control Systems

One of the best ways to take control of your business's inventory is to purchase a subscription to an inventory management software. This software tracks inventory levels, sales trends, and inventory cycles. Most of these programs can also be hooked to your POS system to provide a perpetual inventory count. This updates your inventory levels each time a sale is made. This feature is built into some of the best inventory control software and allows you to take a more hands-off role.

The other major component of inventory control is inventory management.

Inventory Management Process

Inventory management is the act of reducing inventory costs and optimizing the ability to meet demand. This is done using a variety of methods like reducing dead stock or calculating optimal reorder points.

This most important part of inventory management is that it requires a dedicated focus on inventory tracking.

Inventory management requires creating and following a simple set of processes to limit the chance of improperly managing your inventory.

There are eight steps in the inventory management process. These are: Receiving product, inspecting and sorting product, monitoring inventory levels, receiving orders, picking and shipping product, updating inventory levels, and placing reorders.

These eight steps can be done more efficiently with a properly managed inventory process flow. Each step can be optimized by tracking and reviewing each step. You can eliminate inventory shrinkage , discover flaws, and reallocate resources to any step that needs it to increase your profit and limit your costs.

How to Improve Inventory Management Process

There are many ways you can improve your inventory management and get the most out of your inventory. A few of the most common including communicating inventory needs to your suppliers, tracking product lead time to plan for reordering, hiring an inventory control manager, and using inventory management software.

The two major tools we recommend are the creation of an inventory management process map and the purchasing of an inventory management system.

Inventory Management Process Map

An inventory process map is a flowchart that shows every step in your inventory program. Though the eight steps are fairly standard, there are many variables that are specific to your businesses. By mapping out all steps and options, you can always be prepared for any changes in supply or demand.

Inventory Management System

An inventory management system is a program that tracks and manages all aspects of a company's inventory. This includes purchasing, shipping, tracking, storage, turnover, and reordering. This type of all-in-one inventory management software can be integrated into your POS system to provide a perpetual inventory count.

Now that you understand inventory control and management, let's dive deeper into the individual methods you'll need to know. We'll start with the most obvious, inventory tracking.

Inventory Tracking

Inventory tracking is one of the most important inventory control methods. Inventory levels influence all decisions you make and can quickly increase or decrease your revenue. They can be tracked manually or perpetually.

How to Track Inventory

The basic way to track inventory is to manually count your inventory every two weeks and compare the numbers versus sales. That's known as periodic inventory.

The other option is a perpetual inventory, where an inventory management app or software is integrated into your business's POS. This gives you access to live data at all times and lets you have more control over inventory tracking.

Inventory Tracking Best Practices

There's no single way to track inventory, but there are a few best practices that all businesses should adopt. The six main practices are to establish specific goals for your inventory, use ABC inventory analysis to bucket your products by value, keep safety stock, optimize inventory turnover ratio , increase packing efficiency, and adopt the FIFO method .

These practices can all be applied by manually tracking inventory or by using inventory tracking software.

How to Track Inventory Manually

To track inventory manually you need to physically take inventory at least twice. The first to establish baseline stock levels and again to determine usage. These two inventories are usually taken on the first and last days of the month.

Manual inventory tracking is much more labor-intensive than using tracking software, but can still make use of technology. This is by making use of a spreadsheet to track the data you collect. Still, inventory software offers a much less labor-intensive inventory tracking program.

Inventory Tracking Software

Inventory tracking software is a digital program or application that provides a perpetual inventory count. It is generally integrated into your POS and updates instantly every time an item is scanned as it's sold or shipped. It offers many long-term benefits to a business and eliminates the need for full, physical inventory counts every month.

Whether you use physical or perpetual inventory counts, the next important step is to perform inventory audits to ensure all information is correct.

Conducting an Inventory Audit

An inventory audit is when a business cross-checks its financial records against its inventory records. It is a vital part of inventory management and is done to ensure all records are accurate. These audits also uncover any discrepancies in inventory count or financial records.

How to Conduct Inventory Audit

Conducting an inventory audit requires pulling current data from a variety of sources. This may include inventory counts, sales records, shipping manifests, or other records.

Though there are many forms of inventory auditing, the workflow is mostly the same. You acquire at least two records that should reflect the same inventory numbers. Then check them against each other to discover if they do match. If not, flag the areas with issues and look into any problems that arise like missing inventory, damaged product, or inaccurate sales figures.

Inventory Auditing Procedures

Inventory audits can be completed by using a variety of auditing procedures. Some of the most common include performing a physical inventory count, performing a series of smaller cycle counts, or matching shipping invoices to financial records. In addition, a number of analyses may be conducted including an ABC inventory analysis, cutoff analysis, overhead analysis, finished goods inventory analysis, or freight cost analysis.

All of these procedures are intended to help you verify the information in your records is correct and to uncover any areas where you may be losing money. They are conducted according to strict inventory auditing standards.

Inventory Auditing Standards

Inventory auditing standards must be established by the business if they expect to achieve results. There are two rules that make inventory audits easier and more accurate.

First, audits need to be performed regularly and in the same method each time. If not, the data uncovered will not be particularly helpful as it could be incorrect. Second, inventory control needs to be practiced at all times, otherwise audits will become overwhelming and difficult for the team.

Now that you have a better grasp of the different ways you can audit your inventory, you can start working on limiting waste. One of the biggest issues uncovered during audits is dead stock.

What Is Dead Stock?

Dead stock is a form of surplus inventory that a business is unlikely to sell in the near future. It is a drain on warehouse resources and actively prevents a business's ability to increase its profits.

These products are not to be confused with buffer stock as they were not ordered with the intention of storing them for a long time. Dead stock continues to depreciate in value and may eventually expire or become obsolete and have to be written off as a loss.

Dead Stock Management

Dead stock inventory control consists of selling what you can and finding ways to minimize the expenses associated with dead stock. The key is that the inventory control manager needs to determine the causes of their dead stock.

Two major causes of dead stock are poorly managed lead times and reorder points. They can cause customers to cancel their orders and result in stock that was expected to be sold left sitting in the warehouse.

Inventory tracking is also a vital part of managing and eliminating issues with dead stock. It helps create inventory forecasts so you only order the correct amount of goods in the future and recognize sales trends and inventory cycles.

How to Get Rid of Dead Stock

Getting rid of dead stock can be very difficult, but it is important to limit losses. Some of the most common ways to offload dead stock is through kitting , limited-time sales, internal store transfers, selling to wholesalers, or returning the goods to the manufacturer.

Not all options are available to all businesses, so an inventory control manager needs to be flexible with dead stock. You can also find more customers for your products by listing them on an online marketplace .

Going forward you should also try to avoid running into issues with dead stock entirely. The first thing that needs to be controlled is product lead time.

Lead time is the amount of time that goes by from the start to finish of any given process. Lead time is one of the most important measures in inventory control.

Calculating, understanding, and acting on changes in lead time allows a business to prevent losses and fulfill orders quickly and efficiently. This is true for both retailers and manufacturers. It affects all businesses within a supply chain and can cause major issues if it gets out of control.

Lead Time in the Supply Chain

Total lead time is affected by every step within a supply chain. Production takes time, shipment takes time, and all other intermediary steps take time. As such, lead time in inventory management needs to be monitored and planned for regardless of business type.

Lead Time Is Bad

Long lead times can cause many problems that interfere with a business being able to fulfill orders.  

For retailers, long lead time means a loss of sales and angry customers. For manufacturers, long lead time can cause production to halt entirely. It also leads to increased lead time for the retailers and strains relationships. Every additional day that goods are delayed, money is lost so you should always try to reduce it.

Lead Time Reduction

Lead time reduction can take a lot of time, but will help your business improve its sales and fulfillment capability. The most important factor when trying to reduce lead time is to look at your historical data.

There are a few ways you can use this information to reduce your lead times. These include switching suppliers, sharing data with your suppliers, and increasing reorder frequency.

Before you can try any of these methods, you need to know how to calculate your lead time.

Lead Time Formula

Calculating lead time requires a simple formula. There are two versions of the formula depending on if you're a manufacturer or a retailer.

For manufacturers, the lead time formula is:

Total Lead Time = Manufacturing Time + Procurement Time + Shipping Time

For retailers, the lead time formula is:

Total Lead Time = Procurement Time + Shipping Time

Using the inventory tracking tools and formulas above, you can keep your business operating smoothly and focus on increasing sales and revenue by calculating optimal reorder points.

Reorder Points

The reorder point is the level of standing inventory on-hand that alerts you to reorder. Essentially, when you hit this particular number, you should place an order to ensure you can continue to meet demand without any gaps.

Reorder point is not a stable number, but is flexible based on sales trends and the demand cycle of a given product. This means you need to have an understanding of each product's inventory levels and sales to optimize its reorder point. This is easily done using inventory management software that tracks everything you need to know about your inventory.

Reorder Point Formula

Uncovering the reorder point for a product can be done using a very simple formula.

Here's that formula:

Reorder Point = (Average Daily Usage x Average Lead Time) + Safety Stock

How to Calculate Reorder Point

To calculate the reorder point for a given product first requires that you determine a product's average daily sales, lead time, and amount of safety stock. Daily sales information can be pulled from your POS system if you have one. If not, you can look at inventory numbers and divide by the number of days between taking inventory. Safety stock can also be found in inventory counts.

Lead time can also be calculated for the product using the formula listed in the previous section. With these three numbers in hand, it's as simple as plugging them into the formula above to determine that product's reorder point.

Reorder Point Problems and Solutions

There are a number of issues that can hamper your ability to make the most informed reordering decisions. Here are just a few of the issues you may encounter.

Safety Stock and Reorder Point

Safety stock is additional stock you keep on hand in the event that demand suddenly increases. The issue here is that you may go through it more quickly than anticipated. This means you need to reorder earlier as well. Luckily, that is exactly why you keep safety stock on hand.

To combat any sudden shifts in demand and safety stock usage, track daily sales and recalculate your reorder points regularly.

Lead Time and Reorder Point

Lead time is the other major issue that may interfere with calculating your optimal reorder point. Unfortunately, you don't have much control over lead time as it is dependent on the supplier and shipper. However, this can be mitigated by keeping an adequate safety stock on hand. You should also calculate your reorder point daily to notice any changes in lead time as they occur.

Reorder point calculations are also a very important part of determining the correct amount of product to order. This is known as economic order quantity.

Economic Order Quantity

Economic order quantity is the ideal amount of product a company should purchase to minimize inventory costs. Essentially, it is the amount of product you need to order to meet demand without having to store any excess inventory.

Finding your optimal order quantity for a product is the goal of calculating its EOQ. However, it is very difficult to achieve as any slight variance in demand, cost, or price will throw the numbers off.

Economic Order Quantity Value

Managing economic order quantity can help avoid issues like excess stock or dead stock and keep avoidable losses to a minimum. It also helps establish goals for inventory KPIs, informs inventory forecasting decisions, and helps increase the company's sales and revenue. It is also a vital part of the just in time inventory model.

Advantages and Disadvantages of EOQ

Utilizing EOQ for your business has both advantages and disadvantages. On the plus side, economic order quantity allows you to minimize all costs associated with inventory and can easily be adapted to your business model. This will lead to higher profit margins and a streamlined workflow in the warehouse.

However, there are also a few drawbacks that you need to be aware of. Calculating EOQ can be difficult. You'll see the formula used for EOQ calculations below, and it's safe to say it isn't the easiest to use. The calculation is also based on assumptions, so your number will not be completely accurate if any of the numbers you use are not perfectly steady.

Economic Order Quantity Formula

Calculating the economic order quantity for a product can be done using a slightly complicated formula.

EOQ = √ (2 x Demand x Order Cost / Holding Cost)

Calculating the economic order quantity for your products can help you make the most out of your warehouse space, minimize costs, and increase revenue. It also allows you to make the most out of your inventory forecasting.

Inventory Forecasting

Inventory forecasting is used to predict future inventory levels needed to meet demand. This is done by combining historical data with future assumptions on demand cycles and sales trends.

Collecting data is the most important part of inventory forecasting. This requires a strong inventory management program. Sales trends, stock issues, and dead stock are just a few of the issues that can be uncovered by taking regular inventory.

How to Forecast Inventory

To forecast inventory levels, you must first take inventory at least twice. This can be done through physical inventories, cycle counts, or the use of a perpetual inventory program. Next, determine what products are selling well and if they are nearing their reorder point. This lets you predict future sales trends based on historical sales.

Each new inventory taken will provide further insight into inventory trends. You can use any shifts in sales or stock levels to make more informed forecasts.

Keys to Inventory Forecasting

There are many ways any business looking to forecast for inventory management and control can achieve their goals. There are three best practices you should use to get the most of your forecasting.

First, consistently track and record your inventory levels. If you don't, all of your forecasts will be based on faulty data and can lead to wasted money. Second, include all key players in decision-making. People not involved in inventory management are still affected by the decisions and have points of view that can be very helpful. Third, investing in inventory management software can pay dividends. Forecasting can be updated in real-time and you can minimize the chance of flawed forecasting.

Now that you know all of the major tools of inventory control, you're set to become a star inventory control manager.

Inventory Manager Salary and Job Description

Inventory control managers are in charge of all aspects of a business' inventory management and inventory control programs. They are a vital part of a company's management team and are responsible for warehouse operations and inventory tracking.

Inventory control managers are responsible for everything from inventory tracking to inventory auditing to inventory maintenance and more. They must also manage and direct warehouse personnel.

Inventory Control Manager Skills and Responsibilities

Due to the importance and varied nature of this role, inventory control managers must have a wide variety of skills. These skills include the ability to lead and direct others, solve complicated problems, use data in their decision-making, and have a sense of organization and attention to detail.

These skills are all used when meeting their responsibilities. These include managing and monitoring all inventory counts, performing inventory audits, forecasting inventory needs, tracking shipments, and training and leading warehouse staff.

Luckily, using the tools listed above, you can be prepared to become a talented inventory control manager.

Now, you're ready to take control of your inventory.

Get It Under Control

Whether you are an old hand at inventory control or you're new to the field, we can help. Just request a BlueCart demo, and we’ll get you on top of your inventory control. Warehouse inventory control is a vital part of all businesses and can help you spend less on inventory and increase profits. ‍ ‍

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Inventory Control – The Basics & Best Practices

What is Inventory Control?

Inventory control refers to the systematic approach to managing and maintaining appropriate levels of stock or inventory within an organization. It’s an important part of supply chain management and plays one of the central roles in ensuring smooth operations, minimizing costs, and meeting customer demand effectively.

The main objectives of inventory control are:

• Minimizing Costs: Inventory represents a significant investment for businesses, and carrying excessive stock can lead to increased holding costs, such as storage, insurance, and potential obsolescence. Effective inventory control helps minimize these costs by maintaining optimal stock levels.
• Optimizing Stock Levels: Inventory control aims to strike a balance between having enough stock to meet customer demand and avoiding overstocking, which can tie up valuable capital and storage space. By optimizing stock levels, businesses can improve cash flow and reduce the risk of obsolescence.
• Avoiding Stockouts: Stockouts, or situations where inventory is depleted and unable to meet customer demand, can result in lost sales, dissatisfied customers, and potential damage to a company’s reputation. Inventory control helps prevent stockouts by ensuring that sufficient stock is available when needed.

Who are we?  Speed Commerce is an end-to-end provider of outsourced customer experience solutions for ecommerce retailers (including for  Shopify  and  Bigcommerce  and more) as well as manufacturers, for close to 20 years. We grow our clients’ businesses by providing winning customer experience strategies such as 24/7/365 ecommerce customer service, order fulfillment, and warehousing –  reach out to us .

Inventory Control Techniques

There are numerous techniques and methodologies used in inventory control, ranging from basic manual processes to advanced technological solutions. Here are the most common approaches:

Basic Techniques

• Physical Inventory Counts: this involves physically counting and verifying the actual stock levels at regular intervals, typically annually or semi-annually. Physical counts help reconcile inventory records and identify discrepancies.
• Cycle Counting: instead of a complete physical count, cycle counting involves counting a subset of inventory items on a more frequent basis, such as weekly or monthly. This approach helps identify and address issues more promptly.
• ABC Analysis: this technique categorizes inventory items based on their value or importance to the business. Items are classified as A (high value/importance), B (moderate value/importance), or C (low value/importance). This analysis helps prioritize inventory management efforts and allocate resources accordingly.

Advanced Techniques

• Just-in-Time (JIT) Inventory Management: JIT is a lean manufacturing philosophy that aims to minimize inventory levels by receiving materials or components only as they are needed for production. This approach reduces carrying costs and improves cash flow but requires close coordination with suppliers.
• Vendor-Managed Inventory (VMI): in a VMI system, the supplier is responsible for monitoring and replenishing inventory levels at the customer’s location. This approach shifts the inventory management responsibility to the supplier, who has better visibility into production schedules and demand patterns.
• Demand Forecasting and Planning: accurate demand forecasting is crucial for effective inventory control. By analyzing historical sales data, market trends, and other factors, businesses can anticipate future demand and plan inventory levels accordingly.
• Economic Order Quantity (EOQ) Models: EOQ models are mathematical formulas used to determine the optimal order quantity that minimizes the combined costs of ordering and carrying inventory. These models help balance the trade-off between ordering costs and holding costs.
• Safety Stock Calculations: safety stock is an additional buffer of inventory maintained to mitigate the risk of stockouts due to unexpected demand fluctuations or supply disruptions. Calculating appropriate safety stock levels is essential for maintaining desired service levels while minimizing excess inventory.

Implementing Inventory Control

Effective inventory control requires a combination of people, processes, and technology solutions. Here are some key considerations for successful implementation:

People and Processes

• Assigning Clear Roles and Responsibilities: clearly define the roles and responsibilities of individuals involved in inventory management, such as warehouse staff, purchasing personnel, and inventory control managers.
• Developing Standard Operating Procedures (SOPs): establish standardized procedures for various inventory control activities, such as receiving, putaway, picking, and cycle counting. SOPs ensure consistency and minimize errors.
• Training Staff: provide comprehensive training to all personnel involved in inventory management processes. Ensure they understand the importance of accurate data entry, proper handling techniques, and adherence to established procedures.

Technology Solutions

• Barcode Scanning and RFID Tracking: implement barcode scanning or Radio Frequency Identification (RFID) technology to accurately track and manage inventory movements. These systems improve data accuracy, visibility, and efficiency.
• Warehouse Management Systems (WMS): a WMS is a software application designed to optimize warehouse operations, including inventory management, order fulfillment, and labor management. It provides real-time visibility into inventory levels and locations.
• Enterprise Resource Planning ( ERP ) Systems: ERP systems integrate various business functions, including inventory management, purchasing, sales, and accounting. They provide a centralized platform for managing inventory data and coordinating processes across the organization.
• Inventory Optimization Software: specialized software solutions can help businesses optimize inventory levels by considering factors such as demand patterns, lead times, and service level targets. These tools often incorporate advanced algorithms and machine learning techniques.

Continuous Improvement

• Regular Review and Adjustment: continuously monitor and review inventory levels, turnover rates, and other key performance indicators (KPIs). Adjust inventory levels and reorder points as needed based on changing demand patterns or operational requirements.
• Root Cause Analysis: when inventory issues arise, such as stockouts or excess stock, conduct root cause analysis to identify and address the underlying factors contributing to the problem.
• Process Improvement Methodologies: implement continuous improvement methodologies like 5S, Lean, and Six Sigma to streamline inventory management processes, eliminate waste, and drive operational excellence.
• Collaboration and Integration: collaborate with suppliers, partners, and other stakeholders to improve supply chain visibility and coordination. Integrate inventory control processes with other business functions, such as sales, production, and finance, for better alignment and decision-making.

Best Practices for Inventory Control

To achieve optimal inventory control, businesses should adopt the following best practices:

• Accurate Data Capture and Record-Keeping: ensure accurate and timely data entry for all inventory transactions, including receipts, issues, transfers, and adjustments. Maintain detailed and up-to-date inventory records for effective decision-making.
• Integration with Other Business Functions: inventory control should be integrated with other business functions, such as sales, production, and finance, to ensure alignment and coordination. This integration enables better demand forecasting, production planning, and cash flow management.
• Collaboration with Suppliers and Partners: establish strong relationships and communication channels with suppliers and partners. Collaborate on demand forecasting, inventory planning, and supply chain optimization initiatives.
• Multi-Location Inventory Management: for businesses with multiple warehouses or distribution centers, implement a centralized inventory management system that provides visibility and control across all locations. This helps optimize inventory levels, reduce redundancies, and facilitate efficient distribution.
• Regular Audits and Reconciliations: conduct regular inventory audits and reconciliations to identify and address discrepancies between physical stock and recorded inventory levels. This helps maintain data accuracy and integrity.

Benefits of Effective Inventory Control

Implementing effective inventory control practices can provide numerous benefits to businesses, including:

• Reduced Carrying Costs and Obsolescence: by maintaining optimal inventory levels, businesses can minimize the costs associated with holding excess stock, such as storage, insurance, and potential obsolescence.
• Improved Cash Flow and Working Capital: optimized inventory levels free up working capital that would otherwise be tied up in excess stock. This improved cash flow can be reinvested in other areas of the business or used to pay down debt.
• Better Customer Service and Fewer Stockouts: effective inventory control ensures that the right products are available when customers need them, reducing the risk of stockouts and improving customer satisfaction.
• Increased Operational Efficiency and Productivity: streamlined inventory management processes, enabled by technology solutions and best practices, can enhance operational efficiency and productivity across the supply chain.
• Enhanced Supply Chain Visibility and Coordination: by integrating inventory control with other business functions and collaborating with suppliers and partners, businesses can achieve better supply chain visibility and coordination, leading to improved decision-making and responsiveness to market changes.

According to a study by the Gartner Group, companies with effective inventory control practices can reduce inventory carrying costs by up to 30% and improve service levels by up to 20% .

Inventory control is a central aspect of supply chain management that helps businesses optimize stock levels, minimize costs, and meet customer demand effectively. From implementing appropriate techniques, leveraging technology solutions, and adopting best practices, organizations can achieve significant operational and financial benefits while enhancing customer satisfaction.

References:

Muller, M. (2019). Inventory Control: Techniques and Best Practices. Supply Chain Management Review.

Chopra, S., & Meindl, P. (2016). Supply Chain Management: Strategy, Planning, and Operation (6th ed.). Pearson.

Jacobs, F. R., & Chase, R. B. (2018). Operations and Supply Chain Management (15th ed.). McGraw-Hill Education.

Tompkins, J. A., & Smith, J. D. (1998). The Warehouse Management Handbook (2nd ed.). Tompkins Press.

Gartner Group. (2020). The Impact of Inventory Control on Supply Chain Performance. Gartner Research.

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What Is Inventory Management?

The benefits of inventory management, accounting for inventory, inventory management methods, inventory management red flags, what are the four main types of inventory management, how did tim cook use inventory management at apple, what is an example of inventory management, the bottom line.

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Inventory Management Defined, Plus Methods and Techniques

Adam Hayes, Ph.D., CFA, is a financial writer with 15+ years Wall Street experience as a derivatives trader. Besides his extensive derivative trading expertise, Adam is an expert in economics and behavioral finance. Adam received his master's in economics from The New School for Social Research and his Ph.D. from the University of Wisconsin-Madison in sociology. He is a CFA charterholder as well as holding FINRA Series 7, 55 & 63 licenses. He currently researches and teaches economic sociology and the social studies of finance at the Hebrew University in Jerusalem.

Inventory management refers to the process of ordering, storing, using, and selling a company's inventory. This includes the management of raw materials, components, and finished products, as well as warehousing and processing of such items. There are different types of inventory management, each with its pros and cons, depending on a company’s needs.

Key Takeaways

• Inventory management is the entire process of managing inventories from raw materials to finished products.
• Inventory management tries to efficiently streamline inventories to avoid both gluts and shortages.
• Four major inventory management methods include just-in-time management (JIT), materials requirement planning (MRP), economic order quantity (EOQ) , and days sales of inventory (DSI).
• There are pros and cons to each of the methods, reviewed below.

Investopedia / Alex Dos Diaz

A company's inventory is one of its most valuable assets. In retail, manufacturing, food services, and other inventory-intensive sectors, a company's inputs and finished products are the core of its business. A shortage of inventory when and where it's needed can be extremely detrimental.

At the same time, inventory can be thought of as a liability (if not in an accounting sense). A large inventory carries the risk of spoilage, theft, damage, or shifts in demand. Inventory must be insured, and if it is not sold in time it may have to be disposed of at clearance prices—or simply destroyed.

For these reasons, inventory management is important for businesses of any size. Knowing when to restock inventory, what amounts to purchase or produce, what price to pay—as well as when to sell and at what price—can easily become complex decisions. Small businesses will often keep track of stock manually and determine the reorder points and quantities using spreadsheet (Excel) formulas. Larger businesses will use specialized enterprise resource planning (ERP) software. The largest corporations use highly customized software as a service (SaaS) applications.

Appropriate inventory management strategies vary depending on the industry. An oil depot is able to store large amounts of inventory for extended periods of time, allowing it to wait for demand to pick up. While storing oil is expensive and risky—a fire in the U.K. in 2005 led to millions of pounds in damage and fines—there is no risk that the inventory will spoil or go out of style. For businesses dealing in perishable goods or products for which demand is extremely time-sensitive—2021 calendars or fast-fashion items, for example—sitting on inventory is not an option, and misjudging the timing or quantities of orders can be costly.

For companies with complex supply chains and manufacturing processes, balancing the risks of inventory glut and shortages is especially difficult. To achieve these balances, firms have developed several methods for inventory management, including just-in-time (JIT) and materials requirement planning (MRP) .

Some companies, such as financial services firms, do not have physical inventory and so must rely on service process management.

Inventory represents a  current asset  since a company typically intends to sell its finished goods within a short amount of time, typically a year. Inventory has to be physically counted or measured before it can be put on a balance sheet. Companies typically maintain sophisticated inventory management systems capable of tracking real-time inventory levels.

Inventory is accounted for using one of three methods: first-in-first-out (FIFO) costing; last-in-first-out (LIFO) costing; or weighted-average costing . An inventory account typically consists of four separate categories: 

• Raw materials — represent various materials a company purchases for its production process. These materials must undergo significant work before a company can transform them into a finished good ready for sale.
• Work in process (also known as goods-in-process ) — represents raw materials in the process of being transformed into a finished product.
• Finished goods — are completed products readily available for sale to a company's customers.
• Merchandise — represents finished goods a company buys from a supplier for future resale.

Depending on the type of business or product being analyzed, a company will use various inventory management methods . Some of these management methods include just-in-time (JIT) manufacturing, materials requirement planning (MRP), economic order quantity (EOQ) , and days sales of inventory (DSI) . There are others, but these are the four most common methods used to analyze inventory.

1. Just-in-Time Management (JIT)

This manufacturing model originated in Japan in the 1960s and 1970s. Toyota Motor ( TM ) contributed the most to its development. The method allows companies to save significant amounts of money and reduce waste by keeping only the inventory they need to produce and sell products. This approach reduces storage and insurance costs, as well as the cost of liquidating or discarding excess inventory.

JIT inventory management can be risky. If demand unexpectedly spikes, the manufacturer may not be able to source the inventory it needs to meet that demand, damaging its reputation with customers and driving business toward competitors. Even the smallest delays can be problematic; if a key input does not arrive "just in time," a bottleneck can result.

2. Materials Requirement Planning (MRP)

This inventory management method is sales-forecast dependent, meaning that manufacturers must have accurate sales records to enable accurate planning of inventory needs and to communicate those needs with materials suppliers in a timely manner. For example, a ski manufacturer using an MRP inventory system might ensure that materials such as plastic, fiberglass, wood, and aluminum are in stock based on forecasted orders. Inability to accurately forecast sales and plan inventory acquisitions results in a manufacturer's inability to fulfill orders.

3. Economic Order Quantity (EOQ)

This model is used in inventory management by calculating the number of units a company should add to its inventory with each batch order to reduce the total costs of its inventory while assuming constant consumer demand. The costs of inventory in the model include holding and setup costs.

The EOQ model seeks to ensure that the right amount of inventory is ordered per batch so a company does not have to make orders too frequently and there is not an excess of inventory sitting on hand. It assumes that there is a trade-off between inventory holding costs and inventory setup costs, and total inventory costs are minimized when both setup costs and holding costs are minimized.

4. Days Sales of Inventory (DSI)

This financial ratio indicates the average time in days that a company takes to turn its inventory, including goods that are a work in progress, into sales. DSI is also known as the average age of inventory, days inventory outstanding (DIO), days in inventory (DII), days sales  in  inventory or days inventory and is interpreted in multiple ways.

Indicating the liquidity of the inventory, the figure represents how many days a company’s current stock of inventory will last. Generally, a lower DSI is preferred as it indicates a shorter duration to clear off the inventory, though the average DSI varies from one industry to another.

If a company frequently switches its method of inventory accounting without reasonable justification, it is likely its management is trying to paint a brighter picture of its business than what is true. The SEC requires public companies to disclose  LIFO reserve  that can make inventories under LIFO costing comparable to FIFO costing.

Frequent inventory write-offs can indicate a company's issues with selling its finished goods or inventory obsolescence. This can also raise red flags with a company's ability to stay competitive and manufacture products that appeal to consumers going forward.

The four types of inventory management are just-in-time management (JIT), materials requirement planning (MRP), economic order quantity (EOQ) , and days sales of inventory (DSI). Each inventory management style works better for different businesses, and there are pros and cons to each type.

Tim Cook is known as an inventory genius. “Inventory is like dairy products,” Cook is quoted saying. “No one wants to buy spoiled milk.” For this reason, inventory management can save a company millions.

Let's look at an example of a just-in-time (JIT) inventory system. With this method, a company receives goods as close as possible to when they are actually needed. So, if a car manufacturer needs to install airbags into a car, it receives airbags as those cars come onto the assembly line instead of having a stock on supply at all times.

Inventory management is a crucial part of business operations. Proper inventory management depends on the type of business and what type of product it sells. There may not be one perfect type of inventory management, because there are pros and cons to each. But taking advantage of the most fitting type of inventory management style can go a long way.

Competent Authority. “ Buncefield: Why Did it Happen? ,” Page 34.

Toyota. “ Toyota Production System ,” Pages 1-2.

Chartered Institute of Procurement and Supply. “ How to Do Effective Material Requirements Planning .”

Kumar, Rakesh. “ Economic Order Quantity (EQQ) Model .” Global Journal of Finance and Economic Management , vol. 5, no 1, 2016, pp. 1-2.

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What Is Inventory Management?

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Inventory management refers to the series of processes your business uses to obtain, store, and use sellable goods. The goal of an inventory management system is to help you make smarter, more cost-efficient decisions when it comes to buying products from your manufacturer, transporting those products to your business or warehouse, storing your unsold products, and fulfilling customer orders.

Why is inventory management important?

Inventory—while an important asset for your business—can be a huge risk. Inventory management systems (especially automated software solutions) are vital cost-saving measures that can help you minimize loss, lower your storage costs, and sell more items.

Once you order and pay for your products, the capital you spent to acquire those products is essentially tied up in your inventory. If you can’t sell your products, those items become a loss for your business.

Inventory management systems help you avoid overbuying products that don’t sell. Inventory management can also help you keep inventory costs low—which is important since high storage fees, shipping fees, and manufacturing fees can all eat into your profit margins.

Believe it or not, good management solutions can also enhance your customer service, since they help you keep product in stock, improve your customer order fulfillment, and track sales across multiple channels.

Most importantly, though, inventory management makes your life easier in general. It can help you organize your warehouse, track inventory movement across multiple locations, and even integrate with your other business solutions (like your point-of-sale or accounting software).

Overall, inventory management is an excellent strategy for any business that sells physical goods.

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How to get started

So what does an inventory management system even look like? How do you get started? Here’s what we recommend.

1. Decide if periodic or perpetual inventory management is right for you

Before you can get your inventory management system off the ground, you need to determine whether a periodic or perpetual inventory solution is right for you. Periodic and perpetual inventory management are two different ways to approach your inventory tracking. This choice will affect your software purchasing decisions, the tracking programs you implement, and more.

With a periodic system, you do a physical count of your inventory at the beginning and end of your set time period (which could be a month, a quarter, a year—whatever works for you). Then you use your counts to determine the number of products you’ve sold, and you calculate the cost of goods sold (COGS) based on either a first in, first out (FIFO) or a last in, first out (LIFO) approach.

Perpetual inventory systems, on the other hand, track each individual item in your inventory through every phase of the selling process. This helps you calculate the exact costs associated with each item sold, and it gives you lots of insight into the sticking points in your inventory management system. The catch? It basically requires the use of inventory management software and tracking devices (like barcode scanners)—all of which can be expensive.

2. Choose your inventory management software

Next, you’ll want to choose an inventory management software. There are tons (and we mean tons ) of inventory management solutions out there, and each offers different pros and cons. So do your research to see which options suit the unique needs of your business—and maybe check out our top picks for inventory management software to make sure you’re getting the best deal.

3. Implement an inventory tracking program

Once you know the type of system you want to run and you have the software you need (if any), it’s time to start actually tracking your products. So you’ll need to consider which inventory tracking system works best for you: a periodic inventory system or a perpetual inventory system.

Once you’ve chosen an inventory tracking method, you’ll need to train your employees to use that system. If your employees don’t know they’re supposed to scan each individual item upon arrival at your warehouse, it could cause huge snags in your inventory management system. A bit of training up front can go a long way toward helping your system run smoothly.

If you’re running a periodic system, this means you’ll need to establish how often you’ll conduct physical inventory counts. You may also need to establish best practices for how those counts will be done and by whom.

If you’re running a perpetual inventory system, most of your product tracking will be done digitally, but you’ll still need to establish a time frame for when you’ll conduct physical inventory counts as well—that way, you can confirm the count recorded by your digital system. From there, you’ll also need to decide how you’ll track individual items in your system.

FYI:  Many businesses prefer to use barcodes and scanners. They’re a relatively cheap solution compared to other options , but your business will have to invest in a barcode generator and scanners. Alternatively, you could use radio frequency identification (RFID) tags or QR codes. Any of these methods will help you track the costs and movement of each individual item in your inventory in real time —giving you greater insight into how your system works and where it can be improved.

4. Establish an order fulfillment method

Next you’ll want to figure out how you’re going to fulfill your customer orders. Here, you have a few options:

• First in, first out. With a first in, first out method, you’d pull the oldest items in your inventory first—thereby minimizing the number of items that become obsolete or damaged while sitting on your shelf.
• Last in, first out. You could use the last in, first out method and fulfill customer orders using the most recently added products in your inventory. This ensures your customers get the freshest, newest versions of your product and consolidates your potential losses to your oldest items.
• First expired, first out. Another option is the first expired, first out method. This system works best for restaurants and other businesses that sell perishable goods, as it minimizes the number of items that spoil before you can sell them.

Figuring out the best fulfillment method can help when you’re calculating your cost of goods sold, and it can affect your customer experience—so decide what you’ll do now and train your employees to follow your chosen method.

5. Choose your reorder method

At some point, your stock will get low and you’ll have to reorder your product. But at what point should you reorder? How many items? The answers to these questions will depend on the reorder point method you use, such as the reorder point formula and the economic order quantity formula.

Many businesses use the reorder point formula to determine when to reorder product. Basically, this method aims to help you reorder your product with enough still in stock to meet customer demand while you wait for your order to arrive. Unfortunately, this method doesn’t help you determine how much product to order, so you’ll have to use a gut check there.

For some businesses, though, the economic order quantity (EOQ) formula is a better fit. The EOQ formula helps you determine the best times to reorder your product to balance manufacturing and order costs with the cost of storage for those items. It involves a bit more math, and you’ll have to adjust your calculations if your estimated customer demand is off—but it’s nothing your inventory management software can’t handle automatically.

6. Integrate with your point-of-sale and accounting systems

If you’re using inventory management software, we highly recommend integrating your system with your other business solutions—especially your point-of-sale (POS) and accounting systems.

Integrating with your POS software allows you to track your cost of goods sold down to the item. It also gives you total transparency into your inventory management system—all the way from manufacturing to sale. That way, you can see exactly how products move through your system (and where you can improve).

Because your products represent assets for your business, you’ll have to factor them into your accounting too. Now, you can do this by simply estimating the value and cost of your inventory and inputting that estimate into your accounting software . But integrating your accounting and inventory management software simplifies things because it allows you to track exact costs and value of your inventory—and every change in your product’s status is reflected in your accounting automatically.

7. Optimize your system

You’ve got your system up and running, but the process of inventory management is never done. Once your system takes effect, it’s important to analyze it and identify weaknesses. Ask yourself pointed questions, like these:

• Is it taking too long to restock your inventory after you order? You may want to optimize your supply chain for better results.
• Are you have a hard time keeping product in stock at all your brick-and-mortar locations? You may need to adjust your reorder point or figure out a better solution for replenishing retail stock.

Remember those benefits of inventory management we mentioned? Realistically, those benefits can only be achieved with continuous analysis and optimization of your system. Inventory management is an ongoing endeavor—not a one-time setup. So be sure to look at your inventory system often and strategically to make sure you’re making the best possible inventory decisions for your business.

The takeaway

Inventory management encompasses every stage of your products—from manufacturing and shipping to storage and sale. Effective inventory management is a cost-saver, plus it helps you improve customer satisfaction and simplify your business processes.

To get started, you’ll have to make some strategic decisions about the type of system that will work best for your business, then buy the necessary software and equipment to implement that system. But most importantly, you’ll need to continuously monitor and update your system whenever you find inefficiencies.

Using an inventory management system can have serious long-term benefits. Check out our article on the importance of inventory management for more information.

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• Inventory Control

A Guide to Inventory Control

Learn more about inventory control: definition, methods, types, and ways to maximize your inventory.

What is Inventory Control?

Also called stock control, inventory control consists of systems and procedures for managing inventory items in a company’s warehouse. It monitors the movement and storage of goods in a warehouse to help businesses maintain a sufficient supply in good condition. Establishing an inventory control system enables them to satisfy customer demands and maximize profits.

Inventory control is a key element of an inventory management system . Warehouse managers and production planners should adhere to the following activities and procedures in controlling their inventory:

• Receiving, storing, and transferring goods
• Placing items in strategic locations
• Tracking inventory items and their locations in the warehouse
• Documenting product details and histories
• Monitoring the condition of items in stock
• Fulfilling purchase orders with stock on hand
• Integrating barcode scanners
• Forming reorder reports

Difference Between Inventory Control and Inventory Management

Although these two concepts go hand in hand, there are slight differences between inventory control and inventory management. Inventory control handles existing stock in a warehouse, while inventory management involves the overall movement of goods across supply chains.

The table below compares the two processes against their scope, goal, areas of concern, and actions.

Types of Inventory Control Systems

There are two main types of inventory control systems: the periodic and the perpetual system. Choosing the right inventory control system will depend on the business type, size, and kind of inventory. This section discusses these two types in detail, covering their pros and cons, as well as what they’re best for.

Periodic Inventory Control System

The periodic inventory control system pertains to a recurring count of goods at specific intervals. In this system, warehouse managers manually count their inventory on a monthly, quarterly, or annual basis. The exact period depends on an organization’s needs and business activities .

Pros: It’s relatively simple and easy to manage for smaller inventories. It doesn’t require any specialized technology and equipment, making it easier to train individuals in.

Cons: It becomes a lengthy process for companies with expansive inventories. The manual counting process is also highly prone to human error.

Best for: The periodic system is ideal for small companies with minimal inventory. It also works best for businesses selling niche products and counting larger-sized goods.

Perpetual Inventory Control System

The perpetual inventory control system provides an accurate count of inventory levels in real-time . It utilizes technology, such as barcodes and Radio Frequency Identification (RFID) tags, for tracking products. The information is then logged in a centralized database that warehouse managers can easily access.

Pros: This method removes the need for manual counting. It gives warehouse managers a snapshot of their inventory counts over a specific period of time. Doing so drives data-driven decision-making for sales, ordering, and inventory management.

Cons: An inventory control software can be expensive to maintain. Moreover, it might not capture discrepancies due to product theft, loss, damage, and scanning errors.

Best for: The perpetual system works best for companies with multiple locations. It’s also great for businesses maintaining large inventories.

Inventory Control Techniques

Inventory control involves various techniques for monitoring how stocks move in a warehouse. Four popular inventory control methods include ABC analysis ; Last In, First Out (LIFO) and First In, First Out (FIFO) ; batch tracking ; and safety stock . This section explains how each of these methods functions and how they can support your business.

Inventory Control Techniques | SafetyCulture

ABC Analysis

ABC analysis in inventory control classifies stocks based on their importance, price, and sales volume. These criteria determine the number of items a company will bring to the market.

Just as its name suggests, it consists of the following categories:

• A class – expensive, high-class items with tight controls and small inventories
• B class – average-priced, mid-priority items with medium sales volume and stocks
• C class – low-value, low-cost items with high sales and huge inventories

Applying the ABC analysis of inventory control allows businesses to minimize the costs of carrying products while maximizing their stock returns.

LIFO and FIFO

Both inventory control techniques organize how inventory items move in and out of the warehouse based on their arrival date. Priority will depend on the type of products available in the storage facility.

Using the LIFO method , the warehouse puts out the most recent batch of items to the customers first. Doing so prevents products from going bad when delivered to the market.

But with the FIFO technique , the warehouse prioritizes older stocks for processing and shipping. This way, they can keep the products fresh when the customer receives them.

Batch Tracking

Batch tracking is also a great way of organizing stock items in a warehouse facility. In this method, goods of the same production date and materials are grouped together. Doing this helps warehouse managers keep track of the following information:

• Where the items come from
• Where the goods are heading
• When the items might expire

Safety Stock

Safety stock involves having an additional set of goods on hand as a preventive measure for the market’s volatility. The amount should be over the average demand or use of the product.

It acts as a safety net, should customer demand go above the projected amount. It also covers them for any uncertainty in supply performance, such as shipping delays.

Tips on Getting Started

After discussing the types and techniques employed in an inventory control system, it’s time to put those measures into practice. Here are some tips to help you kickstart your inventory control process.

• Start with an inventory control plan – This plan should address the movement of goods from production to sales and removal from the inventory database.
• Put it into practice – Carrying out the inventory control plan includes establishing metrics and forecasts for succeeding months. You can also adjust your stock management strategy as needed.
• Consistency is key in labeling products – Find a system that works for your company and stick to it. Consider looking into barcodes, RFIDs, and Stock Keeping Units (SKUs).
• Establish reorder points – This practice systematically replenishes your stock items at set periods so you can take better control of your lead time . The ABC analysis method is a helpful tool for carrying this out.
• Always keep critical items in stock – Identify which goods are critical for your business and ensure they never go out of stock.
• Review product shipments – Read over the packing slips and check products for any damage to prevent inventory loss.
• Perform warehouse audits regularly – Warehouse personnel can run through their stocks for spoilage, theft, and potential human errors. Doing so ensures that the accounting team receives accurate information about the counts and costs of your inventory. It’s best to use a digital inventory checklist to simplify this process.

Explore our Free Inventory Templates

See how digital checklists simplify business processes with just a tap.

How Training Can Help You Implement Best Practices

Apart from having clear and comprehensive operational manuals for inventory control in place, it’s vital that they’re effectively communicated to your workers. This is where the need for training comes in.

With good inventory control training, you can effectively reinforce the best practices outlined in your operating manuals and Standard Operating Procedures (SOPs). And on top of higher quality work and better productivity, it can also help your workers become more aware of potential issues and more proactive in preventing mishaps along the way.

Say goodbye to the days of boring training and operating manuals. With SafetyCulture (formerly iAuditor)’s Training feature, you can easily transform your work instructions into training slides that are interactive, visually appealing, and easy to understand.

But that’s not all – you can also make this training accessible to your team using their preferred devices. And with SafetyCulture Training’s offline access, they can brush up on their skills even without an internet connection.

Maximize Your Warehouse Inventory with SafetyCulture

Safetyculture as an inventory control software.

As an inventory control software , SafetyCulture assists warehouse managers in improving their inventory control system. It allows them to conduct warehouse audits to check if any product is lost, stolen, or in bad conditions. This platform also reduces human error through digitized inventory tracking systems.

With SafetyCulture, you can perform the following actions:

• Edit and fill out pre-made digital checklists for your warehouse checks
• Schedule regular warehouse inspections automatically
• Track goods in your inventory using a handheld mobile device
• Monitor trends in inventory controls with the powerful analytics dashboard
• Proactively fill in missing, damaged, or spoiled stocks using Actions
• Train employees on effective inventory control practices and standardize best practices in the organization.
• Manage your organization’s assets to ensure their safety and quality for warehouse operations

Get started using our selection of inventory checklists for your business needs!

Leizel Estrellas

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What is inventory control? Its objectives, methods, and how to do it.

Inventory control or stock control determines your order fulfillment, profits, and dead stock. Let’s see how.

So you’re running a distribution center or a manufacturing line. You’ve figured out your suppliers and customers. But have you thought about everything in between? Yes, I’m talking about inventory control, something that can drastically affect your profits and customer retention if left unchecked.

Inventory control starts from the moment stock enters your warehouse till it leaves for shipments. It has to do with all the operational activities done to manage stock in the warehouses and different tactics employed to achieve continuous physical availability of inventory.

With the wide range of available software, inventory control also means quality control, tracking locations and bins, tracking items with barcodes, SKUs, and so on. By implementing an efficient inventory control system, you can optimize your stock to cut on what doesn’t sell and procure more of what sells fast.

In this blog, let’s understand everything from what is inventory control, its objectives to how to do it.

What is inventory control?

Inventory control refers to the use of techniques to control inventory in warehouses to minimize stock in hand while fulfilling customer orders on time. Various techniques like two bin method, quality control, barcode scanning, forecasting, etc., are used for controlling inventory.

What does inventory control depend on?

Let’s see the parameters that affect inventory control.

• Item lead time
• Shelf life of perishable items
• Seasonal inventory items
• Customer demand
• Available storage space

Inventory control objectives

We’ll talk about inventory control in more detail soon but before that, let’s see what are the objectives of inventory control.

Ensure stock availability

Having the right inventory levels is only a part of the problem to ensure smooth flow of goods in warehouses. For a manufacturing company, there are bottlenecks caused by disorganized warehouse structures or related items being placed too far away. Inventory control’s objective here is to ensure a steady supply of raw materials and subassemblies (manufactured or outsourced) from the warehouses without interruptions for fulfilling manufacturing orders on time. This also applies to distribution businesses where inventory has to be picked and packed for shipping orders.

Prevent wastage

Inventory waste happens in two cases—either the stock is defective or the stock has expired. It also happens when stock is idle and there’s no market demand. Here, inventory control aims to prevent defective stock from entering your warehouses with quality control, and to prevent dead stock or accumulation of expired items.

Maximize profitability

Poor inventory control impacts profits negatively. This is not surprising once you realize that one of the other objectives is avoiding stock wastage. Not only that, but poor inventory control also means difficulty in picking items from warehouses where required, be it manufacturing orders or distribution activities. If the orders are not fulfilled on time, customers won’t be happy. Hence, good inventory control positively impacts revenue in two ways—by avoiding money lost in expired stock and eliminating any inefficiencies during stock movements between storage areas.

Save storage space

Stocking inventory requires physical space. Actively managing your inventory, warehouse layouts, locations, saves on warehouse space and hence rent costs. It also involves doing away with excess stock, dead stock, and expired stock. If your storage areas are planned well and aren't occupied by dead stock, you’ll be saving on storage space for the products that sell better.

6 Inventory control methods

Let’s talk about inventory control methods, techniques, and formulas. As we already discussed, today, inventory control is a lot more than simply counting stock.

1. Two bin method

To avoid inventory shortage, the items are stored in two bins. When the first bin becomes empty, stock from the second bin starts getting used and at the same time, replenishment is done in the second bin.

2. Barcoding

UPC/EAN barcodes are black lined symbols with 12 or 13 digit numbers under the lines. In ERP/inventory software the printed barcodes can be scanned to update quantities in transactions. It’s similar to what you see at the cashier in a store but industries may use wearable barcode devices for better efficiency.

3. Labelling

Labeling refers to identifying different inventory items with specific labels. Barcodes are used universally to identify units but in warehouses, companies use SKUs to track different types of items. Labeling via easy to read SKUs helps to find and pick stock for shipments.

4. FIFO and LIFO

Using inventory is done in two ways FIFO and LIFO. Both have their advantages and industries where it makes more sense to use them.

• First in first out : The oldest units are chosen for orders. It’s common when companies deal with perishable items. Batch numbers are associated with expiration dates and simply the older batches are selected for order fulfillment.
• Last in first out : The newest units are sold first. Although uncommon and even impractical for perishable items, LIFO is done in industries where the cost of acquiring new goods is ever increasing. It benefits revenue booking and reduces tax liability.

5. Stock bundling

Bundling different items together to create product bundles is a common operation that helps companies introduce new products or sell older ones that are sitting idle. Simply creating bundles with new/old items with popular products increases sales, you can also offer discounts on bundles to make attractive deals and speed up sales.

6. Quality inspection

The operations of controlling the quantity of stock items falls under inventory control. However, the act of setting and defining the quality standards is a part of inventory management. From a control perspective, regular quality inspections when the stock enters and exits warehouses should be mandated. Over time you’ll find suppliers that consistently send quality materials. In case of a manufacturing business, you should consider incorporating concepts like lean and six sigma to increase quality and reduce defects.

Inventory control vs inventory management

Although they sound similar, inventory management is a broader concept that encompasses everything from stock procurement to selling it to the customer. Inventory control is more about daily operations that take place in warehouses to prevent inefficient movement, inventory expiration, wastage due to bad quality, etc. Here’s a table to explain the differences:

Inventory control system (ERPNext)

Let’s see the different inventory control parameters and techniques in action with software. Consider this an example of inventory control driven by ERPNext.

Before getting into inventory control, you’ll choose the best suppliers and procure the required items in the early days of your business. A few weeks in is where you’ll have to think about inventory control problems like automating stock counting in transactions, shelf life, quality, wastage, bin placements, stock grouping, etc.

1. Quality control and inspection

Every item or batch that enters your warehouse should be inspected before being accepted. You can set the parameters for different items based on what qualifies good vs defective units. In the below example, for a medical syringe, we’ve demonstrated parameters like needle sharpness, damages to body, etc.

To enable this in ERPNext, go to the item form and enable the inspection required options. Quality inspections can happen when receiving items to your warehouses and also when it leaves your warehouses for delivery.

2. Scanning barcodes for auto update

Manually counting inventory is boring not to mention takes a lot of time. By printing and sticking UPC/EAN codes to items and running a barcode scanner, you can automatically update the quantities in your stock transactions. Simply having the familiar UPC/EAN barcode stuck to items and scanning them quickly to auto update information in your software system saves a few seconds on each item. But hours and even days when doing large quantities.

After a point, using barcode scanners is easier than manually entering stocks. In stock entries and purchase/sales transactions simply scanning the stored barcodes will automatically update the quantity in your transaction.

First, you need a compatible barcode scanner connected to the computer/laptop. Then, you need to ensure that the UPC/EAN code is stored in the Item master. Scanning will not work if the code is not stored. But don’t worry, you only need to store this once for each item.

Now, simply use the barcode scanner and the item count will be updated in transactions. The barcodes can be generated and printed from here:

This also works with smartphones where you can use your smartphone’s camera to scan the barcodes. Note that this can be slightly slower depending on the phone you use.

3. Warehouse account to know profits

To maintain company-wise stock balances, every warehouse must belong to a company. To enable this, every warehouse should be linked to a general ledger account.

By creating a ledger account with the same name as a warehouse, you can directly track all profits and losses tied with that warehouse. This will help you determine which warehouses are the most profitable by comparing it with the rents you pay or the efficiency of storage space being used.

To do this, create a GL account under the appropriate group account. Then, link the newly created warehouse to the warehouse of the same name. In the following example, the warehouse name is “Chawla Traders” which is linked to the account “Chawla Traders”.

After linking, the warehouse account will show up in the chart of accounts from where you can view the financials.

4. Ensuring correct stock availability

By using different stock reports in ERPNext, you can understand various aspects of your stored inventory. In the context of inventory control, let’s see a few of them.

The item shortage report gives details on actual quantity, ordered quantity, reserved quantity, and projected quantity.

For a quicker view, the stock summary shows the reserved quantity and actual quantity of different items.

5. Stock shelf life

Another important aspect of inventory control is shelf life. If you store items that have an expiry date associated with them, this should also be factored into the decisions you make.

In ERPNext, see the stock ageing report to understand which items are close to expiry.

6. Batching inventory

You can also group items in batches which have their expiry dates. Batching enables you to identify the materials closer to their expiry date and avoid wastage. This is extremely important in case of pharmaceuticals and food items.

The Batch Item Expiry Status report shows the expiry date of items with batches.

7. Stock picking

Speaking of batches, when fulfilling customer orders, you’d want to manually choose batches whose expiry date is close. By using older stock first, you ensure that they don’t sit idle in your warehouse and end up being dead stock leading to losses.

You can pick items from different warehouses. Moreover, if the items are serialized, you can also choose the serial numbers which will fulfill the order.

In ERPNext, the batches close to expiry are automatically selected when using the Pick List feature shown above.

Like we discussed, we saw how inventory control is linked to better revenues and business growth. By making use of the right data and some software, you ensure stock availability within warehouses and timely order fulfilment.

In this blog, we first understood what inventory control is and it’s objectives, then we saw the methods used for inventory control. We briefly touched on how inventory control is different from inventory management, and finally saw how to use software to control inventory with advanced features and reports.

Editing note 04/11/2020: This article previously reflected ambiguous information around inventory control and inventory management. It has been updated to show clear distinctions and also better information under inventory control methods.

Prasad Ramesh

Marketing at Frappe.

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Inventory Management: Definition, Types, and Examples

Effective inventory management is the unsung hero of successful business operations, whether in the bustling retail world or in systematic manufacturing processes. 

It’s a critical component that can dictate a company’s ability to meet customer demand, manage cash flow, and maintain a competitive edge. 

According to a report by the National Retail Federation , the retail industry loses nearly $50 billion annually due to inventory shrinkage, a problem that effective inventory management can mitigate

By leveraging data and modern inventory management systems, businesses can ensure that inventory levels are optimized, excess inventory is minimized, and inventory costs are controlled. 

This foundational aspect of supply chain management affects the balance sheets and impacts customer satisfaction and business agility.

In this article, we will share inventory management definitions, explain inventory management meaning, give an inventory example, and discuss how inventory management relates to both inbound and outbound logistics.

Inventory Management Defined

Inventory management refers to ordering, storing, using, and selling a company’s inventory. This includes managing raw materials, components, finished goods, and warehousing and processing of such items. 

Automotive and healthcare industries rely on effective inventory management to streamline production processes and reduce hold-ups. Historically, inventory management was a manual process. 

Still, today it has evolved into a sophisticated inventory management system integrated with supply chain logistics, thanks to advancements in technology like Enterprise Resource Planning (ERP) systems and inventory management software. These tools provide real-time data that businesses use to efficiently forecast, plan, and execute their inventory management processes.

Advantages of Inventory Management and Supply Chain

The advantages of sound inventory management are manifold. Primarily, it allows businesses to have the right products available at the right time, which is crucial for meeting customer orders and maintaining solid sales channels. This is particularly crucial for the inbound logistics process.

Good inventory management can lead to better inventory turnover, ensuring fresh and relevant products, which is especially important in industries with rapid product lifecycles, such as fashion or technology. 

Also, effective inventory management reduces costs by decreasing the need for excess inventory and storing inventory, which can drain resources and capital if not appropriately managed.

Inventory vs. Stock Explained

While often used interchangeably, inventory and stock have subtle distinctions. 

Inventory encompasses more than just the products available for sale (stock); it includes raw materials, work-in-progress items, and all components involved in the production process. 

Understanding this nuance is vital, as it affects how businesses plan their inbound logistics, procurement and manage inventory levels across the supply chain.

Counting Inventory

Counting inventory , or taking a physical list, is a crucial task that validates the quantity and condition of items on hand. It’s a fundamental process that informs financial reporting, inventory forecasting, and supply chain planning. 

Accurate counts are essential for maintaining inventory data integrity, which impacts everything from order management to customer satisfaction. This process is critical at the end of accounting periods to ensure that reported inventory levels reflect the actual value of assets held by the company.

Types of Inventory Management Methods

Several methods help businesses optimize their handling of goods and materials.

Just-in-Time Management (JIT)

Just-in-Time Management (JIT) is a strategy where inventory is delivered only as it is needed in the production process, reducing the cost of storing inventory. Significant for industries like automotive manufacturing , JIT can lead to reduced inventory levels and associated costs, promoting an efficient supply chain.

Materials Requirement Planning (MRP)

Materials Requirement Planning (MRP) systems calculate the materials and components required to manufacture a product. This method is vital for manufacturing industries, ensuring that materials are available for production without the excess that can tie up capital.

Economic Order Quantity (EOQ)

Economic Order Quantity (EOQ) is a formula used to determine the optimal order quantity that minimizes inventory costs involving holding and ordering costs. This is significant across various industries for maintaining balance in inventory management.

Days Sales of Inventory (DSI)

Days Sales of Inventory (DSI) measures how quickly a company can turn its inventory into sales. A lower DSI indicates that a company is more efficient at selling off its stock. This metric is critical for retailers to gauge their inventory management efficiency.

Common Problems within Inventory Management

Though crucial, inventory management is fraught with challenges that can ripple through the supply chain and impact logistics operations. 

One common issue is overstocking, which ties up cash flow and can lead to excess inventory that may become obsolete or expire. Conversely, understocking risks stockouts, leading to delays in the production process and dissatisfied customers. 

Prominent Examples of Inventory Management

Inventory management plays a crucial role in industries where products have a limited shelf life, such as food and beverage or pharmaceuticals . Here, it’s pivotal to prevent spoilage and ensure compliance with safety regulations. 

In fashion retail, inventory management must be dynamic to keep up with changing trends and seasonal demand, making it essential for maintaining inventory freshness and reducing instances of dead stock.

Disadvantages of Inventory Management

Despite its many benefits, inventory management can have downsides. Holding inventory inherently involves storage costs, and stock that sits in a warehouse too long can lead to increased expenses without generating revenue. 

Moreover, complex inventory management systems can be costly to implement and maintain, requiring significant technological and training investments. These systems can sometimes lead to a dependency that may cripple operations if the system goes down or is attacked by cyber threats .

Inventory Management and Software

Inventory management software has revolutionized how companies approach their inventory processes. This technology allows for real-time tracking of goods, inventory forecasting, and more accurate demand planning. 

Inventory Management vs. Supply Chain Management

While inventory management focuses on overseeing and controlling goods within a company, supply chain management encompasses a broader scope, managing the entire flow of goods and materials from suppliers to the end customer. 

Tracking Inventory and Internal SKU Systems

Tracking inventory through internal Stock Keeping Units (SKUs) is an intricate part of inventory management. SKUs help businesses quickly categorize and locate inventory, facilitating faster inventory turnover and more precise inventory data. 

Forecasting and Controlling Inventory with Software

Modern inventory management software often includes sophisticated forecasting tools that utilize historical sales data, seasonal trends, and other variables to predict future demand. This predictive capability helps businesses maintain optimal inventory levels, reducing the risk of overstocking or stockouts. 

Types of Successful Inventory Management Techniques

A variety of inventory management techniques are employed by businesses to maintain efficiency and cost-effectiveness in managing stock levels.

These methods are tailored to match the needs of the company and the nature of the inventory it holds.

Economic and Minimum Order Quantity

Economic Order Quantity (EOQ) and Minimum Order Quantity (MOQ) are foundational concepts in inventory management. 

EOQ calculates the ideal order quantity to minimize total inventory costs, while MOQ determines the minuscule amount a supplier is willing to sell. Both are vital for optimizing inventory levels and reducing costs.

ABC Analysis

ABC Analysis categorizes inventory into three categories (A, B, and C) based on importance and volume. 

‘A’ items are high-priority with stringent control, ‘B’ are moderate, and ‘C’ have the most negligible financial impact. This prioritization is essential for efficient inventory control.

Just-In-Time Inventory

Just-In-Time (JIT) inventory management is a strategy that aligns raw-material orders with production schedules to minimize inventory costs. 

It’s crucial for businesses looking to reduce waste and increase efficiency in the production process.

Safety Stock

Safety Stock is additional inventory held to prevent stockouts caused by inaccuracies in demand forecasting or supply chain disruptions. 

It’s a critical buffer that ensures customer demand is met without delay.

First In-First Out (FIFO) vs. Last In-First Out (LIFO) Explained

FIFO and LIFO are methods to manage the flow of inventory costs. FIFO assumes the first items stocked are the first sold, reducing the chance of obsolete inventory. 

LIFO, less common, takes the last things in are the first sold, which can benefit in specific tax situations.

Reorder Triggers

Reorder triggers are pre-determined inventory levels that prompt a new purchase order. 

They are vital for maintaining stock levels and ensuring consistent supply without overstocking, playing a significant role in inventory management systems.

Batch Tracking

Batch tracking monitors the production and expiration dates of batches of inventory items. 

It’s crucial for traceability in case of recalls and managing stock with expiration dates, maintaining the integrity of the supply chain.

Consignment Inventory

Consignment inventory allows retailers to stock goods without purchasing them upfront; payment is made only after the sale. 

This method is vital for inventory management as it reduces the retailer’s capital in inventory and transfers the risk of unsold stock to the supplier.

Perpetual Inventory

A perpetual inventory system continuously tracks inventory levels, updating in real-time with every sale and restock. 

It’s essential for accurate inventory data, allowing for timely ordering and reduction of excess stock.

Dropshipping

Dropshipping is a retail fulfillment method where a store doesn’t keep products in stock but instead transfers customer orders and shipment details to the manufacturer or a wholesaler, who then ships the goods directly to the customer. 

This method is vital as it eliminates the need for managing physical inventory, significantly reducing handling and storage costs.

Lean Manufacturing

Lean manufacturing emphasizes waste reduction within the manufacturing system without sacrificing productivity. 

It’s vital for inventory management as it promotes a just-in-time approach, minimizing stock levels and reducing holding costs.

Six Sigma and Lean Six Sigma Techniques

Six Sigma and Lean Six Sigma focus on quality improvement and process efficiency. 

They are vital to inventory management by identifying and eliminating process defects, resulting in lower inventory costs and improved customer satisfaction.

Demand Inventory Forecasting

Demand inventory forecasting uses historical sales data to predict customer demand and manage inventory accordingly. 

It’s essential for preventing stockouts and overstock, making inventory management more responsive and cost-effective.

Cross-Docking

Cross-docking is a logistics procedure where products from a supplier or manufacturing plant are distributed directly to a customer or retail chain with marginal to no handling or storage time. 

It’s vital as it reduces the need for warehousing while increasing inventory turnover rates.

Bulk Shipments

Bulk shipments involve transporting large quantities of a single product, which can significantly reduce transportation costs. 

It’s vital for inventory management as it can lead to economies of scale, making larger shipments more cost-effective.

Cycle Counts

Cycle counting is an inventory auditing procedure where a small subset of inventory in a specific location is counted on a particular day. It contrasts with traditional physical inventory counting, where operations are halted to count all inventory. 

Cycle counts are less disruptive and more accurate, allowing for regular verification of inventory accuracy and providing ongoing insights into inventory levels without the operational shutdown.

The Significance of Inventory Management, Control and Optimization

Effective inventory management, control, and optimization methods are crucial for maintaining the delicate balance between too much and too little inventory. 

They ensure that capital is not unnecessarily tied up in stock, preventing stockouts that can lead to lost sales. These methods can result in improved cash flow, better customer service levels, and the ability to quickly respond to market changes.

How Inventory Affects Logistics

Inventory levels directly impact logistics operations; having the right stock in the right place at the right time is essential for effective logistics. 

High inventory levels can cause bottlenecks and increase storage costs, while lower inventory levels can result in inefficient transportation and higher shipping costs for urgent replenishment.

ERP Inventory Management Style

ERP inventory management incorporates all facets of a company’s inventory system into a unified system, including tracking, management, and forecasting. 

This method offers comprehensive insights into inventory, streamlines processes, and can improve overall efficiency.

Retail and Manufacturing Inventory Management

Inventory management in retail focuses on having the right products available to meet consumer demand while manufacturing inventory management ensures that production materials are at hand without overstocking. 

Both require strategies that optimize stock levels, though retail is more directly driven by consumer trends, and production schedules and supplier lead times influence manufacturing.

Unveil the essentials of inventory management with these succinctly answered frequently asked questions.

What does inventory management do?

Inventory management oversees stock levels, manages orders, and forecasts demand to optimize business operations.

What are the 4 types of inventory?

The four types are raw materials, work-in-progress, finished goods, and maintenance, repair, and operations (MRO) inventories.

What are the 3 major inventory management techniques?

The three main techniques are Just-In-Time, ABC Analysis, and Economic Order Quantity (EOQ).

Inventory Management Techniques Summary

Effective inventory management is a cornerstone of successful business operations, ensuring that inventory levels are balanced, customer demand is met, and inventory costs are minimized. 

Businesses can enhance their supply chain management and maintain a competitive edge in today’s market by employing strategic inventory management techniques, such as Just-In-Time and Economic Order Quantity. 

Additionally, advancements in inventory management software have made it easier for companies to track and manage their inventory more efficiently, further optimizing their inventory management processes.

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Inventory Storage

Inventory storage is critical to long term retail success. Fail to look after your stock properly, and you run the risk of it getting lost, stolen or damaged - wasting cash that could be used on other important business expenditures.

So this chapter is all about how to most efficiently store, organize, maintain and generally preserve the life of your inventory.

Broad inventory storage options

The first thing to assess is exactly where you’ll be storing inventory. To do this, you typically have a few options.

1) Dropshipping

Dropshipping is a way of purchasing inventory where the retailer doesn’t keep any of the products it sells in stock. Instead, items are purchased from a third-party supplier as and when each customer order comes in, with the supplier shipping products directly to the customer.

It therefore entirely negates the need for inventory storage or keeping stock on-hand.

Inventory storage is entirely taken care of by the supplier.

Supplier is liable for any inventory shrinkage.

Lower overall costs of not needing a warehouse, 3PL or fulfillment team.

Less risk when starting out.

Little to no control over product quality or branding.

Puts someone else in control of how well products are stored.

Shipping speeds can be incredibly slow.

Highly competitive with razor thin margins.

Best for : Startup retail brands that want to test the waters before investing in bulk inventory.

2) Third-party logistics (3PL) service

A third-party logistics (3PL) service allows retailers to effectively rent space in another warehouse. You can then send inventory units directly to the 3PL location for them to store and ship on your brand’s behalf.

This usually incurs housing and shipping fees, but again eliminates the need to worry about having to store inventory.

Inventory management is entirely taken care of by the 3PL service.

Can take advantage of bulk inventory discounts without the need for a self-fulfillment warehouse.

Usually involves significantly faster shipping times and more control over product quality compared to dropshipping .

Monthly storage fees can eat into profits for slow moving stock.

Trusting someone else to ship products on your brand’s behalf.

Usually requires investing in bulk stock quantities.

Best for : Growing retail brands that have proven, consistent sales and want to buy stock in bulk without a dedicated warehouse.

3) Self-fulfillment warehouse

A self-fulfillment warehouse is a location set up by a retailer in order to specifically store its own inventory and ship orders.

This usually comes with significant up-front investment of both capital and time - like signing a lease and hiring a team. But if the sales are there and numbers make sense, then the result is more control and lower operational costs in the long run.

Complete control of the fulfillment experience delivered to customers.

Initial investment can result in long term savings compared to a 3PL.

Usually involves signing a long term lease, which can be risky.

Will need to hire and train a team, and possibly invest in WMS software .

May require moving to new locations several times as the business grows.

Best for: Established retail brands planning for long term growth.

Setting up your warehouse

The main goals of setting up your warehouse for optimal inventory storage are:

Safety . Any inventory should be stored safely to prevent both injury to staff members and damage to the inventory itself.

Security . Warehouses with large amounts of valuable stock will be a target for thieves, so this should be prevented as best as possible.

Accessibility . Inventory will need to be stored in a way that’s easy to receive and put away when new, then pick, pack and ship out to customers later on.

In order to do this, there are several things to think about:

1) Warehouse layout

Your warehouse will need to balance having enough storage space for inventory, while providing enough working space for staff to move around and complete tasks.

Exact requirements will depend on each individual business, but the following areas tend to be needed in a warehouse layout:

Delivery/receiving area.

Unpacking and book-in area.

Warehouse office.

Main storage area.

Area for excess, obsolete or dead stock.

Packing table(s).

Shipping station(s).

This can be tricky – especially when dealing with a limited space. So it’s best to sketch out your warehouse layout to scale before setting it up or changing what you already have:

Space and manoeuvrability is a key thing to remember.

Pickers need to be able to walk up and down aisles without getting in each other’s way. And should also have enough room to actually pick items.

2) Warehouse labelling

Specific locations and clear labelling are essentials for effective inventory storage. Your team should be able to look at your inventory system and see exactly where any product is located.

Practicality is king here.

Stick with simple alphanumeric combinations labelling specific rows, shelves and then exact bin locations:

So you always know, for example, that all your blue t-shirts sized medium will be in Row A – Shelf B – Bin 1. And the pattern can be continued like this.

Larger warehouses can extrapolate forward as much as needed with the same concept:

The bigger your facility, the more in-depth you’ll need to go with your location labelling to achieve optimal inventory storage.

3) Arranging inventory

Another key part of inventory storage is determining the exact location each product should be stored within your warehouse.

Ideally, sales volume should be taken into account for this.

Veeqo research found that 60% of a company’s sales tend to come from just 20% of their products. Meaning you can severely reduce picker walking time by:

Identifying that 20% of products from past sales data in your business;

and then storing these as close to the packing desk as possible.

ABC Analysis is an inventory management technique that can become very useful here. This divides all on-hand inventory into three groups – A, B and C:

A Items : Are of high value and bring in most of profits.

B Items : Are sold often, but less valuable/profitable than A items.

C Items : The rest of your inventory that doesn't sell much and generates the least revenue.

You can then decide that ‘A items’ will be placed closest to the packing desk, while ‘C items’ will be farthest away. Like this:

Some small and lightweight items may even be sold frequently enough to warrant being stored on shelves above the packing desks themselves.

You can take this concept another layer deep by also identifying which products are most commonly sold together.

So faster selling products are stored closer to the packing desk and products commonly purchased together are stored close or next to each other. Meaning you’re doubling down on reducing walking time for each picker.

Inventory storage equipment

Storing inventory in the safest and most practical way is almost impossible without investing in some form of equipment.

This can differ heavily depending on the goods in question. Retailers selling refrigerators, for example, may require large locations, forklifts and heavy-duty shelving racks. While selling t-shirts or jewelry can usually be done with simple shelves in a smaller space.

With that being said, here’s a look at some of the general equipment to consider:

Shelving units

Some warehouses can work with simple block stacking of products on top of each other, but most will need some kind of shelving to place products on. The most common ones have metal frames with wooden shelves, are easy to build, yet robust. Access to both sides can also be very useful - one side for putting in, one for taking out.

Warehouse bins are where your individual product variants go into, particularly for smaller items. Each bin will be labelled and assigned to a specific variant to make it easy to locate in the warehouse.

Inventory is a business asset, and should be protected as such. Make sure to get a good Closed Circuit Television (CCTV) system set up with signage to indicate it’s in use in order to deter thieves as much as possible.

Barcode scanner

A quality barcode scanner will help with booking-in, picking, packing, conducting inventory counts and generally keeping your inventory accurate and aligned with what’s recorded in your inventory management software .

Picking cart

Pickers will need a cart on which to carry all the items that are being picked before returning to the packing station. This is particularly useful if you commonly sell multiple items per order, or when using a batch picking system .

These will sit on the picking cart and carry items for individual orders during a batch picking route. Totes are usually simple plastic containers and will only ever hold items for one order at a time.

Packing desk

A professional packing desk is very solid, larger than a normal office desk and has rolls so that you can get easy access to your packaging materials. It’s worth having at least two, so someone else can jump in during busy periods.

Packaging materials

This will involve your different sized shipping boxes - we recommend around 3-5 options to strike a balance between speed and shipping costs. Plus, tape and all the protective inner packaging - like bubble wrap, shredded paper or air pillows (determined by how fragile your items are in transit).

You’ll need a good quality A4 lazer printer for invoices, and a typical 6x4” shipping label printer ( Dymo is great for this). For your A4 printer, think about speed of printing the first page, speed of printing multiple pages and cost per page.

Shipping computer

This is a dedicated computer solely for shipping out orders - printing out labels, marking orders as shipped, sending out tracking details and/or using shipping software. It’s best to opt for a touchscreen to remove the need for keyboard and mouse in this fast-paced environment.

Shipping scales

These weigh all packed shipments and send details to your shipping computer via a direct connection. Dymo are, again, a great option for scales.

Of course, retailers need to consider this equipment from the point-of-view of their own business. Selling certain foods may require a refrigerated unit or cold store, while very high value jewelry may need extra security measures.

The key is to use this guide as a blueprint to build upon and mould to your own business.

We’ve now covered how to plan, replenish and store inventory as a retailer. Next, we’ll move on to inventory analysis in order to use the best and most useful metrics for keeping on top of your stock management going forward.

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Storage and Inventory Control Best Practices

Storage and inventory control processes include activities related to holding material and the processes of counting and transacting it as it moves through a fulfillment or distribution center.

The layout of a facility supporting an adjoining manufacturing operation will have different requirements than one supporting distribution to stores or consumers. Some operations place emphasis on replenishment, others on picking and order fulfillment.

Regardless, best-practice companies have designed storage systems to meet the needs of the current and planned mix of storage types. This includes optimization of storage locations and layouts to fit product without the need to restack or re-palletize once received. The warehouse management system (WMS) will track storage location profiles and properly assign items to the optimal storage location. As a result, top performers have excellent cube-fill rates.

In addition to optimizing the cubic fill of storage locations for better inventory control, another best practice is to minimize travel time. If a particular SKU is in high demand, it should be placed closer to its next point of use. In this case, demand is based on the number of times the SKU is required, not on the number of units sold. The difficulty of retrieval should also be considered in terms of travel time. Higher-demand product should be placed on the most easily accessed storage space in a “hot zone,” typically at floor level for racking and between waist and shoulder level in pick racks.

Not all companies need to track product by lot or serial number, but if required, best-practice companies have integrated that capability into their DC or FC and and shipping processes, using the system of record to manage the lot and serial number data.

Most companies put a lot of effort into the initial facility layout. However, industry surveys will tell you that as many as half of companies don’t have an ongoing process to review their layouts. Reviewing how storage areas are configured and having processes in place to reconfigure them as product mix changes is considered a best practice and is critical to maintaining high levels of space utilization and efficiency. Making continuous small adjustments to racks, shelving or other storage equipment can greatly improve space utilization.

All warehouse software runs on data, so product and storage locations must be kept current and accurate. Best-practice companies maintain all information on a single system of record and keep it current and accurate. Product data should include all characteristics including cube, lot/serial number information and special requirements so it can be directed to special storage areas. Special storage areas may be used to segregate items with odor transfer or fire risk, or that require temperature control. High-value product might require caged or controlled-access storage.

Kate Vitasek is the founder of Supply Chain Visions

This article was originally published in 2007 and is frequently updated

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What is Inventory Planning? Challenges & Best Practices

Resources / What is Inventory Planning? Challenges & Best Practices

Table of contents +

• Inventory Management: Process, Examples, Tips & Techniques -->
• Accounting for Inventory: Periodic Inventory Management vs Perpetual Inventory Management -->
• Effective Inventory Management in Retail -->
• Multichannel Inventory Management -->
• Inventory Forecasting Best Practices -->
• What is Inventory Tracking? Top Tips for Tracking Inventory -->
• What is Inventory Planning? Challenges & Best Practices -->
• What is lead time and how do you shorten it? -->
• Pipeline Inventory -->
• What is Inventory Control? -->
• Dead Stock: Causes and How to Get Rid of it -->
• Perpetual Inventory System -->
• Inventory management in warehouses -->
• What is Store Inventory Control? -->
• Automated Inventory Management -->
• What is Inventory Turnover? -->

For medium to large e-commerce brands and wholesalers, inventory planning comes with additional complexity. You may be operating across multiple online sales channels as well as physical stores in various locations. You may have a large database of customers or be looking to scale up operations in the near future. Plus, sudden market shifts can add an extra layer of complexity to your inventory planning. 

Whatever your growing business looks like right now, pinning down a successful inventory plan and management strategy is essential for your future security and success. 

Efficient inventory planning and assortment planning offers a fast route to reduced costs tied up in dead inventory, optimized product mix, happier customers, and increased revenue and profit. 

But despite the business-critical importance of proper inventory planning, all too many businesses today are not doing everything in their power to plan appropriately.

We want that to stop. 

This article will cover everything a fast growing e-commerce retailer needs to know about inventory planning. From what it actually is, to the best technology for the job. What questions should you be asking yourself? What planning method is right for your business? 

Need to improve your inventory forecasting?

Data-driven forecasting for smart replenishment with Inventory Planner

By the end of this article you’ll be able to answer all of these questions and then some. 

It’s time to end shoddy inventory planning and ensure that our businesses are streamlined for the future. 

So, let’s get started. 

What is Inventory Planning?

Inventory represents often the biggest part of a retail business’s assets – up to 80% of cash is usually tied up in inventory. Holding inventory is unavoidable as it allows organizations to operate continuously. However, having too much inventory is damaging to a healthy cash flow and holds business growth as the money tied up in excessive inventory can’t be invested in other areas of the business.  

Inventory management planning is an integral part of a company’s supply chain management strategy, alongside order management, accounting, warehouse operations, and customer management. 

Inventory planning involves forecasting demand and deciding exactly how much inventory and when to order. When done successfully, this helps companies meet demand whilst reducing expenditure. 

In other words, by having just the right amount of inventory at the right time, in the right location, businesses reduce the overall cost of storing merchandise, optimize inventory allocation routes, and ensures that there is always the right amount of stock to meet customer demand (whilst avoiding surplus stock in obsolescence or overstocking).

Image: Shopify

As a result inventory planning improves customer satisfaction rates by preventing overselling. Consistent service levels also breed loyal customers.

In order to establish a reliable inventory planning, businesses and organizations must do three things. These are:

• Demand forecast: using historical sales data, KPIs and variables like seasonality, promotions and market predicts to make data-driven forecasts. 
• Control costs: considering things like choosing the right suppliers, automating purchase order process, reducing cash tied up in slow-moving products etc.  –
• Store efficiently: storing the right amount of products in the right place to optimize your order fulfillment routes if you have multiple inventory locations 

When these three workflows exist in tandem, inventory flows continuously, seamlessly, and efficiently. But, of course, maintaining such a complex operation comes with some challenges.

Smart demand planning with Inventory Planner

#1 Inventory Planning Software For E-Commerce Businesses

Differences Between Inventory Planning and Assortment Planning

Inventory planning is all about optimizing your inventory levels so that you minimize costs but always have enough stock to meet demand. It involves making strategic decisions on when to reorder and in what quantity.

Effective planning requires you to make accurate forecasts by analyzing sales history and emerging trends. You also have to ensure adequate storage for the goods, and understand how factors like supplier lead times and availability of raw materials affect the supply chain.

There is some crossover between inventory planning and assortment planning. Both are reliant on data regarding customer behavior, trends, and product performance. And the aim in both cases is to maximize profit and deliver a great customer experience.

However, assortment planning is more specific. It’s about choosing the range (or “assortment”) of products you want to sell at particular times, and deciding which ones will be sold via which sales channels. This is based on seasonality and demand for each channel or location.

Assortment planning helps you rationalize your SKUs and focus your investments on items likely to bring in the most revenue while avoiding those for which demand is low. You can also plan your inventory around warehouse capacity.

4 Challenges of Inventory Planning

Inventory planning involves bringing together lots of different factors and variables. Planning inventory accurately can be challenging even for businesses operating on one sales channel.

When a business or organization relies on multiple channels, with multiple warehouses, and possibly even multiple 3PL providers, things get even more complex. Especially when demand fluctuation and seasonality are also added into the mix.

Dealing with so many separate operations and variables at once poses some unique challenges. Even small hiccups can spell disaster. Typical challenges include: 

• Disparate data

Effective inventory planning requires a lot of data from a lot of places. And bringing all this data together is a complex task. Inventory planners will need to collate historical data and retail reports that may be dispersed across many different legacy systems.

Planners will need to collate sales orders , accounting, fulfillment, suppliers and point-of-sale (POS) data.

This is not only time consuming but, if done poorly, may result in biased demand forecasting leading to over-stocking, under-stocking, or missed opportunities.

Making predictions is never easy. If you don’t have the right KPIs in place to guide your inventory planning, guesswork will always be there, even if you have analytics tools. Plus, unpredictable market variations can make the forecasting even more complex. 

2020 was a testament to that very fact. 

• Multiple locations

Allocating inventory that is stored across multiple locations is challenging. Without a suitable inventory tracking system, it’s difficult to know exactly where to allocate your merchandise all the time. 

Plus, storing merchandise in the wrong place could result in added shipping costs and longer wait times for customer order fulfillment. A poor picking process will not only reduce productivity, but increase travel times across the whole supply chain. 

• The human component

Technology is not the whole solution. Inventory management planning is ultimately controlled by an inventory planner. When the role is taken over by somebody else, there is a lot of historical knowledge that needs to be transmitted to the new person in charge. 

The new planner will initially lack the brand awareness of the outgoing planner and may struggle to understand the historical reasoning behind the current inventory management system . 

And the human component doesn’t just apply to senior staff. Even with the best inventory software in tow, if staff aren’t sufficiently trained to use it, your business won’t see the best results possible. 

Poor training impacts management and breeds miscalculation. Likewise, poor communication between procurement, production, and quality control departments will ultimately impede efficiency. 

Why Inventory Planning is Essential for E-Commerce

Inventory planning and control is the pillar of successful e-commerce. That’s because a business without a solid inventory plan or inventory planning solution to support it is significantly more vulnerable to overselling, understocking, and delayed order fulfillment. At the end of the day, this all comes crashing down on customer experience.

1. Avoid overselling

Overselling is harmful to customer experience and is often a cause of bad reviews. Customers are less likely to return for repeat purchases and will take their custom to your competitors.

2. Release cash

When too many slow-moving products accumulate in the warehouse, e-commerce retailers are often forced to discount or liquidate in order to release this excess of cash held in stagnating merchandise, in order to invest in more profitable products

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3. E-Commerce is booming

78% of people are set to increase their online purchases over the next year. To meet this increased demand, e-commerce retailers will need to scale their inventories with effective and flexible planning.

4. Meet customer expectations

Customers’ expectations are always high on e-commerce brands, even during the pandemic. Since the COVID-19 crisis, up to 36% of customers have reported being let down by online orders. More and more customers are turning to online reviews before buying, and more than three-quarters admit to leaving negative reviews following a bad shopping experience. 

Dealing with negative reviews costs serious money. Money that could be easily saved by avoiding these problems in the first place with robust inventory planning.  

Effective inventory planning can meet customer expectations by offering the right products, speeding up the order processing time, eliminating avoidable mistakes that cost a business time, money, and brand reputation.

By investing in appropriate e-commerce inventory planning software and experienced planners, retailers can avoid these money-draining situations and boost their customers’ experiences. Effective, data-oriented, planning helps retailers reduce time, scale, and optimize product allocations and pricing. 

Considering the unexpected nature of the Pandemic, it is possible to understand why retailers were taken by surprise. But the crisis has taught us all some valuable lessons as well. 

Retailers with flexible, scalable, inventory management plans already in place were able to meet accelerating customer demand head-on. Now there’s no longer any excuse. 

Ask yourself, is my business post-pandemic proof ? 

The Pandemic has shown us, first-hand, the importance of maintaining an inventory plan that is robust enough to succeed through unforeseen events. 

In fact, according to a 2020 survey by Statista , roughly one-fifth of businesses plan to have more inventory in the aftermath of the pandemic, whilst 27% state that they will be making adjustments to their supply chain networks. 

To sum up, inventory planning will help you:

• Reduce stockouts 
• Reduce overstocks 
• Optimize inventory locations
• Rotate stock faster
• Increase cash flow
• Increase profitability
• Easily retrieve items
• Reduce guesswork
• Prevent order processing delays
• Anticipate lead times  

Data-driven forecasting for smarter replenishment with Inventory Planner

Key Considerations When it Comes to Inventory Planning

Given that proper inventory planning is so business-critical – now more than ever- what can we actually do to ensure that our inventory plans are robust and ready to go? 

To actualize and carry out a successful inventory plan, you’ll want to follow some best practices and procedures. In order to do this it’s imperative that e-commerce businesses familiarize themselves with the important steps involved when it comes to planning inventory.

The important steps involved

There are many important steps involved in planning and executing a successful inventory plan. In general, these roles can be thought of in three parts: context; analytics; the planning. 

Context refers to your business’ data history. From micro details to macro level planning. Everything from sales orders, customer knowledge to the competitor landscape and current socio political events should go into informing your inventory planning process. 

Analytics refers to inferring information from the data itself. Ensuring that the inventory plan is based on the correct data, sufficient data, and (extremely important) complete data. What does this data mean, and how will it inform a flexible, scalable inventory plan? 

Finally, the planning stage is absolutely critical in and of itself. 

The planning stage involves: 

• Gathering a comprehensive database of historical sales data 
• Understanding how stock keeping units (SKUs) have performed
• Using SKU performance to set expectations for upcoming seasons
• Analyzing the competition’s data  (pricing, promotions, & trends) 
• Setting tentative or strict receipt budgets by product category 
• Weekly performance recaps to assess product and category performance
• Setting markdowns and promotions based on weekly performance recaps 
• Reforecasting periodically based on weekly updates, trends, and current events
• Managing evergreen inventory with monthly sales forecasts and receipt projections
• Post-season hindsighting of financial and product performance to determine if targets were met and make necessary changes to next season’s strategy 

Setting up best practices and procedures

Another key consideration when it comes to inventory planning is maintaining best practices and procedures at all times. Getting inventory planning right is a balance between human expertise (people), intelligent strategizing (process) and the right tools for the job (technology). 

When starting to develop an inventory plan, it’s a good idea to ask yourself some rudimentary questions that will inform your strategy going forward.

1. What is your product volume likely to be? 

To answer this, dedicate some time to look into your historical data to understand the seasonality, coupling with trends data from tools like your own inventory planning software or Google Trends.  Do this before scheduling any orders. 

You’ll be able to calculate your regular off-peak sales stock requirements as well as factoring in any anticipated demand spikes. By determining your economic order quantity you’ll identify the optimum quantity of stock to hold at one time and minimize total ordering and holding costs accordingly.  

2. What might impact my inventory?

It’s important to anticipate any internal or external factors that might impact consumer demand in the future. Consider retail inventory planning variables such as upcoming advertising campaigns, sales promotions, target market, seasonal demand spikes, and current consumer trends. 

3. Am I prioritizing efficiency?

Efficiency is the lifeblood of inventory planning and control. Ask yourself if your warehouse and order process is streamlined for optimal performance. If not, what can you do to make sure that it is? 

Think well-organized storage spaces for easy picking and retrieval, sufficient space for extra stock (but not so much that you’re hemorrhaging money), optimal warehouse locations for faster delivery fulfillment , and streamlined communications between inventory and order management teams. 

4. Am I using the right KPIs? 

Consider whether you’ve been using metrics and key performance indicators (KPIs) to your full advantage. These critical datasets help organizations gauge the success of their inventory planning to date. Make sure that your inventory plan takes the following factors and variables into account – and use KPIs to inform your future strategy. 

• Orders delayed by stockouts 
• Storage capacity usage 
• Forecast accuracy 
• System accuracy 
• Daily sales 
• Movement of inventory 
• Customer satisfaction 
• Inventory turnover 
• Carrying cost of sales  

7 Inventory Planning Methods

Inventory planning and control systems won’t look the same for every business. As such, there are various different inventory planning models. In fact, there are three main examples of inventory planning methods. 

The models meet the needs of different types of companies. Primarily those dealing in: 

• Raw materials
• Partially completed goods
• Finished goods

The Deterministic Inventory Model

The deterministic inventory model is most typically used by merchants dealing in raw materials. The deterministic model uses a precautionary method to avoid stockouts. One example is the Economic Order Quantity (EOQ) model. 

With food inventory planning software, for example, the EOQ model can be used to calculate an optimal order quantity to reduce inventory costs and maximize value. This is an effective model as long as demand stays relatively steady. But it does not account for seasonal change or external fluctuations. The deterministic model, therefore, requires constant monitoring to be successful. 

The Work in Progress (WIP) Model

This model is best suited to merchants dealing in partially completed goods, finished goods, or goods-in-transit (GIT). This inventory model focuses on the holding of inventory and there are three motives for doing so. 

The transaction motive posits that buying raw materials in bulk is cheaper and brings down the per unit cost. The precautionary motive uses inventory as a protection against demand uncertainties to prevent stockouts. The speculative model promotes holding inventory to mitigate increases in the price of materials and/or labor. 

The Perpetual Inventory Model 

The perpetual (or continuous) inventory model is also often used by companies dealing with partial or finished goods. Continuous systems constantly track quantities, and replenishment orders are made as soon as stock reaches below a set cutoff point (the reorder point). 

This is the only system that cannot be maintained manually. The perpetual model relies on specialized technology. But this model allows merchants to keep track of current stock levels and avoid stockouts. 

The Just in Time (JIT) Inventory Model 

The just in time (or JIT) inventory model works by aligning orders of raw materials or items from suppliers with production schedules directly. In other words, the company will hold sufficient inventory to cover maximum market demand. 

The idea is to increase efficiency and decrease waste by ordering and receiving goods as and when needed, and never in surplus. To achieve success with this model, therefore, retailers must make sure to forecast demand as accurately as possible.

The FIFO & LIFO Model

FIFO and LIFO are both common techniques in inventory control and planning. FIFO (first in, first out) means that you fulfill orders using the oldest products first. This is ideal for perishable goods with expiration dates, but it also guards against obsolete stock that’s gone out of season or fashion.

LIFO (last in, first out) is the opposite. It’s mainly used by companies who want to use current prices to calculate the cost of goods sold as this offers tax advantages when prices of goods are rising.

The Minimum Order Quantity Model

Minimum order quantity (MOQ) is basically the lowest number of units that a supplier will sell to a buyer. Many suppliers choose to set an MOQ because it’s not cost-effective for them to sell you just a handful of items—it’s only worth their while to sell in larger quantities.

Cheaper items generally have a higher minimum order quantity, enabling wholesalers to sell items at a cheaper rate. However, buying in bulk can mean the buyer risks overstocking.

E-commerce retailers may use MOQ to set a minimum spend threshold for customers in order to offset the costs of offering free shipping.

The Reorder Point Model

This is the point at which you need to replenish stocks of a given item to prevent a stockout. This will be different for each product line because it’s based on supplier lead time, warehouse receiving time, and safety stock protocol. You can use demand forecasting to predict how quickly an item will sell.

Here’s the calculation: Reorder point (ROP) = demand during lead time + safety stock

Inventory planning software typically lets you set a reorder point per item and sends you a notification when stock levels are approaching it. Some systems will even order new stock automatically, based on your rules.

Data-driven forecasting for smarter replenishment

Forecast demand based on historical sales data and market fluctuations to ensure you always stay on top of your inventory levels.

5 Best Inventory Planning Software Options

Brightpearl.

Brightpearl is a cloud-based retail operating system that combines inventory management, demand planning, order fulfillment, warehouse management, purchasing, accounting, CRM, and POS in a single platform.

Advanced reporting helps you make data-driven forecasts based on sales history, product performance, and customer behavior. Data is synced across all channels and locations for a real-time overview of inventory levels—and you also receive replenishment reports and low-stock alerts.

Aside from planning, Brightpearl’s automation engine lets you automate your workflows (and reduces human error by 65%). It covers everything from complex order fulfillment to auto-generated pick lists and POs, plus barcode scanning.

The platform integrates with top marketplaces, platforms, shipping carriers, and 3PL providers, with the core integrations all built, developed, and supported in-house.

Brightpearl is made especially for retail, so it has all the features you need without charging for those you’ll never use. It’s also designed to scale as you grow—add as many new sales channels and users as you need, at no extra cost.

Pricing is tailored to your order volume, . Full advanced support is provided in your standard Brightpearl subscription, with business consultants and training included.

Oracle NetSuite is a modular ERP with plenty of features, including inventory tracking for multiple locations, forecasting, cycle counting, reorder points, and lot and serial tracing. You can automate core processes and get real-time insights into operational and financial performance.

One major downside is that those features come with a steep learning curve. And because NetSuite isn’t retail-specific, it’ll need modifications to tailor it for a retail business. The one-size-fits-all model means you’ll be paying for features you don’t need. There aren’t many integrations, either.

Users pay an annual license fee for the core platform, the number of users, and optional modules—plus an implementation fee. (The setup takes 420 days on average, compared to Brightpearl’s 90.) You can add more modules and users for an extra charge.

That’s probably why reviewers say NetSuite is expensive, especially since you have to pay extra for full support. Users also mention the learning curve and difficulties with customization.

Infor offers a huge array of products, which can make it tricky to select the right one. For example, there are various ERPs for different industries. If inventory planning is your main concern, you’ll probably need the Infor Supply Chain Planning suite.

This includes modules for demand planning, supply planning, production planning and scheduling, inventory optimization, and integrated business planning. It’s designed to allow companies to create, manage, collaborate, and coordinate plans across their supply chain.

Infor helps with safety stock strategies, assortment management, and inventory optimization, and lets you synchronize production with demand. You can follow real-time changes to adjust forecasts. The system learns as new data becomes available and shows you how to respond to market shifts.

There are no plans or pricing displayed on the website, but some users mention that implementation can be costly. Reviews also cite a learning curve with lots of training needed.

SAP also has a wide product range, with at least two possibilities for inventory planning. There’s SAP Integrated Business Planning or SAP Cloud ERP (also referred to as SAP S/4HANA Cloud, available in public or private editions).

The IBP software encompasses supply chain-related financial forecasting and scenario planning, alongside statistical modeling, advanced demand sensing, and response management. Various plans are available within the product—inventory is listed separately from demand, and all are “price on request”.

SAP Cloud ERP offers live inventory management, warehouse management, transportation management, and personalized business insights. It helps you adapt to changes based on real-time usage and customer experience data​, and it allows you to integrate barcode and RFID technology.

No pricing information is shown, but reviews mention it’s expensive as well as complex to implement. Some users say it’s not very user-friendly, requires modification 4 , and that integration is tricky.

Blue Yonder

Blue Yonder’s product is called Luminate, which is divided into several categories. Luminate Planning describes itself as an end-to-end supply chain solution. This provides machine learning-based recommendations and predictive analytics, enabling you to see potential disruptions and opportunities, and to pivot your plans if needed.

The software also includes real-time order, shipment, and inventory status to inform your planning decisions. You can run scenarios, optimize your inventory, and coordinate order-to-delivery operations.

Seemingly a separate product, Luminate Commerce also has inventory planning and management capabilities alongside order fulfillment. And Luminate Logistics includes warehouse and transport management.

With no plans or pricing shown, it’s hard to know exactly what you’re getting, or if it’s possible to combine these solutions. Reviews mention a confusing interface and that the product takes a while to set up.

How to choose the right inventory planning tools

The features you want from an inventory planning solution will vary from business to business, so think carefully about current and future requirements. An all-in-one platform provides value for money, but be wary of non-specific ERPs that require customization and charge for elements you don’t need.

That brings us to ease of use—look for software that’s simple to set up and use, with fast implementation. It should also be easy to integrate popular platforms and favorite tools.

It’s important to have robust support, preferably included as standard. Discuss your requirements with the vendor before signing up, and ensure you know exactly what you’re getting. Brightpearl gives you retail-specific features, fair pricing, and a user-friendly interface.

Improving Inventory Planning With Technology

Inventory planning can be improved, aided, and enhanced with the right technology. ERP inventory control systems offer users versatile inventory planning control over various parts of the product lifecycle. From production in the factory, to storage in the warehouse and transit. However, implementing an ERP system is often a complex project that can take up years, and usually requires customized e-commerce integrations at extra cost. So it may not be the ideal option for e-commerce businesses that look to expand quickly. 

Though small businesses might be perfectly fine using Excel to manage their inventory, but can easily get overwhelmed by increasing order volumes and product SKUs when their businesses start to grow. 

Luckily, there are many inventory planning control software options on the market today that can be scaled for different business needs. In fact, many of these software companies offer fully customizable enterprise-level software solutions, things like:

• Location management
• Sales tracking 
• Barcode & POS capability
• Barriers to oversell 
• Multi-channel management
• Data-driven demand forecasting 
• Fulfillment planning 
• Inventory, sales channel, supplier and customer reporting
• Retail business intelligence

Mobilizing technology and real-time data insights will remain key to managing customer expectations in the years to come, coping with demand fluctuations and surviving through any future supply-chain disruptions. 

Digitizing our supply chains will help us future-proof our e-commerce platforms by speeding up business-critical processes and eliminating time-consuming manual tasks and decision making.

Introducing Brightpearl

Brightpearl offers a retail-tailored Operating System that is specifically built for omnichannel merchants and assists with retail inventory planning. Integrated POS syncs all your online and offline channels in real time for the ultimate in flexible and streamlined inventory management. 

In other words, for medium to large retailers managing multiple online sales channels, Brightpearl’s inventory management software is designed to enhance operational agility, boost sales, and meet (or rather, exceed) customer expectations with data-driven inventory planning and workflow automation . 

With this intuitive inventory planning tool, you’ll be able to manage your inventory across marketplaces like Amazon, your web stores like Shopify, BigCommerce, Magento , your physical stores and other major e-commerce platforms – all from one place.

Product performance analysis allows you to analyze products based on order volume, margins, revenue, and customer lifetime value to make intelligent data-backed business decisions.

In our fast-changing e-commerce ecosystem, you need to be armed with a system that can boost your operational agility to adjust quickly to any sudden market shifts, remain competitive and hold on to our customers throughout turbulent, fast-changing markets. 

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Approved Storage and Inventory Control Best Practices for F&B

Food & beverage, inventory control | reduce cost | storage control, table of contents, subscribe to nimbly digest.

Effective storage and inventory control are paramount in the food and beverage (F&B) industry to ensure smooth operations, minimize waste, and maximize profitability. In the F&B industry, storage control involves managing the storage of ingredients, perishable items, kitchen equipment, and other supplies essential for day-to-day operations. It encompasses maintaining optimal inventory levels, organizing storage spaces efficiently, and ensuring the freshness and quality of ingredients.

Proper storage control directly influences a restaurant's costs and profitability. By efficiently managing inventory levels and minimizing wastage, F&B businesses can reduce food costs, improve profit margins, and enhance overall operational efficiency. Conversely, inadequate storage control can lead to food spoilage, overstocking, increased expenses, and compromised quality. Let's explore some essential best practices to elevate your storage and inventory management game in the F&B realm.

1. Implement FIFO (First In, First Out) Methodology

FIFO isn't just an accounting term; it's a golden rule in F&B storage management. By prioritizing the use of older inventory items before newer ones, you minimize the risk of food spoilage and wastage. Train your staff to organize storage areas accordingly, ensuring that perishable items are rotated appropriately.

Example: Let's say your restaurant receives a shipment of fresh produce, including lettuce, tomatoes, and cucumbers. Your kitchen staff adheres to FIFO by placing the newly arrived crates behind the existing ones in the storage room. When preparing salads or sandwiches, they reach for the older produce first, ensuring that nothing goes to waste. This leads to improved cost management and higher customer satisfaction due to the freshness and quality of your dishes.

2. Invest in Quality Storage Equipment

Your storage equipment is the backbone of your operation. Invest in commercial-grade refrigerators, freezers, and shelving units that can withstand the demands of a busy kitchen while maintaining optimal temperature and humidity levels. Quality equipment not only preserves food freshness but also extends shelf life, reducing unnecessary waste.

Example: You decide to upgrade your restaurant's refrigeration equipment to commercial-grade units with adjustable shelves and temperature controls. With these new appliances in place, perishable ingredients like dairy products and meats stay fresh longer, reducing the frequency of food spoilage and resulting in significant cost savings over time. This results in significant cost savings over time and maintains the reputation of your restaurant for serving high-quality, fresh ingredients.

3. Embrace Labeling and Organization

Clear labeling and organization are your allies in the battle against chaos. Implement a systematic labeling system for storage containers, shelves, and bins to facilitate easy identification and access to ingredients. Take it a step further by categorizing items based on usage frequency and grouping similar items together for efficient retrieval.

Example: Your kitchen manager implements a color-coded labeling system for ingredient containers and storage shelves. Green labels indicate items with a longer shelf life, while red labels signal perishable items that need to be used first. This streamlines operations, minimizes food waste, and improves overall kitchen organization, contributing to smoother service and higher productivity.

4. Conduct Regular Audits and Inspections

Routine audits and inspections are your proactive measures to ensure storage compliance and food safety. Schedule regular walkthroughs of storage areas to check for cleanliness, temperature consistency, and adherence to food safety protocols. Encourage staff to report any issues promptly, fostering a culture of accountability and continuous improvement.

Example: Every Monday morning, your head chef conducts a comprehensive walkthrough of the restaurant's storage areas. During the inspection, they check temperature logs, inspect food packaging for signs of damage or expiration, and ensure that storage shelves are clean and well-organized. Any discrepancies or issues discovered are promptly addressed and documented for follow-up action.

5. Leverage Technology for Enhanced Control

In today's digital age, technology is your ally in streamlining storage and inventory management processes. Explore inventory management software solutions equipped with barcode scanning, real-time tracking, and automated reporting functionalities. These tools empower you to monitor stock levels, track ingredient usage, and make data-driven decisions with ease.

Example: You invest in inventory management software equipped with barcode scanning capabilities. When new inventory arrives, your staff scan each item's barcode to update the digital inventory database in real-time. This automated process eliminates manual data entry errors and provides accurate, up-to-date information on stock levels and usage patterns.

Read more about how big brands like KFC implemented these technologies in the link below.

Case Study | F&B

Driving operational excellence in kfc and taco bell indonesia, 6. optimize space utilization.

Space is a valuable commodity in any F&B establishment. Maximize your storage space by utilizing vertical shelving, stackable containers, and custom storage solutions tailored to your kitchen layout. Organize storage areas strategically, keeping frequently used items within easy reach while relegating less-used items to secondary storage spaces.

Example: To maximize storage space in your restaurant's walk-in refrigerator, your team installs adjustable wire shelving units that can be customized to accommodate containers of various sizes. They also designate specific areas for different categories of ingredients, such as meats, dairy, and produce, to streamline inventory retrieval and minimize clutter. This enables faster retrieval of ingredients, reduces time spent searching for items, and increases overall kitchen productivity, leading to smoother operations and improved customer service.

7. Train and Empower Your Team

Your staff are your frontline warriors in the battle for efficient storage and inventory control. Provide comprehensive training on storage procedures, food safety protocols, and equipment operation to ensure everyone is on the same page. Encourage open communication and empower your team to take ownership of storage responsibilities, fostering a culture of collaboration and accountability.

Example: As part of their onboarding process, new kitchen staff undergo comprehensive training on storage and inventory control procedures through their company Learning Management System . They learn how to properly handle and store ingredients, follow food safety protocols, and use equipment effectively. Regular refresher training sessions are conducted to reinforce best practices and address any emerging issues or concerns. This reduces the risk of errors, accidents, and food spoilage, resulting in smoother operations, higher food quality consistency, and enhanced customer satisfaction, ultimately driving repeat business and revenue growth.

In the dynamic world of F&B operations, mastering storage and inventory control is non-negotiable for sustained success. By implementing these best practices and embracing technology, you can optimize your storage processes, minimize waste, and delight customers with consistently high-quality products and services. Remember, effective storage and inventory control are not just tasks; they're the cornerstone of operational excellence in the F&B industry.

Also read: Stop Losing Out: 4 Incredible Benefits of Waste Management Exposed!

Make Your Storage Control More Accurate

It becomes vitally important to have excellent systems in place for your restaurant industry to continue to survive in this day and age. Suppose you're still using pen and paper techniques for inventory control. In that case, it's the right time to invest in software to streamline the process. Nimbly is one such automated system with a mobile app.

Nimbly comes with a Digital Routine that allows you to digitalize your paper-based checklist and transform them into insights that everyone in your team with authority can access. Nimbly’s app also features Geo-fencing, where you need to be at the exact storage location to perform storage or inventory control inspections.

The validation has become more robust because it also requires the auditor to capture a photo or video at the exact location. It can also validate any variances so that follow-up actions can be done accurately. With Nimbly, gaining accurate data on storage control inspection is no longer a taxing task.

Learn how Nimbly can assist your business today

Delivering consistent high quality customer experience across 450+ stores worldwide, how is indonesia's top fashion brand with 300+ stores streamlining its high quality operations, upholding quality standards in indonesia's expansive retail network of 150+ stores, setting the customer satisfaction standard in pre-unicorn coffee chain company, the challenges and solutions to food safety for f&b industry in sea, how ai is transforming the retail industry, express food group's operational strategy in the covid era, prima food solutions saves 74% in operational costs with nimbly.

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Inventory Control Software Business Plan

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Royal's Software

Executive summary executive summary is a brief introduction to your business plan. it describes your business, the problem that it solves, your target market, and financial highlights.">.

Royal’s Software has embarked on an ambitious plan to create a new software product, Royal’s Inventory Basic–a scalable inventory software product. The new product is scheduled to be released in May and will be sold by Pursuit Solutions.

Pursuit Solutions, a $50 million company hardware integration reseller, will distribute Royal’s Inventory Basic to over 1,100 Valued Added Resellers (VARs). The product will sell for $2,499. Royal’s Software will receive $1,250 on each unit sold. It is projected that Pursuit Solutions will sell 250 units by month six. It is projected that Royal’s Software will gross $313,000 from sales the first year.

A critical component of software sales will be tech support and product modifications. Royal’s Software projects $63,200 in product modification by the end of six months.

In addition, Royal’s Software has entered into a business agreement with Pursuit Solutions and Johnson and Roe (CPA firm) to create a MAS 90 portable data collection interface that will be sold to accounting firms. The software product has been in development over the past ten months.

John Royal and Dan Whiteaker have been an integral part of the product development. MAS 90 is not a packaged product, rather it is bundled with software customization services ($2,000-$3,000) that will be performed by Royal’s Software. This software product will sell for $2,500.

Royal’s Software will receive 1/3 of gross sales ($833). It is projected that Royal’s Software will gross $500,500 by May of next year from product sales and customization services.

The two co-owners of Royal’s Software, John Royal and Dan Whiteaker, will each invest $50,000. In addition, the company will obtain a $100,000 short-term loan.

1.1 Objectives

The objectives of Royal’s Software are as follows:

• Establish the company as a leader in inventory software products.
• Increase sales by 20% each year.
• Develop one new inventory product per year.

1.2 Mission

The mission of Royal’s Software is to create inexpensive inventory software that will be scalable, so customer modification can be easily added.

1.3 Keys to Success

The ability to produce products on time and on budget, that meet the user’s needs and specifications.

Company Summary company overview ) is an overview of the most important points about your company—your history, management team, location, mission statement and legal structure.">

Royal’s Software creates scalable inventory software products that can be customized to meet customer’s needs. Royal’s Software is unique in that it sells a product that can be used in any inventory environment. The engineers can then add enhancement to the product that will tailor the product features to the customer’s specific needs.

2.1 Company Ownership

Royal’s Software is owned by John Royal and Dan Whiteaker. The company will be set up as a C Corporation. It is expected that this form of incorporation will allow room for growth and an exit strategy of selling the business in five to seven years.

• John Royal has ten years of experience as an application software developer for Rogue Wave Software. John was the Lead Developer for New Products for the last four years. He was the principal designer of Rogue Wave’s Ace Software Suite.
• Dan Whiteaker has seven years of programming experience with Rogue Wave Software. Dan assisted the Ace Software Suite Development Group. He lead the Customer Modifications Group for the past two years.

2.2 Start-up Summary

The following is the start-up summary for Royal’s Software. As is typical for software companies the largest portion of start-up funds will go towards product development.

Royal’s Software products and services include the following:

• Royal’s Inventory Basic.
• MAS 90 portable data collection interface.
• Custom Modification Royal’s Inventory Basic.

In addition to selling software, the company will provide extensive customization services to meet the unique needs of its business customers.

Market Analysis Summary how to do a market analysis for your business plan.">

Software products for inventory management are a $1 billion dollar industry. The lions share of the sales are with the largest companies with billions of dollars of inventory. This is where there is the greatest competition between inventory software products.

This category of the industry also faces competition from the enterprise resource planning software vendors. At the low end, with small and emerging businesses, there is very little competition.

Usually, the smaller businesses will spend no more than $5,000 on an inventory solution which will include software and hardware. Royal’s Software believes this a tremendous opportunity for a software product with a $2,500 price tag.

Another opportunity area is the growing demand for software interfaces that improve the portability of data. The interface improves the ability of businesses to move data between systems. In an age where new management products are introduced each year, a company’s ability to move its data quickly and efficiently is becoming essential to a successful business.

MAS 90 portable data collection interface is designed to be used by accounting firms to improve the portability of data the firms stores for customers.

4.1 Market Segmentation

Royal’s Software is targeting small- and medium-sized businesses. Specifically it will focus on these two target groups:

• Smaller businesses that will spend no more than $5,000 on an inventory solution, including software and hardware.
• Accounting firms demanding MAS 90 portable data collection interface.

Strategy and Implementation Summary

During the first two months of operation, the company will focus on completing and testing beta copies of Royal’s Inventory Basic and the MAS 90 portable data collection interface. Sales will begin in May and grow steadily for the next 10 months.

5.1 Sales Strategy

Royal’s Software will not do any direct selling, instead it will work closely with Pursuit Solutions’ VARs to sell and service Royal’s Inventory Basic. The two owners have existing relationships with a number of VARs through their existing positions, and since this product is unique in its price range, it is not expected that it will be difficult to find VARs to represent it.

MAS 90 customers will be developed by the CPA firm, Johnson and Roe. It is projected that the MAS 90 product will have over a 100 customers by June of 2003. A large number of small- to medium-sized businesses use MAS 90 in their dealings with Johnson and Roe, and it is expected that sales will be healthy through this channel.

5.1.1 Sales Forecast

The following is the sales forecast for the next three years.

Personnel Plan

The current staff of Royal’s Software are the two co-owners of the company. The owners have been working on developing the product on their own time over the past year, are beta testing the product and now feel that they are only a couple of months away from having a final product. It is envisioned that Royal’s will need to ramp up significantly as sales take off and they are pulled away from product development and support in order to run the company. Three new hires are planned in March to meet the anticipated demands of software sales. The following positions will be filled:

• Application Engineer (1)
• Support Engineer (1)
• Technical Support Staff (1)

To keep fixed costs to a minium and to keep existing technical staff committed to the development of new products, much of the customization will be done by outside consultants. This expense is illustrated in the profit and loss table.

In addition, we will not have large sales and marketing costs, because VARS will take on this role on our behalf, and their large commissions shall reflect this.

Financial Plan investor-ready personnel plan .">

The following is the financial plan for Royal’s Software. The plan includes:

• Break-even point;
• Projected profit and loss;
• Projected cash flow;
• Projected balance sheet.

7.1 Break-even Analysis

The estimated monthly fixed cost and monthly break-even point are shown below.

7.2 Projected Profit and Loss

The following table and charts highlight the projected profit and loss for the next three years.

7.3 Projected Cash Flow

The following table and chart highlight the projected cash flow for the next three years.

7.4 Projected Balance Sheet

The following table highlights the projected balance sheet for the next three years.

7.5 Business Ratios

Industry profile ratios based on the Standard Industrial Classification (SIC) code 7372, Prepackaged Software, are shown for comparison.

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Related Pages

• Inventory Management Guide
• Digital Inventory
• Inventory Control
• Inventory Forecasting
• Inventory Management Software
• Inventory Optimization
• Inventory Revaluation
• Inventory Tracking
• Inventory Visibility
• Lot Tracking
• Real-Time Inventory Management
• Warehouse Inventory Management

Inventory Management & Maintenance Guide

Everything you need to know to stay on top of the inventory management process..

Managing inventory strategically has never been more important, and it only gets more challenging as you grow in both product development and units sold.

So, what do you want to learn?

• Introduction To Inventory Management
• Inventory Management Techniques
• Inventory Management System
• Best Inventory Management Software

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What is inventory management?

Inventory management is the management and monitoring process of a company’s stocked goods (inventory). Inventory management is vital for supply chain management in online, omnichannel, and brick-and-mortar businesses, and includes ordering and restocking inventory, storing inventory, adjusting frequency, order quantity, and  inventory forecasting  for the final point of sale.

Why is inventory management important?

Managing inventory the right way is crucial, especially for growing ecommerce businesses. Here’s why.

1. It ensures you never run out of stock

Part of inventory management is figuring out how much inventory you should have on hand at all times. Too much inventory, and you risk ‘ dead stock ’: inventory that can no longer be sold due to being outdated. Too little, and you’ll run out of stock, fail to meet customer demands, and miss out on potential sales.

By using a  reorder point formula , you can ensure that you keep an eye on your inventory so that it doesn’t dip below a critical level. (More on this later.)

2. It helps you save money on storage

Too much inventory can result in too much money spent on storage space. Storing inventory is a variable cost — it’s based on how much space your  beginning inventory  takes up at any given time. When you have more product on hand than you need, you end up paying more for  inventory storage . Being smart about inventory levels can help you reallocate those funds.

3. It prepares you for the unexpected

It pays to be prepared. Do you know what you’d do if any of the following supply chain mishaps took place tomorrow?

• You unexpectedly sell out of a product
• You miscalculate your storage needs and run out of space
• Incoming inventory from the manufacturer is delayed
• You run into a cash flow issue and can’t purchase more inventory

Strategic  inventory solutions  can help you get out of these sticky situations.  Tracking inventory  over time and having contingency plans in place for potential inventory problems will prepare you for situations that would otherwise seriously impact your business.

4. It shows trends in customer behavior

Keeping track of what inventory sells like hotcakes versus what ends up covered in metaphorical cobwebs can share some important insight about what your customers are — and aren’t — into. You can also gauge the success of prior promotions or product launches by assessing inventory levels before and after those events.

5. It predicts the future

Well, kind of. Good inventory management lends itself to good inventory forecasting, which can help you predict and plan for demand. You can leverage past inventory trends on a monthly, seasonal, or SKU-by-SKU level to better prepare for future levels of sales and demand. Make sure to keep any planned marketing promotions or new product launches in mind, too.

6. It helps you track costs of goods sold

Inventory accounting  is when you track and account for changes in the value of inventory over time as it relates to manufacturing and costs of goods sold. If you don’t have an accurate method for keeping track of the value of your inventory, you can’t properly value your assets or goods sold and budget for the inventory you need to buy for your business.

10 crucial inventory maintenance techniques

There are countless inventory management techniques to employ, but here are some of the basics that ecommerce teams need to get right in today’s world.

1. Set reorder points

Also called par levels, reorder points are the minimum quantity of each product that must be on hand that signals it’s time to order more inventory in order to prevent stockouts. When your inventory level hit the reorder point, it’s time to order more products from your manufacturer.

To calculate reorder points for your products, add up the following (in days):

• Your manufacturer’s lead time for sending inventory to your fulfillment center
• Your  retail fulfillment  provider’s receiving turnaround time (if applicable)
• A recommended “ safety stock ” of at least 14 days in case of a sudden demand spike

Then, multiply the sum of 1, 2, and 3 by your average units of the product sold per day. This number is your reorder point.

Although it requires some math upfront, setting reorder points will help streamline and take the guess out of restocking inventory.

Make sure that you check your reorder points over time and adjust as necessary, especially before peak times like the holidays when you’re likely to need more  holiday inventory  on hand. At this time, you might need to increase both your reorder points and  reorder quantity .

2. Use the FIFO approach

“First-in, first-out,” aka FIFO, is an inventory management principle that means that your oldest inventory (first-in) gets sold and shipped out first (first-out). This is especially important if you’re selling perishable products or those with expiration dates.

Even if your goods are shelf-stable, FIFO can still be a good strategy. Because packaging, design and branding, and product features tend to change over time, it’s important to change out inventory so you don’t end up with obsolete products.

If you’re storing inventory and fulfilling purchase orders in-house, you’ll have to monitor this manually. If you’re outsourcing to a third-party logistics (3PL) provider, they’ll likely be able to implement a FIFO system for you.

3. Regularly audit your inventory

While auditing  physical inventory  is often tedious, it’s important to check actual inventory levels against the amount of inventory you have listed electronically. If you work with a third-party provider, you’ll probably be relying on their software system and reporting to keep track of inventory levels. However, it’s important to make sure that the system’s numbers match up with your physical stock.

Spot checking can be a more manageable way to keep  inventory audits  under control in between full physical inventory audits. This means choosing a specific product, counting the number of units on hand, and comparing it to the number of units listed in the system or  inventory sheet .

This is especially helpful if you have a large product catalog with lots of different SKUs. Inventory management technology can help simplify this process by prompting a spot check when the system marks the product stock as zero.

After checking your inventory levels, it’s important to have regularly updated backups of this data. This can be as simple as exporting the data from your inventory management software to a CSV file at least once per week. Additionally, you can set up automatic backups of the inventory levels provided in your ecommerce platform using apps like  this one .

4. Maintain a relationship with your suppliers

Choosing the right manufacturer is a huge step for growing businesses to find the most cost-effective and efficient partner that can help elevate growth. But finding the right supplier for your business is just the beginning. Maintaining a good relationship with your manufacturer will ensure they’re a partner in inventory management rather than an obstacle.

Make sure to  communicate frequently  with your manufacturer, especially when you’re anticipating an increase in sales or they’re running behind schedule on production.

If you have inventory quality issues, a product that won’t sell, a product that sells out more quickly than anticipated, or any other situation that calls for production adjustments, having a good relationship with your supplier will help your  retail supply chain  run more smoothly.

5. Use inventory management software

Software that is specifically designed to help you manage your inventory, whether in-house or in a 3PL’s warehouse, can help avoid losing money from unsold products,  inventory reports  on stock levels and trends in real-time, and offer suggestions for inventory distribution. It can also help automate several of the techniques above, saving time and potential human errors for your business.

“We have a Shopify store but do not use Shopify to track inventory. In terms of tracking inventory, we use ShipBob for everything — to be able to track each bottle of perfume, what we have left, and what we’ve shipped, while getting a lot more information on each order.” Ines Guien, Vice President of Operations at  Dossier

6. Inventory tracking  

Knowing which SKUs you have in your possession, their locations in storage, and the quantities available at each location is mission critical for ecommerce brands. Real-time inventory management involves implementing technology that enables the ability to track inventory flow , and view and manage inventory levels throughout the ecommerce supply chain on demand. 

This level of inventory visibility is the first inventory management technique to nail, as without it, you can’t measure efficiency and improvements, know when to order more products, or refine your strategy as you grow. 

7. Inventory optimization 

The right tools, technology, processes, and infrastructure can help you not only forecast demand and optimize storage but also understand when you should expand into another fulfillment center, or even in new markets.

Inventory allocation involves strategically tracking inventory levels across a distribution network to meet customer demand efficiently, while accounting for each unit sold across each channel and fulfilled from each location.

With global supply chain shortages, manufacturer shutdowns due to COVID outbreaks, and rising costs, diversifying your supplier or manufacturer mix is another great way to optimize inventory control and reduce risk.

8. Add items to your product range

Once you’ve optimized your inventory, you should be able to understand whether it makes sense to expand your product line by selling complementary or supplemental products. Common examples include introducing a best-selling item in a variety of new colors, or expanding from selling just peanut butter, to a variety of jellies and jams. 

SKU proliferation refers to the process of adding more products to your inventory based on changes in the market and to attract more buyers to increase your sales.

9. Reduce the number of products you sell

One of the best things some brands can do to optimize inventory management is to cut back on the products they sell (yes, you read that correctly!). 

SKU rationalization is the process of identifying whether a product at the SKU level should be discontinued due to declining sales and overall profitability. 

By understanding this, in addition to having the ability to track inventory performance, you can focus on your fastest-moving products and double down on profitability. 

10. Measure everything 

Inventory analytics are metrics that gauge the movement and performance of your physical products. The ongoing assessment and evaluation of inventory provides:

• The insights needed to optimize stock availability to meet demand while keeping storage costs to a minimum (including COGS, inventory turnover, revenue, internal processes, and more)
• The ability to help reduce risks and common challenges related to inventory, such as stockouts or accumulating dead stock
• Data to operate more efficiently, optimize cash flow, and increase profitability
• Information on whether your operations are improving or getting worse 

Check out our 15 most valuable inventory KPIs to keep track of and example Inventory reports .

Why do I need an inventory management system?

An inventory management system is a necessity for growing ecommerce businesses. Here’s why.

View real-time inventory counts at the SKU level

With inventory tracking software in place, your orders and inventory are synced in real-time. At any given time, you can view the status of inventory you send to various partners, the quantity on hand at your storage facility, and total units sold per day. This provides reassurance and visibility into what is available to ship to your customers, as well as the real-time impact of promotions and product launches.

Automate reorder notifications to prevent stockouts

Using historical data, inventory management software can help project when you should order more inventory to prevent stockouts. This helps take the guesswork out of reorder points. Some  inventory systems  also allow you to set reorder notification points that automatically alert you to restock.

Run reporting on inventory trends and forecasting

Inventory software can automate reporting on product trends and inventory forecasting for your retail business.

An inventory management solution can help you better predict future demand and sales. Monitoring which products are purchased together can help you understand your customers’ behavior and help you decide how to group your products for new offers or promotions. You may find patterns of how one SKU drives demand for another. You can also monitor the inventory you have on hand and units sold per day, run reports to see which SKUs and sales channels are your highest sellers, and see which products aren’t as popular, costing you higher  warehousing  fees. This can save business owners money in the long-run and keep  inventory carrying costs down .

Best inventory management software

There’s no one-size-fits-all inventory management system; every small business or large corporation has different needs, especially when it comes to ecommerce. Here are some of the most popular  inventory management software  for online stores.

ShipBob is not a standalone inventory management system, but rather an  order fulfillment solution  that has inventory management software built in. Merchants get the tools, guidance, and reporting necessary to efficiently manage their inventory across multiple stores and ShipBob’s  fulfillment centers .https://www.youtube.com/embed/YdTbM4XlizY?feature=oembed

Inventory tracking tools are included at no extra cost for merchants who use ShipBob to fulfill orders. Having order fulfillment synced up with inventory management helps  optimize your supply chain  and keep data and reporting in one place.

Some businesses — especially enterprise retailers who have been operating for many years — choose legacy providers like SAP to track inventory. These include  warehouse management  and enterprise resource planning systems (WMS and ERP respectively).

Many WMS and ERP systems use legacy technology. While these systems record and manage stock levels, there is not always an automation or optimization component. These options also tend to be expensive, incurring significant overhead in exchange for limited functionality, thus geared toward very large companies.

The different types of inventory

There are many statuses or types of inventory depending on the phase of the lifecycle it’s in. Below is a breakdown of a few common types of inventory throughout the supply chain.

Raw materials

These are your materials or ingredients that come together to eventually make up a product you sell. Also known as production inventory, or manufacturing inventory, they get transformed into end products during the manufacturing process. These are different from partially-finished and finished goods.

Work in process (WIP) inventory 

Work in process inventory refers to partly finished materials within any production round, or the total cost of unfinished goods currently in production. WIP inventory is considered an asset on a company’s balance sheet. They are different from finished goods.  

Finished goods

These are your final products that are done being manufactured and are ready to be sold to your customers as-is.

Supplies or MRO goods

The difference between supplies and inventory is:

• Supplies or MRO goods (maintenance, repair and operation supplies) are the items that you use to run your daily operations. They aren’t necessarily a component of the finished products that are sold to customers, but they play an essential role in your business function (e.g., cleaning supplies, office equipment, etc.).
• Inventory, on the other hand, refers to the raw materials that will be transformed into finished goods, and the finished goods themselves that are sold to the end customer.

Why outsource inventory management to a 3PL?

You may think that outsourcing inventory storage and ecommerce order fulfillment to a  3PL provider  means turning inventory management over to them. In reality, a good 3PL partner provides merchants the tools, data, and transparency they need to manage their inventory efficiently and cost-effectively.

“Off the bat, I liked that I would be able to control multiple warehouses through one page with ShipBob. With my old 3PL, I could never just open a page and get the info I wanted. I had to click several times, then export it, and try to make sense of it. ShipBob lets you manage your inventory while providing important data in a very digestible way.” Wes Brown, Head of Operations at  Black Claw LLC

Inventory management involves much more than just warehousing your products. Fulfillment and inventory management go hand in hand. Here’s how a 3PL helps you manage your inventory.

Sync SKUs and orders from your store

A  tech-enabled 3PL ’s software seamlessly integrates with all major ecommerce platforms and marketplaces. This enables merchants to connect their store in just a few clicks without needing a developer.

Connecting these channels provides a cohesive view of all orders, inventory, fulfillment centers, sales channels, and customers in one place. You can easily pull over all of your SKUs from your store into your 3PL’s system. And as you add new products, you can easily sync your new SKUs.

“We roll out new products and designs on our website 1-3 times a month and send new inventory to ShipBob each week. It’s really easy to create new SKUs and restock existing ones using ShipBob’s technology, which is especially important with high inventory turnover.” Carl Protsch, Co-Founder of  FLEO Shorts

View real-time inventory counts

Once your 3PL has your inventory at their fulfillment centers, you can check the quantity on hand and units sold per day at any given time for direct visibility into what is available to ship to your customers.

For instance, from the ShipBob dashboard, you can:

• Visualize SKU velocity and days of inventory remaining on hand.
• Input changes in projected order volume or scenarios to calculate changes in inventory turnover.

This type of real-time visibility allows you to view historical inventory levels and how much inventory is remaining at each  distribution center :

“So many 3PLs have either bad or no front-facing software, making it impossible to keep track of what’s leaving or entering the warehouse. On the supply chain side, I just throw in what we placed at the factory into a WRO in the ShipBob dashboard, and I can see how many units we have on-hand, what’s incoming, what’s at docks, and so on. I can see all of those numbers in a few seconds, and it makes life so much easier.” Harley Abrams, Operations Manager of  SuperSpeed Golf, LLC

Proactively reorder inventory

Tech-based fulfillment uses historical data to help project when you should reorder inventory to prevent stockouts and  backorders . You can set reorder notification points for the stock levels at which you want to be automatically reminded to restock.

For instance, SHipBob provides access to daily inventory history data at any point in time. You can search by item, filter by specific lot number, and account for inventory in transit:

This helps you connect the upstream activities of purchasing and manufacturing to the downstream activities of sales and product demand, ultimately helping you make more accurate purchasing and production decisions to save on inventory and  logistics costs .

Store inventory in strategic locations

If your 3PL has multiple fulfillment centers, they should be able to help you determine the optimal fulfillment center locations based on your customers’ shipping destinations.

Your customers most likely don’t all reside in one geographic area. Using one fulfillment center can make it difficult to efficiently reach the majority of people who buy from you. Instead,  distributing your inventory  to major hubs or cities can ensure you ship to lower  shipping zones , delivering orders more quickly and at a  reduced shipping cost .

Each time an order is placed on your online store, the 3PL’s  order management system  will automatically choose the fulfillment center closest to the end customer to draw inventory and ship the order. Additionally, if you run out of inventory at one fulfillment center, you’ll have backup at another.

For instance, ShipBob makes it easy to  optimize inventory  distribution. By aggregating historical order data, you get an analysis of which fulfillment centers you should stock to best leverage ShipBob’s network of fulfillment centers for the most cost-effective and fast deliveries (see example below).

Discover trends to drive growth

As we mentioned above, having accurate insights about your customers’ purchasing trends can help you figure out the  optimal inventory levels  for your products.

For example, understanding which products aren’t selling but instead incurring storage costs — as well as those that are selling more quickly than you can keep them in stock — can empower you to make better supply chain decisions.

Some 3PLs provide built-in reports that let you view a trend analysis of your products and give you more control of your inventory and the key metrics that drive business growth. These include peak fulfillment times, revenue of orders shipped by day, sales by channel, and sales and quantity of orders by USPS shipping zone.

Control how products are grouped

A 3PL’s technology gives you the power to select how you group your warehouse inventory. This includes:

• Bundling your products for promotions
• Merging the same product across multiple sales channels
• Separating inventory by lot numbers and expiration dates to comply with regulations and be able to act promptly and effectively in the event of a recall. (This also helps with the FIFO technique we talked about earlier.)
• Kitting items to assemble them a certain way  before they are shipped to customers
• Preparing orders to send in bulk or transfer inventory

Today,  outsourced order fulfillment  often means receiving the tools needed to manage inventory from within their warehouse(s). A good 3PL shouldn’t be a cost center but rather a partner that helps prevent stockouts and can accurately  forecast demand  to increase sales and reduce storage costs.

Request a fulfillment quote from ShipBob to learn how we manage your inventory and order fulfillment for you.

Inventory management and maintenance glossary

Below is a handy table summarizing several basic inventory management terms you’ll come across. 

Below are some inventory accounting and inventory valuation terms as well:

Inventory management affects every aspect of a business’s operations. Choosing the right inventory management system and techniques can help your business save money, meet customer demand, and stay efficient and effective in the fast-moving ecommerce landscape.

If you’re in need of a 3PL that will help you manage your inventory in real-time, check out ShipBob. With ShipBob’s technology and network of fulfillment centers, you can manage inventory and order fulfillment efficiently and effectively from one central platform.

Inventory management FAQs

Now that you’ve gotten more familiar with managing inventory for an ecommerce business, here are some frequently asked questions you may want to know.

How do I know when to reorder inventory?

Calculate reorder points either manually or through your inventory management system’s software. Some  inventory management software  allows you to enable automatic reorder notifications when stock drops below the designated reorder point.

How do I know how much inventory to order?

Stocking the right amount of inventory is a delicate balance you have to strike. If you order too much inventory, you’ll end up with extra stock for which you have to pay for storage; too little, and your customers will look elsewhere.Analyzing historical data and trends from previous months will help you determine how much stock you’ll need moving forward. If you’re launching a new product, make sure to clear storage space for excess inventory before it arrives.

How do I deal with stockouts on my store?

If you frequently find your products selling out, make sure that you order a higher quantity of inventory the next time you restock. If you’re in the situation where you’ve run out, keep customers in the loop on when they can expect your product to be back in stock by displaying  inventory restock  dates on the product page and offer them the option to be notified when it’s back in stock.

How do I plan for seasonality?

Seasonal variations in supply and demand can put a lot of pressure on a growing business. If your business has been around for over a year, analyzing previous years’ seasonal trends can help you plan properly for upcoming seasonality.If your business is brand new, you can research seasonal trends in your industry to help you form predictions. For example, if your product is meant for winter use only, you’re likely to find that demand is highest just before and during the winter months, while you’ll want to have less stock on hand in the summer.

How do I manage inventory in multiple warehouses?

If you are operating several of your own warehouses or inventory storage locations, make sure to set up a WMS and inventory management system that allows you to keep track of inventory across locations. Having the right technology in place can streamline in-house inventory management.

If you  outsource supply chain management  and the warehouses are all owned and operated by the same 3PL, they should be able to provide visibility into all of your orders, stock levels across fulfillment centers, and shipments in one place.

If your inventory is stored in warehouses operated by several different fulfillment providers (e.g., in different countries), an inventory management system can help you manage all sales channels, locations, and currencies to streamline inventory control from a single dashboard.

What is a SKU?

A  SKU, or Stock Keeping Unit , is an alphanumeric code number assigned used to identify a product. The code represents different product characteristics, such as color, size, and brand.  Each product variation is assigned a SKU, and the SKU is used to keep track of inventory (e.g., a Large red shirt is a different SKU than a Medium red shirt, and thus, should be stored in a separate location).

What is inventory turnover?

An inventory turnover ratio measures how quickly your company is selling inventory. It can be a useful comparison to industry averages to measure the strength of your company’s sales volume and performance. Knowing your  inventory turnover rate  can provide valuable insight into how your company manages inventory, sales, and costs.

ShipBob offers outsourced fulfillment and a WMS if you have your own warehouse. Request a quote by filling out the form.

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• All Products
• Supply Chain Management
• SAP Extended Warehouse Management

SAP Extended Warehouse Management (SAP EWM)

What is SAP EWM?

A modern warehouse must respond quickly to changing business conditions. With our modern, flexible warehouse management system (WMS), you can manage a high volume of goods and run sustainable, risk-resilient operations with digitalized warehouse processes in the cloud.

With SAP EWM, you can manage high-volume warehouse operations and integrate complex supply chain logistics with your warehouse and distribution processes, delivering high levels of visibility and control.

• Comprehensive warehouse solution
• Fully integrated quality, production, and track-and-trace processes
• Direct control of warehouse automation equipment
• Intelligent slotting rules to optimize space utilization

Scaling up while maintaining quality

Learn how Dis-Chem navigates expansion with SAP Extended Warehouse Management.

Register now

SAP EWM benefits

Reduce inventory and labor cost.

Speed fulfillment by optimizing resources and heading off problems before they impact operations. 

Increase process and stock transparency

Spot risks, avoid disruptions, and see deep into operations with stock, resource, and process transparency. 

Improve space utilization

Identify available space and use it to drive costs down, speed fulfillment, and optimize inventory.

Sustainability at SAP

Move toward zero emissions and waste with SAP Sustainability solutions.

Start your journey

See how customers are succeeding with SAP EWM

• View all customer stories

See what analysts are saying about SAP

Build speed and sustainability into supply chain logistics.

Read the Oxford Economics survey to learn how faster, reliable, personalized, and sustainable delivery is transforming logistics.

Transforming the modern WMS landscape

See why Gartner® named SAP EWM in its Magic Quadrant™ for Warehouse Management Systems.*

* Gartner, Magic Quadrant for Warehouse Management Systems, Simon Tunstall, Dwight Klappich, Rishabh Narang, Federica Stufano, 2 May 2024

GARTNER is a registered trademark and service mark of Gartner, Inc. and/or its affiliates in the U.S. and internationally, MAGIC QUADRANT is a registered trademark of Gartner, Inc. and/or its affiliates and are used herein with permission. All rights reserved.

Gartner does not endorse any vendor, product or service depicted in its research publications, and does not advise technology users to select only those vendors with the highest ratings or other designation. Gartner research publications consist of the opinions of Gartner’s research organization and should not be construed as statements of fact. Gartner disclaims all warranties, expressed or implied, with respect to this research, including any warranties of merchantability or fitness for a particular purpose.

This graphic was published by Gartner, Inc. as part of a larger research document and should be evaluated in the context of the entire document. The Gartner document is available upon request from SAP.

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Keeping track of your business inventory, whether it's stock to sell to customers or key assets for your business, is very important. Using Excel makes this task easier. You can use a free downloadable template or build out your own, helping you save time and stay on top of your inventory.

What will I learn?

How to find an inventory template

How to set up basic column headers

Common Excel features to use to help with inventory tracking

What do I need?

Excel (web or desktop)

1. Find an inventory template

Before you start to create your own inventory in Excel, it's a great idea to check out some of the existing templates that you can download and use. These templates can be changed to work however you need.

Open Excel or if Excel is already open, select File > New .

In the search box, type "inventory" or something similar.

Once you've found the one you like, select Create .

The template will open in Excel. Start to use it as-is or make updates to the template for whatever you need.

Looking for other templates? Go to create.microsoft.com and find tons of different templates for Microsoft 365 apps.

2. Set up basic column headers

Maybe the most important part of an inventory list to help you track everything is choosing the right column headers. It's impossible to know what your specific business needs are, but there are some common column headers that we recommend using. Here's a list with some descriptions of each:

Inventory ID - use this to create a unique ID for your items.

Item name - the name of the items. Inventory IDs help distinguish between similar items or replacement items when an item is discontinued and a new version replaces it.

Item category - category for the item, such as "Accessory".

Quantity in stock - quantity currently in stock for that specific item.

Cost per item - this could be used as your business cost per item or it could be the current price of an item. You might want to add an additional column to track both if that's needed.

Total inventory value - quantity in stock multiplied by the cost per item. It's useful to use a simple multiplication formula so that Excel automatically calculates this as your quantity changes or the cost per item changes.

Reorder limit - use this to set a limit for when you should reorder an item before it becomes out of stock.

Last Reorder date - keep track of when the last time you ordered an item to refill stock. It can be useful to know, especially if you're frequently reordering certain items, which can lead to you increase your Reorder limit.

Discontinued - it can be helpful to track when you no longer carry an item in your inventory.

Notes - add any extra information you want to keep track of or someone should know, like if it's challenging to reorder certain items from suppliers.

3. What else should I know in Excel to help me?

Excel is a powerful tool that can transform your work and save you time and money. But it also can be overwhelming to figure out all the features you might want to use. Here are a few suggestions that can be useful with links to articles explaining how you use the feature:

Create a drop-down list in your categories column to limit the options someone can choose. This limits potential mistakes or typos.

Use Excel as your calculator so things like inventory value and more are automatically calculated.

Freeze panes to lock rows and columns so it's easier to see your column headers even when you're scrolling far down your inventory list.

Use conditional formatting to highlight information , like when you need to reorder an item because it's below your reorder limit.

Filter data in your inventory list to help you focus on specific categories or items.

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Self Storage Business Plan PDF Example

• June 17, 2024
• Business Plan

Creating a comprehensive business plan is crucial for launching and running a successful self storage business. This plan serves as your roadmap, detailing your vision, operational strategies, and financial plan. It helps establish your self storage business’s identity, navigate the competitive market, and secure funding for growth.

This article not only breaks down the critical components of a self storage business plan, but also provides an example of a business plan to help you craft your own.

Whether you’re an experienced entrepreneur or new to the services industry, this guide, complete with a business plan example, lays the groundwork for turning your self storage business concept into reality. Let’s dive in!

Our self-storage business plan is structured to cover all essential aspects needed for a comprehensive strategy. It outlines the business’s operations, marketing strategy , market environment, competitors, management team, and financial forecasts.

• Executive Summary : Offers an overview of your self-storage business’s concept, market analysis , management, and financial strategy.
• Facility & Location: Describes the facility’s design, amenities, and why its location is appealing to potential clients.
• Services & Rates: Lists the services provided by your self-storage business, including types of storage units, additional services, and pricing structure.
• Key Stats: Shares industry size , growth trends, and relevant statistics for the self-storage market.
• Key Trends: Highlights recent trends affecting the self-storage sector.
• Key Competitors : Analyzes main competitors nearby and how your business differs from them.
• SWOT: Strengths, weaknesses, opportunities, and threats analysis.
• Marketing Plan : Strategies for attracting and retaining customers.
• Timeline : Key milestones and objectives from start-up through the first year of operation.
• Management: Information on who manages the self-storage business and their roles.
• Financial Plan: Projects the business’s 5-year financial performance, including revenue, profits, and expected expenses.

Self Storage Business Plan

Fully editable 30+ slides Powerpoint presentation business plan template.

Download an expert-built 30+ slides Powerpoint business plan template

Executive Summary

The Executive Summary introduces your self storage business plan, offering a concise overview of your storage facility and its services. It should detail your market positioning, the range of storage solutions you offer, its location, size, and an outline of day-to-day operations.

This section should also explore how your self storage business will integrate into the local market, including the number of direct competitors within the area, identifying who they are, along with your facility’s unique selling points that differentiate it from these competitors.

Furthermore, you should include information about the management and co-founding team, detailing their roles and contributions to the business’s success. Additionally, a summary of your financial projections, including revenue and profits over the next five years, should be presented here to provide a clear picture of your storage facility’s financial plan.

Make sure to cover here _ Business Overview _ Market Overview _ Management Team _ Financial Plan

Business Overview

For a Self storage business, the Business Overview section can be concisely divided into 2 main slides:

Facility & Location

Briefly describe the storage facility’s physical environment, emphasizing its security, cleanliness, and the overall ease of access that welcomes clients. Mention the facility’s location, highlighting its accessibility and the convenience it offers to clients, such as proximity to residential areas or ease of access from main roads. Explain why this location is advantageous in attracting your target clientele.

Services & Rates

Detail the range of storage options and services offered, from small lockers and medium-sized units to large units suitable for vehicle storage. Outline your pricing strategy , ensuring it reflects the quality of services provided and matches the market you’re targeting. Highlight any packages, discounts for long-term rentals, or additional services such as climate control, 24/7 access, or insurance options that provide added value to your clients, encouraging repeat business and customer loyalty.

Make sure to cover here _ Facility & Location _ Services & Rates

Market Overview

Industry size & growth.

In the Market Overview of your self storage business plan, start by examining the size of the self storage industry and its growth potential. This analysis is crucial for understanding the market’s scope and identifying expansion opportunities.

Key Market Trends

Proceed to discuss recent market trends , such as the increasing demand for personal and business storage solutions, the rise of e-commerce leading to a need for inventory storage, and the growing trend of downsizing and decluttering among consumers. Highlight the demand for specialized storage options like climate-controlled units, and the increasing focus on security features and convenient access.

Key Competitors

Then, consider the competitive landscape, which includes a range of storage facilities from high-end, full-service options to budget-friendly alternatives, as well as DIY storage solutions like portable storage containers. Emphasize what makes your storage facility distinctive, whether it’s through superior security measures, exceptional customer service, a wide range of unit sizes, or specialized storage options. This section will help articulate the demand for self storage services, the competitive environment, and how your facility is positioned to thrive within this dynamic market.

Make sure to cover here _ Industry size & growth _ Key competitors _ Key market trends

Dive deeper into Key competitors

First, conduct a SWOT analysis for the self storage business, highlighting Strengths (such as prime location and robust security measures), Weaknesses (including high operational costs and strong competition), Opportunities (for example, increasing demand for storage solutions due to downsizing and e-commerce growth), and Threats (such as economic downturns that may decrease consumer spending on storage services).

Marketing Plan

Next, develop a marketing strategy that outlines how to attract and retain clients through targeted advertising, promotional discounts, engaging social media presence, and community involvement.

Finally, create a detailed timeline that outlines critical milestones for the storage facility’s opening, marketing efforts, client base growth, and expansion objectives, ensuring the business moves forward with clear direction and purpose.

Make sure to cover here _ SWOT _ Marketing Plan _ Timeline

Dive deeper into SWOT

Dive deeper into Marketing Plan

The Management section focuses on the storage business’s management and their direct roles in daily operations and strategic direction. This part is crucial for understanding who is responsible for making key decisions and driving the storage business toward its financial and operational goals.

For your self storage business plan, list the core team members, their specific responsibilities, and how their expertise supports the business.

Financial Plan

The Financial Plan section is a comprehensive analysis of your financial projections for revenue, expenses, and profitability. It lays out your self storage business’s approach to securing funding, managing cash flow, and achieving breakeven.

This section typically includes detailed forecasts for the first 5 years of operation, highlighting expected revenue, operating costs and capital expenditures.

For your self storage business plan, provide a snapshot of your financial statement (profit and loss, balance sheet, cash flow statement), as well as your key assumptions (e.g. number of customers and prices, expenses, etc.).

Make sure to cover here _ Profit and Loss _ Cash Flow Statement _ Balance Sheet _ Use of Funds

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Competitive Analysis for a Carpet and Upholstery Cleaning Business (Example)

• May 20, 2024
• Business Plan , Competitive Analysis

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