7 Best Inventory Management Techniques

Efficient inventory management keeps your operation stable. It ensures stock is available when customers need it, storage space isn’t overloaded, and money isn’t tied up in unsold goods. When executed properly, it improves forecasting, reduces waste, and streamlines daily operations.

In 2023 alone, global businesses lost an estimated $1.77 trillion due to inventory issues. Most, nearly $1.2 trillion, was tied to running out of products or out of stocks, while carrying too much product or overstocks cost another $562 billion. Although that’s an improvement over the previous year, it still shows how quickly costs add up when inventory isn’t managed accurately.

Every business handles inventory differently depending on what it sells, how it ships, and how quickly items move. However, the right combination of inventory techniques can keep stock lean and operations consistent.

Here’s a breakdown of core methods that help businesses control inventory with less guesswork and better results.

What is inventory management?

Inventory management refers to the process of ordering, storing, tracking, and using stock, including raw materials, components, and finished goods. Strong inventory control keeps operations balanced by maintaining accurate counts, avoiding overstock, and ensuring products move in and out efficiently.

Many businesses use cloud-based inventory software to manage this process. These tools provide real-time visibility, automate tracking, and allow teams to monitor multiple locations from a single dashboard.

The importance of inventory management

Proper inventory management reduces lost sales and overstock situations. It creates structure around purchasing, storing, and moving goods so teams know precisely what’s available at any given time. Due to these systems, errors drop, fulfillment speeds up, and cash flow improves.

In fast-paced or seasonal industries, accurate inventory data allows you to meet demand without overcommitting to stock. The ability to respond quickly to shifts in sales volume can also give you a competitive edge.

7 best inventory management techniques to improve efficiency

Managing inventory comes with different challenges depending on your product mix, sales volume, and fulfillment process. Some items move quickly and need frequent restocking, while others sit longer and occupy valuable space.

The strategies below serve a specific management purpose, whether it’s cutting storage costs, improving accuracy, or keeping operations organized.

1. First-in, first-out (FIFO) method

FIFO means selling or using older stock before newer inventory. This method is ideal for perishables and applies to products with limited shelf life or a high risk of becoming outdated, such as electronics, apparel, or packaging supplies.

Using FIFO keeps inventory fresh and improves warehouse rotation by pushing older items forward in storage. It also prevents losses tied to spoilage or obsolescence.

2. Just-in-time (JIT) inventory

JIT inventory focuses on receiving products only when they’re needed. There’s no overstock or excessive storage. This lean approach helps reduce carrying costs, especially for businesses with limited warehouse space.

However, JIT depends on accurate forecasting and reliable suppliers. Any disruption in delivery can slow down production or fulfillment. This method works best when supply chains are stable and demand is predictable.

3. ABC inventory analysis

ABC analysis sorts inventory into three groups based on value and turnover.

• A-items: These products usually have tighter controls and lower on-hand quantities. They should be monitored closely with frequent reordering and secure storage.
• B-items: They’re moderately valuable and require routine, but not intensive, tracking.
• C-items: These items don’t need as much attention and are often replenished in bulk.

This system keeps your focus where it matters most, on the inventory that impacts your bottom line.

4. Barcode inventory systems

Barcodes improve speed and accuracy, reduce manual entry errors, and help employees track items as they move through receiving, shelving, picking, and shipping.

Barcode inventory systems assign a unique barcode to each item in your inventory. This barcode is then scanned at various stages throughout the supply chain, allowing for accurate and timely tracking of product movement.

5. Safety stock and reorder points

Safety stock acts as a buffer against unexpected demand or supplier delays. It prevents stockouts during busy periods or when shipments arrive late. This extra inventory is meant to be used regularly and help you avoid gaps in service when things don’t go as planned.

Reorder points set the minimum level that triggers a new order. When inventory hits that threshold, the system or manager knows it’s time to restock. Automating reorder points keeps the process consistent and prevents human error from holding up the supply chain.

Together, safety stock and reorder points create a safety net that stabilizes inventory flow without tying up too much cash.

6. Cloud-based inventory management software

Cloud-based inventory management systems give businesses access to real-time stock levels from anywhere. They’re also ideal for teams managing multiple warehouses, retail locations, or a mix of online and offline orders.

The main features typically include forecasting, purchase order tracking, location syncing, and low-stock alerts. These tools eliminate the need for manual updates and make audits faster and more accurate.

Manufacturing inventory software also gives production teams a clear view of what’s on hand, what’s needed, and what’s being built, so nothing gets held up due to missing parts.

7. Warehouse organization and layout optimization

A well-organized warehouse speeds up operations. Clear labeling, logical product placement, and streamlined pick paths reduce the time it takes to fulfill orders and limit your team’s walking distance.

Items with high turnover should be easy to access, heavy or bulky items should be stored in areas with space for equipment, while slow-moving products can go on upper or back shelves.
Using warehouse management software helps you map your layout and assign zones. It also supports bin tracking and batch picking, which reduces mistakes and improves fulfillment rates.