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Guide | August 10, 2021

Essential Guide to Effective Inventory Management and Secret Techniques

Inventory management is a crucial piece of a business's profitability. Any business owners of physical and online stores of all sizes all want the same thing when it comes to inventory: make sure they constantly have the product in stock whenever customers ask for it. This is when the dilemma comes: Some businesses have stocked too little, making them unable to meet customers' expectations, which eventually drives customers away. But some other businesses overstock items "just in case." Through this approach, they can always serve the needs of customers, and yet, may face serious problems of bleeding money from your business if you can’t sell them out. Sometimes these stocks stay in the warehouse for good. 

Effective inventory management lies somewhere between these two poles. The process is imperative if you want to succeed as a retailer of any kind, from eCommerce, multichannel, brick-and-mortar, omnichannel, etc. Does it require more work and planning? Yes, but your profits will reflect your effort. In this article, SmartOSC will guide you through some tips on how to start or improve your inventory management.

What is inventory management?

Effective Inventory Management and Secret Techniques

Inventory management refers to the process of ordering, storing, using, and selling a company's inventory.

Inventory management plays an important role in the supply chain process, where inventory and stock quantities are tracked in and out of your warehouse. Its goal is to let business owners aware of the inventory’s present or at any given time situation and how much of it you have left. Unlike an ERP (Enterprise Resource Planning) system, an inventory management system often comes with the ability to integrate with other software systems, from point of sale, channel management, to shipping so you can build a personalized integration stack to the needs of your unique business.

Types of inventory

Before tackling effective inventory management, you'll need to understand exactly what inventory comprises. There are common types of inventory management: 

  • Raw materials: materials used in manufacturing
  • Unfinished/ on-progress: products that are not ready to be sold
  • Finished products: products stored in a warehouse until sold or shipped
  • In-transit goods: products that are no longer in the warehouse and are being transported to their final destination
  • Anticipation inventory: these are excess products in anticipation of a surge in sales
  • Decoupling inventory: parts, supplies, or products set aside due to a slowdown or halt in production
  • Buffer inventory: some people call them "safety stock," which serves as a cushion in case of an unexpected issue or need for more inventory 

You will handle finished products differently from raw materials. This is why it is important to sort your inventory so you know which items fall into the same category, and then you can manage accordingly.

Why is inventory management important?

Why is inventory management important?

43% of retailers ranked inventory management as their number one day-to-day challenge.

The importance of inventory management simply cannot be ignored. According to BigCommerce, 43% of retailers ranked inventory management as their number one day-to-day challenge. Inventory management is fundamental to the company’s long-term success as it wipes out the risks of mis-shipments, out of stocks, overstocks, mis-picks, and so on. Why so?

  • Mis-picks can be the result of incorrect paper pick lists, disorganized shelf labels, or a messy warehouse in general. 
  • Mis-shipments can be the result of mis-picks or a lack of quality control procedures.
  • Out of stock and overstocks mostly occur when companies use manual methods to place orders without a full grasp on their inventory state. This results in too much or too little stock.

In general, when you don’t implement management tools, your risk of human error mistakes goes up by the minute. That’s why inventory management is so important, as it helps the whole supply-chain management to fall into place, protect businesses from wasting time, money and resources on fixing these mistakes. 

In addition to these, a smooth and smart inventory management system allows you to:

Save you money

According to Forbes, if your inventory system is working right, it can help you predict what products are nearing their expiry dates, which is in high demand, which is searched the most, and so on. With these pieces of knowledge, you can bring products with near expiry dates to the front so online shoppers can buy them, place more orders for highly demanded products or optimize potential products. If you don’t track your inventory automatically, optimizing the inventory will become a daunting task.

Improve cash flow

While business owners know which products are fast-selling and which ones are slow-selling, they can build a strategy about which products to order and how much cash to keep on hand accordingly.

Organize warehouse management

Effective inventory management can keep the warehouse order volume organized. This helps them take advantage of the space that was previously occupied by slow-selling products and refile them with fast-selling products through effective management of inventories.

Improve customer retention

When customers come to you to find a product and you’ve run out of them, you are directly sending customers to your competitors. Great inventory management means no shortage of products, making customers happy and keeping them coming back. It also leads to higher retention and a lower churn rate.

See how ASUS Singapore leveraged technology to make sure both their B2B and B2C are well catered: HERE

Common inventory management questions

What are the necessary goals of inventory management?

Any inventory management system needs to offer managers a big picture of the inventory activity via automated and streamlined pick/pack/ship features. This power enables every business, from small to large to grow with confidence and puts you in front of the kind of customers you want.

How do you measure your success?

A very good way to see any shifts from the new tool implemented is by comparing data before and after. For example, do your level of mis-shipments, mis-picks, or out of stocks decrease? What about dead stock? Have you eliminated the dead piles of inventory around the perimeter of the warehouse? If the answer is yes, then you’ve successfully conducted inventory management. As a result, you can expect to see better customer reviews, more traffic, improved customer loyalty, and even a boost in other review websites such as Amazon,, Shopee, etc.

Who should be accountable for inventory management effectiveness?

Overall, inventory management is not a single-approaching task, but rather an all-hands-on-deck approach. Several teams are responsible for different roles.

  • Purchasing team: they are tasked with managing the stock so that they are not over or under-purchased.
  • Merchandising team: they have to make sure the inventory is properly listed, promoted, and priced.
  • Warehouse team: obviously, they are in charge of the inventory management tasks, including managing proper receiving, correcting picks, shipments and creating an ease of movement throughout the pick/pack/ship process.
  • Warehouse managers and inventory specialists are responsible for handling all inventory from FIFO (First in, First out) to delegating proper stock levels in each location. This ensures less shelf wear on packaging.

Alarming signs many business owners have missed?

  • Undersold inventory: this can possibly mean that there’s a hot item somewhere hidden in the back that you didn’t list in time for the season.
  • Packages having shelf wear, forcing you to decrease the price: this can be the result from incorrect stocking inventor, making the product sit on the warehouse for too long and become dead stock.
  • Inventory levels rise, but not in line with sales level: This is a sign of dead stock.
    The use of a manual spreadsheet: this traditional method of inventory management has led to huge amounts of manual error like mis-shipments and mis-picks.

How should I prepare for upcoming peak seasons?

Peak season is arguably the most important time of the year for any business to make the bulk of its revenue. Thus, it’s pivotal that you have proper inventory management in place in order to succeed.

When heading into your first peak season, here’s what you can do to prepare.

  • Hire temporary staff to make sure you take care of a surge in orders well
  • Conduct a cycle count to make sure all inventory levels are correct
  • Ensure shipping supplies are properly stocked and ready to use
  • Make sure all inventory is in the proper locations
  • Implement inventory management software.

Inventory Management Techniques

According to Michael Wohlwend, Vice President of SAP Americas and Vice President of the Warehousing Education and Research Council, “the days of managing inventory using Excel spreadsheets are passé.” That being said, it’s well worth the extra time and money to have inventory management set up by the experts who made the software. But, you still need to know some inventory-control techniques to properly utilize in your own warehouse.

Real-time analytics 

Any big retailers are using powerful sales and operations planning solutions with real-time analytics integrated so that they have a unified data model of demand, supply chain, and financial data analyzed at their wish. Technology has given the business world a skyrocketing level of granularity. With all these systems providing users so much real-time information at their fingertips, managers can capitalize on unique opportunities for moving inventory.

SmartOSC is the trusted partner of big retailers all around the world to build their platform where data is shared. Our solution allows customers to have real-time inventory within one model and even track who owns that inventory, whether you are talking about B2B or B2C customers.

See how we did it HERE

Keep an eye on your suppliers

Put technology aside, the human factor is a crucial thing to mention. Some suppliers don’t necessarily stick to their schedule or deliver on their commitments. And of course, if you ordered 1,000 cases of pencils and the order shows up at the door with only 900, then that’s a problem.

The tip here is to closely monitor supplier activity, from a promise date, an actual receipt date, quantity ordered, quantity received, and the condition in which it was received. These are metrics that can be tracked and analyzed to determine a supplier’s reliability. Based on these data, you can decide how to deal with each of them and resolve any issues and work toward improving a supplier’s performance - or hold more of their inventory to guard against their variability. 

Lean manufacturing

Lean manufacturing is a broad set of management practices applied to any business practice. Its goal is to improve business efficiency by eliminating any non-value-adding and time/ money/ effort wasting activities from daily business.

Six Sigma

Lean 6 sigma

The concept of Six Sigma was first introduced by Bob Galvin, CEO of Motorola. Today, it is a standard certification for supply chain management improvement. 

Six Sigma gives companies tools to improve the performance of their business, increase their profits meanwhile decrease excess inventory growth 

Just-in-time inventory management

Just-in-time (JIT) inventory management is a great way to reduce inventory costs. It is a technique that controls and arranges the raw material orders from suppliers in direct connection with production schedules. Using this technique, companies receive inventory on an as-needed basis instead of ordering too much and risking dead stock. 


LIFO and FIFO are methods to determine the cost of inventory. FIFO (First in, First out) is a great way to keep inventory fresh for it assumes the older inventory is sold first. LIFO (Last-in, First-out) assumes the newer inventory is typically sold first, which prevents inventory from going bad.

Demand forecasting

Demand forecasting is based on sales data collected over a long period of time to formulate an estimate of the expected forecast of customer demand. In other words, it’s an estimate of the goods and services that a company expects customers to purchase in the future.

This can be a much-needed feature for any eCommerce website if you can track a record of which is most wanted, searched, and added to the cart by customers. After all, everything comes down to arming your business with the right kind of data to make smart decisions.


Dropshipping was all the rage in the past. Now while it’s not trending anymore, it is still an effective inventory management fulfillment method for store owners everywhere. Dropshipping is the method in which a store doesn’t actually keep the products it sells in stock. When it makes a sale, instead of picking it from their own inventory, they purchase the item from a third party and have it shipped to the consumer. The seller never sees our touches the product itself. One noticeable advantage of this method is a low barrier to entry and anyone can become a dropshipper by setting up their website and promoting products through paid channels.

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