5 Tips for Successful Inventory Management

Inventory management can be a struggle even for big corporations with dedicated teams. It can be especially challenging for small to mid-sized businesses that often lack key tools and resources. Following these five best practices is your ticket to successful inventory management.


1. Observe the 80/20 Rule

The 80/20 rule (also known as Pareto’s principle) states, “20 percent of the invested input is responsible for 80 percent of the results obtained.” This is a rule that applies to numerous aspects of business and is often applicable to inventory. In other words, roughly 20 percent of your inventory accounts for 80 percent of your sales and vice versa.

Successful inventory management relies upon identifying the 20 percent of inventory that’s generating the lion’s share of sales and developing a replenishment strategy around it. That’s the portion of stock that demands the most attention, while the other 80 percent only results in marginal sales so should receive less priority.


2. Follow the FIFO Principle

FIFO is an acronym for First-In-First-Out. This simply means that the oldest inventory should be sold first before selling your newest stock. It’s important for all businesses but is especially critical for those selling perishable goods. You never want items sitting in the back of your warehouse collecting dust or growing obsolete because it’s going to hurt your profit margins.


3. Set Safety Stock Levels

A safety stock level is the minimum amount of stock you need to have on hand at any given time. Once an item falls below a certain count, you know it’s time to re-order. This provides you with a safety net ensuring that you’re continually able to meet consumer demand.

Inbound Logistics points out, “Safety stocks are only useful if they are used. The whole point of safety stock is to protect you against expected variations in demand and supply. If you never use your safety stock, you have too much.”

Like many aspects of business, safety stock levels require perpetual tinkering based on current buying trends, time of year, and supplier capabilities. Make adjustments accordingly.


4. Automate What You Can

You can reduce errors, increase efficiency and streamline much of inventory management by investing in an inventory control system. This will typically consist of hardware (e.g. scanners, mobile devices and barcode labels) and centralized software.

Utilizing this type of system simplifies many of the meticulous tasks involved with keeping up with inventory, helps control shrinkage and allows you to create more accurate forecasts for re-ordering. This can be especially helpful if you anticipate a significant level of growth for your business over the next few years.


5. Organize, Organize, Organize

If your stock room is perpetually in disarray, it’s going to create problems. Employees are more likely to make mistakes when packing, such as mistaking similarly packaged items.

Make it a point to:

  • Invest in functional shelving and bins
  • Carefully label everything
  • Avoid placing similar products with similar packaging right next to each other
  • Develop a logical flow so employees don’t run into one another when packing orders
  • Make routine cleaning a habit


Successful inventory management is largely based on common sense. Following these tips should help you achieve a greater degree of efficiency and eliminate a lot of the headaches you may have experienced in the past.


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