Seven Inventory Management Techniques

10 min read

Inventory management is a process of keeping in-depth track of all your products. With proper inventory management, you will ensure that your company correctly orders, handles, and tracks your entire stock. On the most fundamental level, inventory control is aimed to make sure that your shelves or virtual platforms are adequately stocked and you know your current inventory levels at any moment


Inventory management strategies


There are different inventory management methods. Depending on the business profile, optimal management models can differ. Below are 7 inventory control strategies that almost any retail business should consider. 


 Conduct ABC retail analytics


ABC is a very popular inventory management technique that aims to identify most to least valuable inventory items. ABC analysis provides decision-makers with information that is useful for stock prioritization. As a result, businesses will strategically focus more on things that generate more significant revenues. 


The method is very simple to understand. The whole process is about categorizing all inventory into three groups:


Group A includes an inventory of the highest business value. Usually, it consists of 20% of the total stock but is responsible for 80% of the income. Therefore, those items typically have the best profit margins. 


Group B has a stock of medium importance and value. However, the inventory of this group has comparably lower profit margins and higher costs. 


Group C represents the inventory of the lowest value. Although this is usually the most significant group based on quantity, Group C items generate the smallest revenue levels.


By properly segmenting your inventory into categories, you will have a clear vision regarding prioritization, decision-making, and resource management.


Select appropriate fulfillment strategy

discussing inventory management techniques


The whole mission of a retail business to sell the inventory and, in some cases, deliver too. Choosing the best-fitting fulfillment option(s) for your business is one of the most crucial decisions in the inventory management process.


Let’s quickly review several stock realization strategies.


Dropshipping. With this approach, the business may never see the physical inventory. Behind the scenes, it functions as an intermediary. It has items shown in the store or on e-commerce pages but not in its warehouse. When someone makes an order, the company reaches its vendors, orders the products, and sends them to the requested location. As a result, it significantly cuts handling and rental costs. The key is to ensure reliable partnerships with vendors to avoid delays and other shipment and delivery problems.


Third-party logistics. If a business does not have its warehouse, it might consider having its inventory held by a third party. The third party will manage the inventory and send orders for a monthly service fee. For businesses making sales in different countries, it might be beneficial to consider renting third-party logistic services in the cities of major business operations. It would be a good choice for businesses, who are growing fastly, as well. Third party logistics services will manage inventory processes with its existing transportation and warehousing resources and experienced staff more effectively.  


In-business warehousing. Business owned private warehouses are more expensive than the public ones. However, companies who are planning long-term presence and major distribution in important markets should consider in-house warehousing.  With this approach, the company will have its facilities and direct control and responsibility for its stock. Having direct control over stock would cut potential technical issues such as false reconciliation between actual and registered inventory numbers.


Properly forecast demands 


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Inventory, Order & Shipping Management Software


Hypothetically guessing potential demands is not a good business decision. Although it is the vaguest part of the business, forecasting plays a crucial role in avoiding over or under-stocking. 


Consider forecasting based on past sales data. First, you can review the current trends, such as actual sales of the previous 30-90 days. Then you can look at seasonal sales. For example, in March, you can check the sales volumes of the last March because usually, sales trends move in the same patterns. Sales analytics can be performed easier with an inventory management software, such as eSwap, because it saves all sales and inventory data, movements, and presents in spreadsheets.


Depending on a type of business, external environmental factors, advertising and other external factors influence the demands. For example, fuel sales decreased so much during quarantines of COVID19 that the industry exploded, and prices were cut in half. 


Define reorder levels and amounts


Businesses must adequately schedule ordering times and amounts to avoid running out of stock and losing potential sales or ending up with unused or perished inventory. In addition, ordering points must be scheduled considering the needs of safety stock and lead times. 

There is a formula to calculate reorder levels:


The reorder point gives you time when the order should be placed. However, it also matters how much you order. There is a term called economic order quantity. The purpose is to calculate the best ordering amount, which helps to minimize ordering and carrying costs and meets the demands. 


Implement FIFO approach


FIFO, which opens first in, first out, is a selling approach that suggests that the oldest inventory should be sold first. So, the earlier the stock enters the warehouse, the earlier it leaves. Thus, it helps to decrease damages of old inventory and to avoid stock perishment.  


Conduct regular inventory checks


When dealing with large volumes of inventory, errors are inevitable. One of the most practical control solutions is conducting physical checks. Traditionally, businesses should conduct inventory counts and checks once a year by closing the warehouse for a day. However, it can be complex and time-consuming. The better option for it is to conduct cycle counting. During the cycle, counting team members receive tasks to count a small amount of inventory once a week. In this way, businesses can check stocks at least several times a year without taking much effort and time.


Automate inventory management processes


Inventory management is a complex job, especially for large businesses. And with the business growth, it becomes more challenging. Inventory automation is the essential technique to make the job easier. By utilizing inventory management software, such as eSwap, businesses can cut the heaviest part of stock management. Forecasting, counts, purchasing, tracking will become automated and synchronized in one place. As a result, businesses reduce human error and human resource waste.




Inventory management is a very complex but essential part of the supply chain. An effective inventory management system helps to reduce stock-related costs such as warehousing, carrying, and ordering costs. As you have read above, there are different techniques that businesses can utilize to simplify and optimize stock management processes and control systems.