The Importance of Inventory Management and Control in Business Success

For companies that sell products, inventory management is essential to everyday operations, powering key purchasing, storing, and shipping processes that keep business moving. The right inventory management system can save a company time and money while improving the customer experience. This article will explain what inventory management is, why it's important for your business, the different types of techniques, and some solutions that can make managing your inventory easier.

What is Inventory Management?

Inventory management refers to the processes a business uses to acquire, store, track, and ship items it sells. It involves managing a physical space, typically a warehouse, where inventory is stored, as well as the people and processes moving items through that space.

Why is Inventory Management Important?

Knowing the right amount of inventory to have on hand is a critical factor in inventory management. Maintaining the optimal inventory prevents selling out of items and upsetting customers or over-ordering and having overstock that costs money. Poor or nonexistent inventory management puts a business at risk of underperforming, while correct inventory management can provide a business with numerous advantages.

The Benefits of Inventory Management

The benefits of inventory management range from greater financial efficiency to improved customer satisfaction, leading to greater business success. A well-managed inventory provides many important advantages, including:

Cost and Time Savings: Inventory management helps make the monetary and time investments associated with this activity more efficient. If you have a precise accounting of the stock on hand at any time, you don’t need to perform frequent time-consuming recounts. Nor do you need to spend money reordering items when your existing stock is sufficient to meet consumer demand. Better Organization: How your inventory is physically organized impacts the time it takes for employees to find and ship items, affecting how quickly you can fulfill orders and grow customer satisfaction. Inventory management lets you know which items are most popular, which are frequently combined in the same orders, and which take the longest to transit in and out of storage. Customer Satisfaction: Difficulty finding or picking items from inventory leads to slow delivery and unhappy customers. Inventory management enables faster shipping by helping a business manage the storage and movement of items. It also minimizes the risk of having to cancel an order or list items as out of stock due to insufficient inventory, which causes customer frustration. Automation and Analytics: Automated tools provide opportunities to systematically track and analyze inventory data. By using inventory management software, a business can automatically collect data about existing stock, how frequently and quickly it moves through the inventory, and more. This information can offer insight into sales patterns, highlight opportunities for improving inventory management practices, and help automate processes like estimated shipping times. Handling Recalls: Thousands of items are recalled in the US each year. Inventory management tools that quickly identify where and when the seller acquired the product are critical for responding to recalls effectively.

Inventory Management Techniques

Inventory management can be broken down into a number of different processes and strategies. The following techniques can help you get started:

Just-in-Time (JIT): With JIT inventory management, commerce companies receive the exact amount of inventory they need right when they need it. The goal is for companies to retain little to no excess stock at any given time, solving the common issue of overspending on materials that aren’t yet needed. This strategy relies on constant communication between the business and manufacturers and requires dedicated, streamlined software to work smoothly. Economic Order Quantity (EOQ): Using EOQ, companies order inventory so that they have neither too much nor too little at any given time. EOQ calculates the number of items a business needs to add to its inventory with each order to reduce the total costs of inventory while assuming steady customer demand. This technique helps balance the cost of ordering inventory and the cost of storing inventory. Safety Stock: Safety stock is a more conservative approach to inventory management that leans toward having more inventory than needed. This approach works well when supply chains may be inconsistent, and inventory does not always arrive on time, ensuring there’s always extra stock set aside in case a company can’t replenish certain items. Forecasting: Forecasting helps determine how much inventory to have in stock for a given period. It’s a proactive approach that allows you to stock the right items before you need them rather than acting when your stock falls below a certain threshold. When forecasting inventory needs, the most basic data to consider includes past sales trends and their correlation with future expectations, including seasonal fluctuations in demand. Minimum Stock Levels: A minimum stock level is the smallest quantity of each item you should have in stock at any time. This baseline can help to systematize product orders from your suppliers based on a simple metric. When inventory levels get close to your predetermined minimum level, you know it’s time to reorder. Keep in mind that minimum stock levels are not necessarily the ideal quantity you should maintain; you may need more items to ensure steady order fulfillment. First In, First Out (FIFO): With FIFO, the oldest stock in your inventory is the first stock you sell when a new order is placed. To use this technique, your warehouse should be set up so your picking system ships the oldest items first. FIFO is often used to reduce the impact of inflation by assuming the purchase price of inventory sold at retail is lower than the purchase price of recent inventory. It helps minimize the risk of dead stock and is common for items with short expiration dates. Last In, First Out (LIFO): The opposite of FIFO, the LIFO method means the newest items are sold first. The main benefit is a tax advantage. This approach generates a higher cost of goods sold and a lower balance of remaining inventory, resulting in a lower net income and creating a smaller tax liability. The chief disadvantage of LIFO is it leaves you at risk of letting products expire, so it’s typically used only with items that don’t expire, such as electronics or building materials. System Audits: It’s wise to audit inventory on an ongoing basis by verifying that your records correspond with what’s actually on hand. The two major types of audits are spot checks and cycle counts. A spot check is an audit of a certain portion of your inventory, and performing them frequently can help identify inaccuracies. A cycle count is a deeper check, a systematic analysis of your entire inventory that’s usually performed at regular intervals spaced further apart. ABC Analysis: An ABC analysis involves placing all your inventory items into one of three categories: Category A (essential items), Category B (items of moderate importance), and Category C (rarely purchased items or those that offer minimal business value). ABC analyses help you determine which items to prioritize when restocking inventory as well as how to organize items within your warehouse.

Make Inventory Management Easy with the Right Platform

Inventory management is vital because it allows businesses to understand how much inventory they have on hand, place orders correctly, and meet the needs of their customers.

If you’re ready to get started, make a list of the pros and cons of your current inventory management system—if you have one. Think about the biggest pain points in your inventory management process, and which of the techniques above seems best suited for your business. 4Seller, as an all-in-one e-commerce management system for TikTok Shop, Shopify, and Amazon sellers, is a great option to manage listings, orders, shipments, inventory, and data in one centralized platform. It not only helps your business track the on-hand quantity of products but also automatically updates the inventory levels across your stores to ensure that the inventory level in each of your stores is in line with that in your real warehouse. Wave goodbye to overselling and underselling products.

For businesses seeking a robust inventory management system for TikTok Shop, Shopify, and Amazon, 4Seller is an excellent choice to streamline your operations and enhance customer satisfaction.