The fundamental principles of inventory management are relatively simple: Have enough stock to satisfy demand but not so much stock that you waste money if nobody buys it.

While most sellers know that they should be closely monitoring their inventory, efficient management techniques can be elusive for some, especially during busy seasons or periods of rapid growth.

That’s why it’s important to develop a system for managing your inventory that can be utilized in all conditions. Here are a few ways to improve that process and organize your inventory once and for all.

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1. Optimize with Software

You would be surprised how many sellers still keep track of their inventory manually using Excel spreadsheets. Not only is this system inefficient, it’s also completely unnecessary with modern technology.

If you’re an Amazon FBA seller, there are plenty of tools available to manage inventories that integrate with Amazon (including us). These tools will help you track SKUs and suppliers as well as provide you with real time analytics about your inventory numbers and sales.

This is not only helpful for organization’s sake, but also to give your business a competitive edge. You won’t oversell stock and you will make better purchasing decisions by analyzing demand.

You will also be able to provide better customer service through better tracking information, giving customers more information about their orders and a better experience with your store.

2. Monitor Your Suppliers

A positive seller/supplier relationship is good for business, but sometimes you can do everything right as a seller and still have suppliers fail to meet demands.

Suppliers that won’t stick to schedules or deliver on time can greatly hinder your ability to manage inventory effectively. You may need to monitor your suppliers more closely to avoid any delays in product delivery.

A few things to watch for include:

  • Promise dates for delivery
  • Actual receipt dates
  • Quantity ordered
  • Quantity received
  • Condition package arrived in

If you realize that you have an unreliable supplier, you can deal with them quickly and resolve any issues that would lower your seller feedback or ratings.

You may also consider automating your fulfillment through a reliable source, like using Amazon FBA (if you’re not already) in order to remove the potential for human error as much as possible.  

3. Use Real-Time Analytics

You can also improve your inventory management by using real-time analytics to gauge your stock’s selling performance.

Too much or too little of certain stock will cost you money over time and reduce the overall customer experience. Studies show that overstocks and out-of-stocks cost retailers $1.1 trillion globally in lost revenue, with overstocks being responsible for 3.2% of all lost revenue and out-of-stocks 4.1%.

Analytics can be used to determine demand in relation to current inventory levels. It can also help with things like:

  • Monitoring referral traffic – This will let you know where your marketing is working, where you need to ramp it up, and which marketing avenues are just dead ends
  • Identifying trends – You can monitor customer behavior with up-to-the-minute precision so you can identify inventory patterns and take advantage of them as they happen
  • Monitoring revenue goals – Analytics can also keep you up to date on revenue targets, so you know if you’ve fallen behind on your overall sales goals or if certain products are helping or hurting your sales

Keeping track of your analytics will help you make better decisions when it comes to your inventory so that you can increase cash flow, improve the customer experience, and grow your business.


4. Forecast and Plan

Of course, analytics can only tell you so much. While it’s important to know what’s happening with your current inventory, you will also need to predict your stock levels. This is where forecasting and planning are essential.

One mistake many sellers make is making purchasing decisions based solely on sales information. But forecasting is about looking at all the trends and patterns (as well as stats from your suppliers) to determine ideal stock levels.

In addition to sales information, you should be looking at:

  • Stock data
  • Safety stock levels
  • Reorder points
  • Previous overstocks
  • Previous backorders
  • Delivery dates and conditions
  • Feedback from suppliers
  • Feedback from customers

By forecasting, you will know which shipments require your immediate attention so you can prioritize your time, monitor the cost, estimated profit, and shipment status of all your products, and identify any shipments that need to be reconciled.

5. Review Costs

Part of successful inventory management is finding ways to reduce costs and save money. One of the most effective ways to do this is by regularly reviewing the costs of your operations. If you fail to do so, you risk missing out on opportunities to boost profits.

You should look for costs (profit or losses) associated with:

  • Bulk shipping
  • ABC Analysis
  • Cross-docking
  • Backordering
  • Just-in-time sales
  • Consignment
  • Dropshipping
  • Damaged inventory

You should also be able to track any changes that need to be made to product pricing as well as any products that should be eliminated from your listings. The longer stale inventory sits around, the less it’s worth.

If you want to create a positive cash flow, pay suppliers, and invest in profitable profits, you will need to take the time to regularly review your operating costs and plug holes in the process that cost your bottom line.

Here are 5 more tips for improving your inventory management

Final Thoughts

Effective inventory management comes down to automating, planning and reviewing as often as possible.

If you’re still stuck using manual spreadsheets to track your inventory, consider switching to automated software to simplify the process. Integrations that can track your inventory and handle some of the more complicated tasks will free up time for you to focus on other aspects of your business.

You should be regularly reviewing your operational costs associated with your inventory as well as your analytics to determine your overall stock levels. Remember that too much or too little stock can impact your bottom line, so using forecasting software can help alleviate some of the burden.

It’s also a good idea to keep tabs on your suppliers to make sure they’re delivering on time. After all, you could have the best inventory management techniques on the planet, but if your customers never receive their products, you won’t make any money.