Inventory Management: How to effectively manage inventory in any business?

. 5 min read
Inventory Management: How to effectively manage inventory in any business?

What is Inventory Management?

Inventory Management is the process of buying, storing, processing, and selling your inventory. It is one of the most crucial stages of production and sales that can either make or break a business. Efficient management requires a lot of effort, effort that is reflected by your profits or your losses. It is all about having the right amount, at the right time, at the right place, at the right price.

Sometimes some businesses create an excess of supply which damages the flow of cash. This might seem like the right thing to do many times, but it drains a business of its liquidity. Whereas other times, businesses fail to produce the right amount of supplies needed to satisfy the consumers. This can annoy the buyers, forcing them to look for other alternatives. A company that repeatedly fails to match consumer needs will never be able to get off the ground. Efficient inventory management falls somewhere in between these two scenarios. A lot of small businesses fail to emphasise on inventory management. Sometimes, the difference between a successful business and struggling one can be just that.

In 2015, Target’s outlets in Canada had a house full of pink Barbie SUVs piled up to the ceiling. Despite having the right supply of products, the barcodes on the toy cars didn’t match with the ones in the system. The customers were left frustrated and the shelves empty. This single-handedly killed Target’s entry in the Canadian market. This one case seemingly small issue cost Target more than 2 billion dollars.

In another instance, Nike lost more than 100 million US dollars in tracking inventory before updating its inventory control process in the early 2000s.

Today, we’ll teach you how to best handle your inventory so as to generate more profit. But before we do that, we need to talk about what classifies as inventory.

What is Inventory?

Inventory is anything handled by the company that directly contributes to their output. It can be the raw goods, meant to be processed and tailored before being sold to the public, or the software that is used in the manufacturing process. It can even be finished goods, meant to be directly sold off.

There are various different types of inventory, let us have a look at them.

  • Raw materials
    Raw materials are used to manufacture the products. They are the literal building blocks for your company.
  • Finished Products
    Manufactured products waiting to be sold.
  • Work-in-Progress/Unfinished Products
    Unfinished Products are a work in progress. They are still being processed or assembled.
  • MRO Goods
    MRO Goods stands for “Maintenance, repair, and operating goods”. These supplies aid the entire production process.
  • Buffer Inventory or Safety Stock
    Buffer Inventory serves as a safety net in case an unexpected situation arises. These are surplus inventories.

Next, let's look at some really effective ways to manage your inventory.

Effective Ways to Tackle Inventory Management

Here are some tactics you can use to breeze your way through inventory management. Let’s have a look at them.

1. Use the FIFO approach

The First In, First Out approach dictates that the finished products should be sold in the same order that they were created. This especially keeps an expiry check on products that tarnish over time. Doing this can save you a lot of money.

The best way to practice the FIFO approach is to organise your inventory in the warehouse In chronological order of manufactory.

2. Audit your Inventories

Keeping a count of your physical supplies every once in a while is one of, if not, the most important part of inventory management. Always keep a count of the supplies you have and tally it with your stocks and your online orders. This will let you avoid a sticky situation before it even arises.

3. Take Quality Control seriously

Quality control means keeping a close eye on the quality of your products and improving your production process if you see a decline in the quality. This might be a bit expensive in the beginning but will turn out great profits at the end of the day. A company that never fails to deliver the best quality products, attracts hordes of consumers. Quality is what makes the difference between Nike and Adidas, and almost any other brand of shoes and sportswear.

4. Improve your projected sales calculations

Fine tuning your projected sales will give you a much more accurate picture of exactly how many finished products to manufacture. This can save you a lot of money as there is trouble on either side of this fine line. You can make your projected sales calculations more accurate by improving the process of calculation and conducting more surveys on a regular basis.

5. Develop a system

A system or software that keeps track of your finished products and your orders in real-time can help you out greatly with inventory management. You will save a lot more time by doing this and your inventory management process will also be much smoother.

6. Don’t trust your supplier easily

It is really important to keep in mind that everyone wants money. In order to get more money, your supplier will very often try to give you the short end of the stick. They might compromise on the quality without telling you, or just supply a lesser amount. Such issues are extremely common in the market today. This is why it is always important to keep in mind the supplier reviews and their past performances. Asking one of their clients for review before approaching a new supplier will also give you a clearer picture of what to expect.

7. Don’t forget the 80/20 rule of inventory

The 80/20 rule states that 80% of the profits come from 20% of your stock. This is why you need to prioritise your inventory to make sure you always have the right amount of your best-selling goods. A good way to do this is with the ABC approach where you classify your output into category A, B, and C, and prioritise accordingly.


The importance of inventory management can not be overstated. Inventory management may sound like a simple singular task but it involves handing everything right from the start of the production to the last second of sales. It takes a lot of effort to have efficient and smooth management of inventory. However, all of this effort can really be what's keeping you from being the next big enterprise on the market. After all, “A bartender is just a pharmacist with a limited inventory.”

Also read:
Business Tips: How to Identify A Local Customer?
PoS Machine: What are the benefits for small businesses?
Unique Packaging Ideas for Products: How impactful it is?


Q. How do you deal with broken production machinery?

A. Ever felt annoyed when you found out that the ice cream machine at your local McDonald’s wasn’t working? That’s exactly how your consumer can feel upon facing delays and inconvenience due to dysfunctional machines. You need to keep a tight check on your machines at all times. Make sure everything is working, and that your machines are being used correctly and without any risk of damage. Spend heartily while purchasing your machinery so you get machines that last. Trust us, this will save you a lot of money on machine repairs in the long run.

Q. How do I deal with low turn stock?

A. Dealing with stock that’s just been lying in the warehouse for months can be very annoying. Try using a promotional strategy such as offering discounts or other offers with your low-turn goods. This will help you clear your warehouse faster.

Also, keep a close eye on current trends to understand what will sell and what won’t.