Warehouse managers often face competing priorities. Common goals include maximizing profits, improving speed, and reducing inventory on hand. The right inventory management techniques and approaches help you set priorities, streamline operations, and boost both revenue and customer satisfaction.

What Is Inventory Management?

Inventory management is the process of knowing how much stock you have in your warehouse and how much more you need. It covers purchasing goods and raw materials, as well as managing them until they’re used or sold. It also includes key processes like auditing stock levels, setting minimum quantities, and ordering or reordering inventory when needed.

How Do You Manage Inventory Effectively?

There’s no universal set of inventory management rules that works for every business. Factors like warehouse size, number of SKUs, and the type of inventory all shape your practices. Whether you’re beginning with the ABC method or exploring advanced analytics, inventory management is a dynamic field. With modern software and evolving best practices, you can streamline operations and strengthen your bottom line.

21 Inventory Management Tips

Shifting demand, supply chain challenges, and rising competition are just a few of the obstacles businesses face in managing inventory. To succeed, it’s essential to keep up with the latest industry trends and strategies. Here are some key tips to help you get started.

Inventory Basics

Strong inventory management provides the foundation for running a successful business. Ensuring you have enough stock to meet customer demand and keeping it organized in the warehouse is essential. Here are some key tips to help you revisit the fundamentals of inventory management.

Learn About the Four Kinds of Inventory

Businesses carry different types and amounts of inventory depending on their operations. Broadly, inventory refers to the parts, materials, and finished products a company uses, produces, or sells. The four main categories are raw materials, work-in-progress items, finished goods, and maintenance, repair, and operating (MRO) supplies. Manufacturers often manage all four, while warehouses focused on e-commerce may only carry the latter two.

Raw Materials

Raw materials are the basic inputs used to create the products you sell. Examples include iron ingots, crude oil, and rough lumber. Some businesses never handle raw materials directly, instead storing only finished goods. Others, such as refineries and vertically integrated manufacturers, must manage both their raw inputs and finished products. Because certain raw materials can be volatile or sensitive to temperature changes, proper storage is essential.

Unfinished Products

Unfinished products are items a company stores but doesn’t sell directly, as they’re needed to create finished goods. For example, building a car requires thousands of components such as engines, brakes, airbags, and steering wheels. These parts must be stored and managed in a warehouse, but are not sold individually. They fall between raw materials and finished goods in the production process.

Finished Goods

Finished goods are products ready to be sold directly to consumers or other businesses. If an item is listed for sale on your website or available in a retail store, it qualifies as a finished good.

Maintenance, Repair and Operating Supplies (MRO)

MRO supplies include all the materials needed to keep your warehouse running efficiently. While they aren’t used directly to produce goods, they are essential for smooth operations. A broken part that stops an assembly line shows how disruptive missing supplies can be. Managing MRO through the same inventory practices as raw materials and finished goods is vital. Examples include tools, safety equipment, and machine fuel.

Manage Vendor and Supplier Relationships

Vendors are essential to your business, and without strong relationships, operations can suffer. Building trust ensures that when you need support or flexibility, vendors can respond quickly and help you avoid serious setbacks.

Here are a few ways to strengthen vendor partnerships:

Communicate: Stay in regular contact and share updates about stock trends and business plans. If you expect higher turnover from an upcoming promotion, notify vendors months in advance, not at the last minute. Sharing KPIs also allows them to align with your goals.
Treat them as partners: Follow the golden rule: pay invoices on time, provide ample lead time, and end relationships respectfully. Maintaining professionalism preserves bridges you may need to cross again later.
Understand their side: Learn how vendors produce the goods or materials you rely on. Understanding their processes builds trust and gives you insight into challenges they may face.

Plan for the Unexpected

Customer behavior can change quickly, and global supply chains face frequent disruptions. Having contingency plans in place allows your business to adapt when challenges arise. Some common situations to prepare for include:

Sudden demand surges: When demand spikes and stock runs short, lead time becomes critical. If you can produce goods quickly and efficiently, it’s easier to ramp up output. Strong forecasting tools also help, using historical sales and analytics to predict demand and optimize supply chain and warehouse operations.
Cash flow problems: Sometimes, demand is strong, but you can’t purchase inventory due to limited cash flow. To prepare, set up a line of credit, improve accounts receivable processes so you get paid faster, and explore longer payment terms with vendors (such as net 60) to hold cash longer.
Limited warehouse space: Running out of space can disrupt operations. To address this, consider vertical storage, mezzanines, and narrower aisles. Barcode scanning systems can also improve sorting, tracking, and storing, especially when integrated with your inventory management software.
Excess inventory: Overstocking ties up capital and slows turnover. The best solution is prevention through better forecasting. But if it happens, bundle items, run promotions or sales, or reposition products for new audiences with targeted marketing.

By planning for these challenges in advance, your business can react quickly, minimize risks, and stay prepared for the unexpected.

Inventory Policies

What happens after inventory arrives? Setting clear intake procedures and defining restock points ensures your warehouse runs smoothly and can scale to meet future demands.

Prioritize Your Inventory

Place fast-moving items in easily accessible areas, while slower-moving stock can be stored further from the loading dock. Reorder high-demand products more often. To store and order inventory efficiently, analyze its characteristics such as cost, lead time, order minimums and maximums, and size, then organize and stock based on priority.

Understand the 80/20 Inventory Rule

The 80/20 inventory rule shows that about 20% of your products generate 80% of your profits. The key isn’t removing the less-profitable 80%, but making sure the top 20% reaches its full potential. This means always keeping these items in stock, protecting them from damage, and storing them in easily accessible areas of your warehouse or facility.

Be Consistent in Receiving Stock

When new stock arrives, check the number of pallets, boxes, and SKUs it contains. Record this in your warehouse management system (WMS) and then place the stock inside the warehouse. Following the same process every time reduces errors between system records and actual stock. Linking your SKUs with your WMS also strengthens the receiving process by tracking product quantity and location. Strong inventory management begins with accurate intake policies so you always have the right products available to meet customer demand.

Order Restocks Yourself

Instead of letting vendors handle re-orders, manage them directly. This gives you better insight into customer demand and helps with sales forecasting. Inventory management software can support you by setting automatic reorder points and tracking sales history. While it may take more effort, managing restocks yourself saves time, ensures products are available to meet customer needs, and helps you control warehouse space by keeping the right amount of stock on hand.

Inventory Methods

Inventory methods focus on three main priorities:

Sell stock for the highest possible profit.
Maintain the lowest amount of inventory needed.
Ensure customers remain satisfied.

Audit Your Inventory

Effective inventory control starts with counting what you have. Knowing accurate inventory levels is the foundation of proper management. But how do you audit inventory, and why does it matter? An audit compares the physical stock on hand with what’s recorded in your software. You can do this yourself or hire a third party for support. A complete audit goes further than a simple count; it also reviews key performance metrics, such as inventory turnover ratio and inventory costs against historical trends. Conducting regular audits highlights areas for improvement, such as inefficiencies in receiving, and helps monitor shrinkage to keep losses under control.

Understand Economic Order Quantity (EOQ)

EOQ is the ideal number of units your business should buy to meet customer demand without holding too much stock. For fast-moving items, this often means larger orders, while slower, high-value products require smaller quantities. But sales velocity isn’t the only factor. EOQ also depends on costs for production, shipping, storage, and handling. By learning to adjust EOQ correctly, you can reduce excess inventory, lower storage and handling expenses, and increase overall profitability.

Learn How EOQ Relates to Minimum Order Quantity (MOQ)

EOQ represents the ideal number of units to order, while MOQ is the smallest amount a supplier will sell. For instance, some products may only be available in full pallet or container increments. If a supplier’s MOQ is higher than your EOQ, you may need to choose another vendor, switch products, or accept less-than-optimal terms. Strong vendor relationships can also help, as suppliers may be willing to adjust requirements, create custom order options, or lower the MOQ to better fit your needs.

Set Par Levels

A par level is the minimum amount of inventory you should have before placing a reorder. With a par-based approach, instead of always reordering the EOQ, you only buy enough to raise stock back above the par level. It’s also important to ensure that your order quantity meets or exceeds the MOQ for that item. To calculate par, start by finding the average number of units used during a set time frame, often a quarter. Then add safety stock to cover demand spikes. A common guideline is 25% of the usage during that same period. You’ll also want to factor in delivery frequency and reliability. Finally, check whether the order amount will meet the supplier’s MOQ. The formula looks like this:

Par level = (Average inventory used + safety stock) ÷ number of deliveries in the time period

The benefit of par levels is simplicity once established; reordering becomes straightforward. However, par levels aren’t permanent. If sales velocity changes or seasonality comes into play, you’ll need to revisit and adjust them.

Inventory Control

Several inventory management techniques can help improve efficiency. The three main ones are the pull strategy, the push strategy, and the just-in-time (JIT) strategy. With the pull strategy, customer demand determines inventory levels. The push strategy, on the other hand, relies on forecasting and predicted demand. The JIT strategy focuses on producing items only when an order is placed. The method you choose will depend on your industry, business type, and overall approach to managing inventory.

Know When to Use ABC Analysis

ABC analysis is useful for both inventory cost management and warehouse slotting. Simply put, inventory can be divided into three groups. For cost management, category A includes the top 25% of inventory by profit, category C covers the bottom 25%, and category B sits in the middle. For inventory management, you swap out “profit” for “velocity.” Your fastest-selling items may not always be the most profitable. By identifying which products move the quickest, you can fine-tune ordering and stocking strategies, unlocking savings through bulk purchasing discounts and more efficient warehouse operations.

The goal of ABC analysis is maximization. You aim to make your most profitable items even more profitable, or your fastest-moving items sell even faster. ABC analysis can help achieve this. However, if your business carries many types of inventory with competing priorities, ABC analysis may not be the best fit.

Weigh the Benefits of Just-in-Time (JIT) Inventory Management

For manufacturers, JIT can be a smart way to cut storage costs by ordering only what is needed for production. For instance, if you must deliver 13,000 widgets that require 13 tons of W2 steel and seven days of production, you’d schedule your steel delivery exactly seven days before the deadline. The material goes straight to the assembly line, and the finished goods ship out immediately. This way, you avoid holding raw materials or finished products in storage. The drawback is that JIT leaves you more exposed to supply chain disruptions.

Preserve Perishable Goods With First Expiring, First-Out (FEFO)

Businesses that handle perishable items, like food, should rely on FEFO. This method ensures that goods with the earliest expiration dates are shipped out first, giving them the best chance of reaching customers before spoiling.

FEFO principles can also apply to non-perishable items, much like first-in, first-out (FIFO). The longer products sit in storage, the greater the risk they’ll be damaged or become outdated. Prioritizing older inventory helps keep items useful and marketable.

With FEFO (and FIFO), design your warehouse slotting so the oldest goods are placed nearest the loading dock. This makes picking and packing faster and more efficient.

Use Last-In, First-Out (LIFO) Methods Sparingly

LIFO is sometimes used by warehouses to protect against rising costs. For products like cars, where prices often climb, the newest inventory is usually the most expensive.

By selling these higher-cost, last-in items first, profits appear smaller. This reduces reported taxable income and can lower a company’s tax bill. Tax savings are the main reason to use LIFO.

However, LIFO is only allowed in the United States and is discouraged under generally accepted accounting principles (GAAP). Because of this, it is best applied sparingly and only in specific cases.

Inventory Reporting & Analysis

Optimizing a warehouse begins with data. Gathering, sharing, and analyzing inventory information across your business and even beyond the warehouse provides insights that help you predict needs and prepare your operations for the future.

Start Your Analytics With Accurate Data Collection

Inventory managers rely on data to optimize warehouse storage, control costs, and improve processing speed. Key data points include supplier details, lot numbers, SKUs, and picking levels. Tracking these creates a valuable foundation for analytics. Inventory management software can help capture and store this information accurately, often integrating with UPC scanners and RFID devices to reduce manual entry. In addition, these tools can deliver insights through clear dashboards that display inventory metrics and KPIs, making data easier to understand and act on.

Use Your Data to Begin Forecasting

Once you’ve collected enough data, the next step in analytics is forecasting. Inventory management software can generate reports and dashboards that analyze historical data and sales velocity, projecting future demand. The most effective business intelligence tools are built into inventory platforms and grow with your business.

Here are a few ways to start forecasting:

Calculate lead time demand: Measure how long it takes vendors to fulfill orders. This helps determine the stock you need to cover demand during that period.

Formula: Lead time demand = Average lead time in days × average daily sales.

Monitor sales trends: Review both short-term micro trends (weeks) and long-term macro trends (months or years). Look for seasonality and recurring patterns.
Set a reorder point: Automate this step with software. It’s especially useful for top-sellers and high-margin products.

Formula: Reorder point = (Lead time × average daily sales) + safety stock.

Inventory management software is key to accurate forecasting, automating critical steps and providing actionable insights.

Inventory Management Technology

With modern technology, warehouse managers can move beyond manual processes and take the final step toward optimization and automation.

Consider Investing in Inventory Management Software

If you’re still relying on clipboards and spreadsheets, your business has likely outgrown them. When you spend more time tracking and auditing inventory than managing people, it’s time to automate. The right inventory management software can capture intake data automatically, monitor stock levels, flag price changes, and more, freeing you up to focus on your core business.

Build Stable Integrations

Your inventory system becomes even more powerful when connected to other data sources. For example, integrating sales data shows when products gain or lose velocity, helping you adjust par levels. Marketing data reveals how campaigns impact demand, letting you optimize stock and warehouse operations. Enterprise resource planning (ERP) platforms with inventory features pull all of this together into one system for smarter decision-making.

Expand Your Technological Horizons

Advanced tools allow you to automate processes across your warehouse and beyond. For retailers, connecting inventory software with POS systems ensures sales immediately update stock counts and trigger automatic reorders when levels dip below par. Going further, integrating your ERP across accounting, marketing, and supply chain operations creates a single ecosystem that improves efficiency, accuracy, and responsiveness across the business.

Manage Inventory Effectively With Dynamic Distributors

Keeping track of inventory can be challenging, especially when priorities change quickly. At Dynamic Distributors, we make it easier with clear, organized processes and strong supplier partnerships. We keep a close eye on stock levels, restock items before they run out, and make sure every product is traceable from start to finish. From storage and delivery to sales, returns, and repairs, we help you keep your operations smooth and efficient.

21 Key Inventory Management Tips & Methods