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Effective Inventory Management Techniques to Take Your Business to the Next Level

 As your business grows and the demand for your products or services increases, you need to make sure that your inventory management process keeps up with the pace. You want your business operations to continue to run smoothly, without your overhead costs being increased.

Effective inventory management will help you lower your costs and, accordingly, increase your profits. This is because storage space can be very expensive, especially when your business is growing. So, by managing your inventory properly and avoiding a surplus of items in storage, you’ll need less storage space and lower your costs.

This is especially important if you have multiple locations for storing your inventory. Most of all, effective inventory management will help you satisfy your customers, as you will be able to deliver your products quickly and without issues.

In order to improve your inventory management and cash flow, and take your business to a whole new level, you need to use sound inventory management techniques. Today, we’ll explore the most important ones.


Setting Inventory Par Levels

One of the most essential inventory management techniques is setting your inventory par levels. Par levels represent a minimum quantity of a particular item that should always be in stock. When an item’s quantity goes below the set par level, you know that it’s time to place a new order. If you have a properly configured ERP system, that order can be placed automatically so you’re never short on stock.

The key here is to order the minimum amount of particular products that will enable you to go above the par levels. You do not want to end up with either excess inventory or the need to order again in a short period of time. However, you need to make sure that you regularly check on your par levels, so you can adjust them properly according to the change in product demand.


First-In, First-Out (FIFO)

First-In, First-Out is a very important inventory management technique that you need to use. It represents a principle of selling your oldest goods first, instead of selling those that you just put into inventory.

If you always sell your newest goods first, the older ones will spoil over time and you’ll end up with products that you can't sell. Even if you store products that aren’t perishable and can’t exactly spoil, the boxes they’re in will eventually become worn out and you’ll still end up with unsellable products.

Also, their design may change over time and you will again have a lot of goods that you can’t sell. Therefore, if your older items keep sitting in the back of your storage, while you keep selling those that just got in, they are not likely to find their way to your customers. It’s always better to use the FIFO method rather than the LIFO (Last-In, First-Out) method.


Accurate Forecasting

If you’re not able to accurately predict your future sales, you may end up either overloading your inventory or not having enough when you need it. This is why you need to make sure that you create accurate forecasts for your product demands.

First and foremost, you need to keep track of the market trends, because they tend to change rapidly. You also need to take a look at your growth rate for the current year, as well as your weekly sales from the previous year. Checking those weekly sales every single week and taking the overall economy in account will help you project your future sales much more accurately.

However, in order to do so effectively, you need to know which products’ demand can actually be predicted. Classify your products as predictable and unpredictable, so that you can create accurate forecasts for the former and keep the latter on a deliver-on-order basis. That way, you can deliver your products quickly and significantly reduce your storage costs.


Proper Inventory Counting

It really goes without saying that you need to conduct proper inventory counting on a regular basis, so that you can have a clear insight into your stock and make sure that your workflow doesn’t get disrupted. There are two basic methods for counting your inventory that you can use: a perpetual inventory system and a periodic inventory system.

Perpetual counts include continual tracking of your inventory. You count your inventory as your goods come in and out, and update your inventory information accordingly. On the other hand, periodic counts include occasional physical counts of your inventory. This means that you track your items on a weekly, monthly, or quarterly basis.

Many business owners only conduct an annual inventory count, but that can be very disruptive. Not to mention that if you do happen to discover a discrepancy, it can be very difficult to find the source and time of the issue. Therefore, stick to perpetual or periodic inventory counts.


Smart Contingency Planning

There are a lot of problems that can arise when it comes to inventory management, so it’s crucial that you always have a contingency plan in place. You need to identify the potential risks and determine the best ways to solve these problems, so that they don’t negatively affect your business.

For instance, your sales may significantly increase and you empty your entire stock. A seasonal spike in sales may result in your warehouse not having enough storage room for all the goods you need to fulfill the orders. Or, you could miscalculate your inventory and not have enough high-demand products in stock.

There are many more issues that you may encounter, so it’s vital that you know what to do to solve them. That is why proper contingency planning is one of the most important steps that you need to take in order to manage your inventory effectively.



These are the most important inventory management techniques that you should use to make sure that you have complete control of your inventory. Start implementing them as soon as possible and not only will you reduce your costs, but you will also improve customer satisfaction and start generating more sales and ROI.

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