8 Effective Inventory Management Techniques Every Industry Should Employ

8 Effective Inventory Management Techniques Every Industry Should Employ
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Inventory management has always been a convoluted and time-taking process for all types of industries.
But today, extensive research and development in this field have led us to many effective techniques, proven to simplify the inventory management process.
These management techniques streamline as well as automate inventory management. Further, there are specific techniques that play well with some businesses but don’t work for others.
Choosing the correct method based upon your needs is a very crucial task that should be done with complete care. Sometimes, you might need to use a mixture or combo of two or more techniques to get better results. 
In this article, we will discuss some of the most efficient and widely used inventory management techniques that industries should employ to get good results.

Let’s take a look at some of these techniques in detail:


1. Just-in-time Inventory Management

Just-in-time inventory management technique, as the name suggests, is a method of inventory management in which the raw material required for production is made readily available from the vendor as per the requirement.
And, only that quantity is ordered, which is required  to fulfill the order at that point in time. You can say that inventory is requested on an as-needed basis instead of overstocking and risking deadstock.
By eliminating deadstock, this technique assists in improving cash flow, lowering inventory holding costs, and cutting down the wastage. But sometimes this technique also generates the risk of stockouts, resulting in disturbance in production.
Therefore it is recommended that the demand forecasting be as accurate as possible for businesses employing this method.

2. ABC Analysis

ABC inventory management technique involves the segregation of the inventory into three categories, for example, A, B, and C.
These divisions are made based on the value and profit generation ability of the products present in the inventory. 

  • The products which hold a high value but are lower in the stock volume are categorized under “A.”
  • Products that hold moderate value and have medium stock volumes are categorized under “B.”
  • Finally, the products that hold very little value but are high in the stock volume are categorized as “C.”

As different items in your inventory hold different values, ABC analysis techniques can help you manage your inventory and resources effectively by assisting you in focusing on higher-value and profit-making resources.
Cycle Counting Inventory Mangagement

3. Cycle Counting

Cycle counting is a popular inventory management technique where a small amount of inventory, falling in a specific area of the warehouse, is counted on particular days.
It is a type of sampling method in which the count of a particular number of items represents the count for the whole stock. The technique is similar to opinion polls carried out during elections, where a group of people is asked for their opinions.
Those opinions are inferred as of the whole population’s views. This technique mitigates the need to count the entire inventory.
Cycle counting is usually carried out for auditing purposes. For this purpose, the cost of inventory in records should match the cost of inventory in the actual warehouse.
This method is useful when you don’t want to disturb the ongoing activities in the warehouse, and the part of the warehouse where the counting is performed needs to be on hold. This method is useful for attaining inventory accuracy, because  even if the whole inventory counting process is full of errors, it could be easily detected in the sample counting.
Moreover, this method is time as well as cost-efficient compared to the total physical stock counting.

4. First-In-First-Out (FIFO)

FIFO is an inventory management technique in which the main focus lies in selling the oldest products first.
This technique is considered ideal for perishable products, including food items, medicines, etc. Using inventory management software is a good practice for this method. It’ll automate the complete documentation and accounting procedures for the inventory.
The software will help you quickly segregate the first-in or oldest products and assist you in putting them in the front of the queue, so that it sells first, mitigating the possibilities of wastage or losses.
FIFO ensures that your inventory is always fresh and managed effectively.

5. Last-In-First-Out (LIFO)

LIFO and FIFO are both accounting methods that are usually practiced to estimate the value of your inventory and the profit earned.
LIFO, in contrast to FIFO, focuses on selling the last added items first from the inventory. This technique is considered ideal for non-perishable goods such as stones, bricks, etc.
There’s no need to rearrange your inventory or line-up the items based on their arrival as the newest inventory is anyways lined up at the front so that they could be  sold first.

6. Economic Order Quantity (EOQ)

EOQ is a technique that concerns the quantity of the inventory that should be ordered to minimize the carrying as well as purchasing costs.
Usually, when you buy products in bulk from the seller, you have to pay less. In the same way, this technique is used to order the maximum number of inventory that can provide a higher discount and leads to less cost of ordering. But with an increased number of units, the carrying costs also increases.
EOQ effortlessly balances the increase in inventory and the increasing carrying costs. It helps reduce the overall costs from ordering to storing the stock and mitigating conditions like overstocking and understocking.
Maintaining Safety Stock

7. Maintaining Safety Stock

Maintaining safety stock is a fundamental and fruitful technique for every business.
Safety stock refers to the additional inventory that is kept aside by companies for use in emergencies such as stockouts or when the supplier runs out of stock.
During these situations, safety stock can play a significant role in meeting the order deadlines and maintaining the reputation.
Therefore keeping an optimum level of safety stock is essential for every business to ensure that time is not wasted, and the production never stops.

8. Drop Shipping

Drop Shipping is quite popular among ecommerce businesses.
It is a type of retail fulfillment method where the online seller is not required to store inventory. Instead, the customer orders and shipment information are conveyed to the vendor or manufacturer who then directly ships it to the customer without any requirement of seller interference.
This method is affordable as well as useful practice for new ecommerce businesses. Moreover, Drop Shipping eliminates the need for warehouses and thereby the holding costs. 

Summing Up

Inventory management techniques discussed above can help you manage the most complex and tedious tasks in your inventory management process.
Before installing inventory management software, it is advisable to understand these techniques and get yourself clear about the type of method relevant to your business.
An appropriate inventory management technique can help you do business with ease and lead you towards savings and generating higher profits.


Hi There, I am Shaun Williams, a content writer with Goodfirms, a research platform for Cloud Computing, Ecommerce companies, Inventory management software companies, among many others. I enjoy communicating ideas and knowledge creatively and also ensure that the readers never suffer from boredom while reading my posts.

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