How to implement effective inventory management

Move beyond spreadsheets. Use dedicated inventory management systems that track stock levels in real-time, across multiple locations, with automatic low-stock alerts. Integration with sales systems ensures accurate, up-to-date visibility. You can't manage what you can't see.

Reorder point = (average daily usage × lead time) + safety stock. Safety stock protects against demand spikes and supplier delays. Too little = stockouts and lost sales. Too much = capital tied up. Use historical data to set thresholds, then refine based on performance.

Categorize inventory: A items (20% of SKUs, 80% of value), B items (30% of SKUs, 15% of value), C items (50% of SKUs, 5% of value). Manage A items tightly with frequent review and accurate forecasting. B items get moderate attention. C items use simple reorder rules. Focus energy where it matters.

Analyze sales patterns: seasonality, growth trends, promotional impacts. Use forecasting methods: moving averages, exponential smoothing, or machine learning. Collaborate with sales and marketing on upcoming campaigns. Better forecasts mean less excess inventory and fewer stockouts.

Build relationships with reliable suppliers. Negotiate: volume discounts, flexible lead times, consignment inventory, vendor-managed inventory (VMI). Diversify suppliers for critical items to reduce risk. Strong supplier partnerships provide competitive advantage.

Don't wait for annual physical inventory. Implement perpetual inventory with ongoing cycle counts: count a subset of items daily or weekly. Investigate and fix discrepancies immediately. Accurate inventory data enables better decisions.

Track inventory turnover ratio: COGS ÷ average inventory. Higher turnover = less capital tied up, lower holding costs. Identify slow-moving items and create plans: discount, bundle, discontinue. Optimize turnover without sacrificing service levels.