What Is Inventory Management: Tips and Tools for Maximizing Profitability


Inventory management is different from inventory control. Inventory control is limited to tracking what you already have in stock, both in your store and in your warehouse. Inventory management involves a more holistic approach.

Inventory management is the process that allows retailers to understand and manage product inventory. It’s the process of overseeing and supervising inventory and stock, and it includes monitoring ordering, storage, and fulfillment.

Essentially, inventory management allows retailers to control and manage everything from manufacturing through to point of sale. Records of where product came from, where it is now, and where it ended up allow retailers to understand how, where, and why inventory is moving.

Is Inventory Management Important?

Inventory management is essential for retailers of all sizes. Though it sounds simple, inventory management actually provides insights across your entire business. The benefits of inventory management are nearly infinite, but here are some of the major players:

Increase Profitability

Inventory is capital, essentially. If your inventory isn’t moving, your money is tied up. Plus, that inventory is sitting, not generating any new money, which doubles the blow to your bottom line. Inventory management works hand-in-hand with cash flow management. With more predictability around when a product will sell, you’ll understand how much to order and when and how to market the product to generate revenue.

Accurate Forecasting

Along the lines of better predictability, effective inventory management allows you to forecast far more accurately. Instead of planning purchasing decisions based off estimates, robust inventory management systems can provide accurate data: how much product was sold during the last promotion or time period, who bought it, how much revenue it generated, and much more. Looking at all of these factors and considering any new ones, such as changes in marketing budget, can help you plan more precisely.

Prevent Shrinkage

Shrinkage, which is what happens when inventory goes inexplicably missing and you have fewer products than you should, cost retailers $60 billion in 2015. Unfortunately, a lot of this is due to employee theft. With an efficient inventory management process in place, you can keep a closer eye on your inventory, thus mitigating risk for shrinkage.

Avoid Stock-Outs or Overstocking

Retailers around the world lose $1.1 trillion due to stock-outs and overstocking. Because these challenges are so pervasive, many modern brands are tackling them head-on with innovative ways of mitigating inventory risk. For example, Taylor Stitch uses a crowd-sourcing model to avoid overstocking. Their CEO, Michael Maher, says, “it’s crazy to invest so much money and effort in something that people might not actually want. I’d much rather be invested in fabric than a bunch of finished size 40 jackets that no one wants to buy.”  Without inventory management, it’s difficult to understand when you’re running low on product, and when you have too much—especially for brands selling on multiple channels.

Tackle Omnichannel Selling

Omnichannel is much more than simply selling in multiple marketplaces or stores. Today’s customer wants the ability to buy online and pick up in-store, or find something in the store and have it delivered to their home. They also expect personalization and consistency across all your sites and stores. What was once an industry buzzword is now an essential component of the modern retail landscape that brands must invest in if they want to succeed.

It’s no secret that omnichannel selling has huge potential for retailers — customers who purchase both online and in-store have a 30 percent higher lifetime value. But without inventory management in place, it becomes increasingly difficult to streamline the customer experience across all touchpoints, something that today’s consumers not only recognize but also demand. In fact, 63 percent of consumers are willing to pay more for the same product from a brand that offers a simpler experience.

Improve Accuracy and Save Time With Automation

Some retailers use spreadsheets to monitor inventory. This might work for smaller businesses with a single channel, but isn’t a scalable solution for fast-growing brands and retailers. , A robust inventory management tool, that can monitor product across all your sales channels, can help you understand many facets to your business.

Understand Your Customers

Even though inventory management is the process of monitoring product, it can also help you get to know your customers. Inventory management systems that integrate customer data can tell you a lot about your target market: where they like to buy, how they shop, how much they spend, how frequently they convert, and more. This information can help you communicate and market more effectively, as well as predict demand for product lines.

Inventory Management Tips

Set Par Levels

Inventory par levels are the minimum quantity to stock of a given product. Par levels indicate when it’s time to restock on product lines that are running low. Par levels are insightful for short-demand, and it’s not uncommon for them to change over time. With an inventory management process in place, you’ll be able to forecast short-demand to better establish par levels. Factor in external market research to establish a reasonable par level. An inventory management system will alert you when you’re nearing, at, or below par levels so you can restock and meet immediate and short-term customer demand. Without par levels, the risk of stock-outs is much greater.

First-in, First-out

The concept of first-in, first-out (FIFO) is simple: The first products in the warehouse are the first products to leave. However, for many retailers, this isn’t always the case. Some product lines sell more quickly than others, while other products might face higher demand at certain times due to seasonality. Prioritizing the sale of goods in this manner can help prevent product expiration, such as outdated clothing styles. An inventory management system will help you determine which products were purchased first and, thus, which ones need to be sold first.

Regular Auditing

Even if you have an efficient inventory management practice, it’s important to conduct regular audits to ensure the accuracy of your data. Many retailers conduct annual audits, often in conjunction with tax season. This is a great practice, but auditing should happen much more regularly than once a year. If you encounter discrepancies, it’s easier to look a few weeks back than a few months to identify the source of the problem. It’s also not feasible to audit your entire inventory every month. Instead, consider putting product lines on a schedule for regular audits. You can also do random spot checks to make sure everything adds up as it should. Random spot checks are especially helpful for products that are in high demand.

The Best Tools for Inventory Management

When identifying tools to use for inventory management, it’s important to look for options that integrate with other software you use in your business, like your point of sale, shipping and fulfillment, and eCommerce site software systems.


Point-of-sale tools can work with your inventory management systems to provide even more data (sometimes real-time!). Shopify POS, Lightspeed Retail, and Square are just a few that are widely compatible and have robust functionality and reporting.

Shipping and Fulfillment

Shipping and fulfillment are major aspects to inventory management. ShipStation connects with your selling channels and uses automated emails and tracking numbers that allow customers to monitor their order status, among other features. ShipVine, FedEx Supply Chain and Newgistics are other tools to consider.


Inventory management and cash flow management go hand in hand, which is why it’s essential to integrate accounting tools into your inventory management process. Xero has retail-specific features, integrations with POS, and payments features where you can manage inventory-related expenses. QuickBooks can also help manage accounting and inventory in one place, inDinero also connects with customer orders and provides forecasting insights.

Omnichannel Inventory Management

Stitch Labs is equipped to grow with your business, easily handling omnichannel inventory management. Whether you sell retail or wholesale — or both — Stitch Labs provides detailed reports on inventory, purchase orders and fulfillment in a single platform. You’ll be able to predict stockout dates, understand customer demand, and maximize profitability by helping you make data-backed decisions.

Once your inventory management processes are in order, the next step is to explore advanced inventory planning. Learn how with this guide to inventory planning.


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