What Managers Should Know about Inventory Management

Inventory management is one of the most essential aspects of running a business. There are many people who think that managing inventory is something that does not really matter over the long term. However, a solid inventory management strategy can lead to a higher rate of return for people who are invested in the business. Carrying too much inventory is an inefficient use of capital for the business. Anyone who wants to make major changes in their inventory management strategy needs to keep both the short term and the long term in mind. Here are several tips for anyone who is trying to upgrade their inventory management strategy.


There are few things more important to inventory management than forecasting. Over a long period of time, the ability to forecast sales will allow you to carry less inventory in more efficient places. The more inventory that is carried, the less return the business is getting on the capital invested. High amounts of inventory after a season means that the product will have to be marked down. Over a long period of time, carrying too much inventory has a lot of different costs to the business. Learning how to use forecasting to your advantage will radically improve your current inventory management strategy. Over the long term, this can be a huge value added area to your business.

Margin Erosion

When too much inventory is carried, this leads to margin erosion in the business. Margin erosion is when the retail price of the product has to be lowered in order to clear out the inventory. There are very few companies that can afford to have the margin eroded in the business. If you are a business that wants to stay at the top, it is essential to improve margin over a long period of time. Margin erosion can be prevented by carrying the proper amount of inventory. Many companies are forced to slash prices when they carry too much inventory during a period of time. Using forecasting methods and software, many companies can drastically reduce the amount of inventory that is carried during a period of time. Always keep this in mind when you are managing the inventory in your business.

In Stock

One of the most essential indicators of a solid inventory management strategy is the percent of time a product is in stock. There are many companies that have a low in stock percentage on their products. This means that the products are not on the shelf for the customers to buy. Anyone who wants to improve their in stock percentage needs to make sure they are sending enough inventory out to the stores. Over a long period of time, a higher in stock percentage leads to higher sales in the marketplace. In order to maximize sales for your business, it is essential to have the product on the shelf to sell to customers.

There are many people who do not have a thorough understanding of the inventory management process. Anyone who is looking to increase the rates of return in their business needs to make sure they are maximizing sales and inventory turns. Carrying too much inventory means that markdowns will result in margin erosion in order to clear the inventory. However, when too little inventory is on the shelf the sales are not being maximized for the business. Anyone who is looking to improve their business overall needs to make sure they have a solid inventory management strategy. This is a huge area of opportunity for many business owners because so few people truly look at this area of the business. Anyone who wants to increase the rate of return in their business needs to be sure to revamp their inventory management using forecasting and other software, such as a checkweigher. Over the long term, the business will have a higher net income that can be invested in other areas of the business.

Photo Credit: Flickr/Emily Lynch

This guest post is courtesy of Dennis Hung.

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