Steps to Effectively Manage Your Inventory

Technology and automation have dramatically streamlined modern business processes. The logistics industry in particular has grown tremendously thanks to modern advancements. Despite the power of technology though, eCommerce brands still need to have effective inventory management systems in place to optimize their order fulfillment processes.

To optimize your inventory management, it’s important to use a combination of the best practices and industry-leading software solutions. By streamlining your inventory management, you can cut back on unnecessary expenditure, fulfill orders quicker and increase your bottom line.

How to Create an Inventory Management Process That Just Works

Here are the best practices for creating an inventory management process that works for every successful business. 

Data is Your Hero

Accurately reporting your relevant inventory data is a vital part of an effective inventory management system. All the data including your beginning inventory, how many finished inventory items were shipped out, your cost of goods sold (cogs), product returns, deadstock, and inventory quantity need to be accounted for.

To report data accurately, your team needs to be actively engaged in supply chain management. Make a point to count inventory and compare the value with the figure on the GRN (Goods Received Note). If you deal with perishable items, you need to be especially careful about expiration dates. You should pay attention to any stock damage or returns and keep a comprehensive written record.     

Implement a Warehouse Management System

A warehouse management system is a collection of software and processes that enable a business to control and monitor all operations within the warehouse. 

A warehouse management system gives businesses real direction and control over their warehouse processes. With a system in place, you can optimize each process and use analytics to monitor performance. 

Warehouse management software lets you monitor assets from the time they’re delivered from the manufacturers to the time they reach your customers.

A strategic warehouse management system streamlines restocking and logistics operations and uses demand forecasting tools to balance your inventory levels. WMS software tools take care of important calculations like your economic order quantity. 

They also integrate well with any system, whether it’s the periodic inventory system or the perpetual inventory system.  

Or Work With a 3PL

As your eCommerce store grows, keeping up with order fulfillment becomes increasingly difficult. Brands reach a point where to keep up with demand, they have to decide whether to:

  1. Hire more, specialized logistics personnel to handle the increasing demand.
  2. Hire less experienced staff and train them up.
  3. Work with a third-party logistics provider (3PL).

Initially, many businesses shy away from option (3) because of the significant upfront costs. However, in the long run, the third option cuts back your expenses and optimizes your fulfillment process.

With option 1, the costs of hiring specialized personnel add up. Moreover, as your brand continues to grow, you might have to hire even more employees to keep up with the demand. 

On the other hand, option 2 puts you at risk of heightened expenses due to inexperienced team members and more mistakes. An inexperienced team translates to delays and incorrect orders.

Third-party logistics (3PL) providers, on the other hand, give you access to a team of experienced professionals without you having to pay salaries and benefits. They’re partners; not employees. About 86% of Fortune 500 companies and 96% of Fortune 100 companies use 3PL services.

Audit your Existing Inventory Management Processes to Discover and Analyze Issues

An audit of your management processes identifies problems that you can improve to streamline inventory processes. 

For example, is your picking team finding it difficult to locate items? Then it’s time to organize your inventory better. A ratio analysis where you compare your current financial year to the last helps identify potential performance issues too.

If last year’s numbers were better, you might be losing revenue on unnecessary expenses, like storage costs due to overstocking. 

After discovering problems in your management processes, you can take proactive steps to solve them and streamline your fulfillment process.

Implement an ERP

An enterprise resource planning (ERP) system is software designed to help organizations manage their daily business tasks. An ERP can manage a multitude of business activities ranging from accounting and HR to risk management and supply chain operations. 

You can move your financial data over to the software after installing it. The inventory software is then free to organize warehousing operations and manage inventory logistics. 

With an ERP, you can monitor your operations through your mobile devices, and the software facilitates integrations with popular eCommerce applications including eBay, Amazon and Shopify. 

Use Multiple Fulfillment Centers

While a single fulfillment center seems more cost-effective because of the reduced storage costs, there are some additional expenses you need to consider.

Having multiple, strategically located fulfillment centers cut down your delivery times and costs. This is because your business can fulfill orders from the center nearest to the recipient. It also means you can offer expedited shipping, which consumers have come to expect as standard practice.

Since small businesses can’t always afford the overheard that follows using multiple centers, many turn to a 3PL provider instead. Leading 3PLs have their own network of distributed fulfillment centers that you can utilize by partnering with them.

Change your Inventory System

It is crucial to choose an inventory valuation method that best aligns with your business model. With the first in, first out method there are certain advantages, such as a reduced risk of obsolete inventory and a reduced inflationary impact. 

The valuation method you select can significantly influence your inventory management process. You need to choose one that best suits your business. 

The first in, first out (FIFO) method offers certain advantages, like reduced risk of obsolete inventory and less inflationary impact. But some businesses choose to swap from FIFO to methods like JIT.

The ‘just in time’ (JIT) method requires less storage space, because you buy stock on an immediate-need basis. Using this method also means you have working capital to invest elsewhere, rather than having it tied up as stock. 

JIT also reduces your chances of overstocking significantly. But, at the same time, JIT doesn’t leave much room for error or delays. If your supplier runs late, and customer orders are coming in, orders may end up delayed or unfilled altogether.


Effectively managing your inventory improves the efficiency of your entire fulfillment process, leading to faster deliveries, accurate orders, reduced costs, and happier customers. 

You can optimize your inventory management by implementing the best practices, including leveraging distributed fulfillment centers, implementing an EPR, and taking a data-driven approach. 

However, managing your inventory processes isn’t easy, especially if your eCommerce brand is growing rapidly. If you’re struggling with inventory management, ShipHero’s warehouse management software and team of experts can help streamline your operations. 

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