5 Critical Inventory Management Best Practices


Any small- to mid-size manufacturing business knows that effective inventory management is critical to success. With inventory tying up working capital stock turn is paramount. In addition non-turning stock takes up valuable space, may become outdated or obsolete and there is always a danger of shrinkage. It is critical to put in place inventory management best practices.

Manual Processes No Longer Work

One of the most common barriers to effective and accurate inventory management is a continued dependence on outdated manual processes. According to the “2017 State of Small Business Report,” a survey of over 1,100 small businesses conducted by Wasp Barcode Technologies, 43% of small business owners in the U.S. still rely on manual processes such as paper or spreadsheets to track inventory or they don’t even track their inventory at all. Any manual process significantly increases data entry mistakes resulting in sub-optimal inventory levels and dissatisfied customers.

If your business is part of the 43% noted above, we suggest exploring a fully automated ERP system that contains accurate inventory management capabilities. Its base functionality should include:

  1. Multiple valuation models
  2. Inventory tracking across multiple warehouses at multiple locations
  3. Inventory tracking on inbound, in-house, transfer and outbound items.
  4. Support for consignment and drop shipping
  5. Automation tools including barcoding, RFID and license plating
  6. Seamless integration with production planning including:
  7. MRP
  8. Production Order Management
  9. Multiple types of BOMS
  10. Comprehensive real-time reporting

With your new system in place implementing the following inventory management best practices will give you the best chance for success.

Strive for Optimal Stock Levels At All Times.

An optimal stock level is one that maintains just enough raw materials to keep your production line running at full capacity, and enough finished goods to satisfy current demand. Following this principle will enable you to keep carry costs to a minimum, freeing up much needed cash flow, deliver your products on time, and maximize sales revenue keeping both your customers and your CFO very happy.

Track Inventory Through the Supply Chain

Just because it’s not in your warehouse doesn’t mean it’s not in your inventory. Accurate real-time inventory tracking should cover inbound from your suppliers, in-house across multiple warehouses and locations, transfer (cross docking), and outbound finished goods.

Automation, Automation, Automation

Automating all inventory management processes reduces manual error, increases visibility and maximizes efficiency. EDI for connection to suppliers, and barcoding, RFID and license plating for accurate tracking and warehouse picking.

Undertake Regular Cycle Counts

Regular cycle counts help manufacturers achieve more efficient and accurate inventory tracking, and they improve financial reporting and prevent inventory-related issues before they arise. Specifically, regularly scheduled cycle counts can deliver more accurate inventory quantities, save labor costs, reduce the risk of downtime, minimize inventory shrinkage and associated losses and help improve decisions on reorder points.


Plan & Forecast

Accurate planning and forecasting determines optimal inventory levels. Automated replenishment goes part way to meeting current raw material and finished goods demand. However real-time inventory monitoring and predictive analytics will increase inventory optimization further.


Optimizing stock levels, preventing shrinkage, performing regular cycle counts, utilizing automation and having access to a 360-degree view of your inventory and all connected business processes can only be achieved through a fully integrated inventory management system.

If you’ve been considering the leap or you’re still on the fence, we are holding a free webinar on “How to Implement Inventory Management Best Practices” on 11th April @ 10.30 am Pacific. Register for Free. We would be delighted to have you attend. There will be a Q & A session where you can ask your questions to the experts directly.

Allan Lessing
Seasoned professional in enterprise business solutions – aligning for success – strategic, tactical and execution with ‘hands on experience’. Making it happen – from business process optimization through implementation to post implementation excellence.

2 Comments on “5 Critical Inventory Management Best Practices

  1. I looked into bar coding and RFID inventory control a while ago and decided it was not appropriate for our prototype development situation. These systems just get in the way with low volume problems. For instance: you don’t need a bar code and readout to keep track of your wedding ring, wristwatch, or car, right? At some quantity level the virtual model is inappropriate. The barcode and RFID salesmen I talked to seemed to have a “if all you have is a hammer everything looks like a nail” mentality. I understand that his job is to sell me his system, but if I look like an idiot for buying a system that is inappropriate I won’t be a repeat customer. I would appreciate some discussion of what these systems CAN’T do well also.

    • Hi Ian. I appreciate your comments. Very valid. As always, one has to look at the transaction and the value to the business of a transaction before throwing money at it. To throw 15 seconds and technology at a 1 cent item that you have thousands of (and even laying on the floor in the assembly cell) is certainly not a wise business decision.
      Any true strategic partner will tell you not to spend money on something you don’t need. Your comment is bang on.

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