What is inventory management?

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The ebb and flow of inventory is a complex process.

And more than just a simple supply chain component, precise inventory management is the cornerstone of business success. 

A successful inventory management strategy will improve business performance, save time, reduce costs, and create a positive customer journey.

Continue reading to understand the basics of inventory management and why using an inventory management software is necessary to guide your high-growth business toward success. 

What is inventory management? 

In its most basic form, inventory management is a component of the supply chain that tracks the acquiring, storing, and selling of the stock of physical products. However, simply following the course of the product isn’t enough. Effective inventory management means the ability to have visibility over your stock levels, locations and movements at all times. 

The process of effectively managing inventory begins with being aware of what needs to be purchased and subsequently tracking that product from supplier, to warehouse, to shipping, and finally to the customer (and when returned if applicable). All while keeping inventory details correct across all sales channels

Furthermore, inventory management is also correctly anticipating the demand for products based on historical data trends and modeling before changes (such as holidays or weather events) occur. 

How does inventory management reduce costs and improve your business?

Inventory management helps your business improve on multiple levels, from reducing costs to creating a positive customer experience. It does this by: 

  • Providing data trends and models to predict the amount of stock you need to purchase: This significantly reduces the amount of money wasted on overstock. Accurately predicting the correct amount of inventory required means less deadstock sitting on the shelves in the future. It also helps you to predict the amount of stock needed to avoid stock-outs and losing out on sales. 
  • Synchronizing orders and inventory across all online marketplaces and selling channels: Synchronization prevents overselling and stock-outs by adjusting stock levels each time a customer makes a purchase. The products listed across platforms then accurately represent the physical products in stock for purchase.
  • Stocking and tracking inventory in multiple locations: The ability to stock and track inventory across multiple locations reduces costs. This is because rather than just stocking products in one physical warehouse, you can store them in different regions of the US and internationally. This reduces the cost of shipping because your products are physically closer to their final destination, which helps avoid international shipping and customs charges. Doing this also drastically shortens supplier lead times, which reduces the amount of extra inventory you need to have on the shelf. This also keeps the overhead costs of storing inventory down as well. 
  • Improves the customer experience: Customers want convenience at every turn, particularly in shipping and delivery transparency. According to these ecommerce trends from a shopper survey, 72% of consumers have abandoned a cart over a lack of shipping and delivery information. Inventory management allows you to track products every step of the way, ensuring you can provide your customers with accurate and timely tracking information.

Why you need inventory management.

The benefits of using an inventory management system are undeniable. But what can happen when inventory management is inadequate?

In 2020 a new age of retail emerged, and 84% of consumers began shopping online more than ever before as a result of the pandemic. The combination of increased demand, international shipping disruptions and factory shutdowns created catastrophic inventory management complications for many ecommerce businesses. Even companies that successfully employed inventory management prior to the pandemic were left scrambling. 


Because an event such as this had never occurred in the digital world. Data and modeling trends typically gathered through effective inventory management and used to accurately predict product stock weren’t available.

As a result, inventory left shelves much faster than product suppliers could replenish it, leaving businesses scrambling. These circumstances serve as an example of just how vital historical data is — to help forecast demand — to ecommerce businesses.

In addition, meeting consumer expectations is essential to creating a successful ecommerce business. And without adequate inventory management, creating a frictionless buying journey for shoppers is nearly impossible. 

Current online consumer shopping trends are based on an end-to-end convenient buying journey. What isn’t convenient for your customers? If the inventory listed as being in stock is actually sold out.

According to research from Linnworks, 62% of consumers also prioritize and stay loyal to an ecommerce business that’s honest about shipping and delivery. If you’re unable to trace stock and provide accurate, honest tracking and delivery information, your customers will switch quickly to a brand that will. 

The features of good inventory management software. 

An inventory management software is a must for retail businesses to track inventory across all marketplaces, channels, and platforms from one location. The ease of use of a system gives busy decision-makers, like you, more time to focus on other aspects of business while mitigating costly, manual errors. 

With an inventory management software like Linnworks, you can:

Maximize traceability with real-time data

Match stock records across all selling channels with physical products that are in stock as orders are processed. A central dashboard gives you a real-time view of inventory performance based on data and insights from all selling channels — allowing you to make good purchasing decisions for the business easily and quickly.

Optimize inventory management

Avoid stockouts, overstocking, or underselling by maintaining accurate stock levels across all locations and selling channels.  You can accomplish this because product listings are adjusted as stock sells out on one channel and automatically readjust as inventory is replenished.

Optimize stock availability 

Forecast demand by using historical sales data, tracking seasonal trends, and analyzing similar products. You can also maximize sales potential with accurate stock levels by tracking real-time stock availability and stock status across all selling channels. 

Improve efficiency 

Maintain an accurate picture of stock levels across your business at every stage of the selling process with efficient stock management flows. And save valuable time by reducing manual tasks associated with monitoring stock availability, like logging into multiple platforms to track products through the supply chain. The less time you spend fixing manual errors, the more efficiently your company will run. 

Automate the purchase order process

Manage supplier relationships by storing essential supplier information, including lead time and minimum order levels. You can also track purchase orders, manage the entire PO process, and automatically generate POs to replenish stock to required levels.

Learn more about inventory management.

Understanding the basics of inventory management is just the first step in creating a strategy that works for you — so don’t stop here: Learn about the different techniques that go into inventory management.