Inventory management techniques: 7 methods for success in 2025

Managing inventory is a balancing act. 

Get it right, and your business thrives — cash flows freely, customers stay happy, and operational headaches shrink. 

Get it wrong, and you risk overstocking, stockouts, and wasting money on manual fixes.

In this guide, we’ll share seven tried-and-tested inventory management techniques to make your inventory work smarter — not harder — for your business.

What is inventory management?

At its core, inventory management is about ensuring the right products are in the right place at the right time. Too much inventory? You’re bleeding cash on storage and tying up capital. Too little? You’re losing sales and leaving customers empty-handed. 

Digging deeper, inventory management isn’t just about counting boxes, it’s about strategy. Think just-in-time (JIT) inventory for slashing waste by restocking only when it’s needed. Or ABC analysis, which helps you focus on your high-value items instead of treating every product the same. 

And then there’s safety stock—a buffer that protects you from running out when demand surges unexpectedly. The real game-changer? Technology. From inventory management software to RFID tracking, tools like these give you real-time insights and automate tedious tasks. The result? A leaner, more agile business that’s ready to adapt to market changes and serve customers better than the competition.

What are the common challenges in managing ecommerce inventory?

E commerce inventory management isn’t without its hurdles. From lost sales to tied-up cash, the stakes are high if you’re not on top of your stock. Here are the biggest challenges every online retail store faces:

• Stockouts: Nothing frustrates customers more than an “out of stock” notification, leading to lost revenue and damaged loyalty.
• Overstocking: Excess inventory eats up storage space, ties up capital, and increases the risk of unsold goods.
• Inventory misplacement: Poor organization or tracking can delay fulfillment and create operational chaos.
• Seasonal demand variability: Predicting spikes and lulls in demand is tough, making it easy to over or under-order.

What are the benefits of using inventory management software?

Inventory management software takes the guesswork out of running your business by streamlining and automating your stock control. It saves time, reduces errors, and ensures you always know what’s in stock and what’s needed next. Here’s how it delivers value:

• Automated tracking: Eliminates manual data entry, reducing errors and keeping stock levels accurate in real time.
• Better forecasting: Uses historical data and trends to predict demand, helping you plan smarter and avoid overstock or stockouts.
• Real-time updates: Provides instant visibility into inventory across channels, enabling quick decision-making and better customer service.
• Consolidated data: Linnworks, for example, unifies inventory data across sales channels, ensuring accuracy and efficiency by reducing inconsistencies and providing a single source of truth.
• Cost savings: Optimizes stock levels to reduce waste, storage costs, and tied-up capital.

By using inventory management software, your business can operate more efficiently, respond faster to market changes, and keep customers happy.

7 essential techniques for effective ecommerce inventory management in 2025

There are many different inventory management techniques available to manage your inventory effectively, we’ve included seven below that you should consider.

1. FIFO (First in First Out)

FIFO is the golden rule for businesses with perishable goods or time-sensitive products. Sell your oldest stock first—before it expires or goes out of style. For non-perishables, it ensures inventory turnover remains steady, which is essential for maintaining cash flow

This technique keeps inventory fresh, minimizes waste, and reduces losses. 

To make FIFO effective, your storage layout matters—older stock should always be placed in easy-to-access areas. FIFO also pairs well with real-time inventory systems to alert you when older stock is approaching its sell-by date or losing relevance, so you can act before it’s too late.

What else does a FIFO approach offer?

Apart from maintaining inventory freshness, FIFO provides an accurate reflection of current market prices in financial statements, a feature especially crucial during periods of fluctuating prices.

It also simplifies record keeping by mirroring the natural flow of inventory – older items are sold first, then the next oldest, and so on. By prioritizing the oldest stock, FIFO helps maintain organized, efficient, and profitable inventory management.

The FIFO method in practice: a case study

Joe Bowab, CEO and Founder of Lobster Anywhere says that “Inventory management is the most crucial part of running an ecommerce business. It can help give you an overview of the stock you have on hand, what you may need to order more of, what there is an overflow of, and what is popular with the customers.

To have a near-seamless overview of your stock levels, it is very important to invest in an inventory software program due to the online basis of the business. It can display all the required information easily. However, it is also important to do a manual stock take, as there can always be errors when you are dealing with physical products.

At Lobster Anywhere, we deal with perishable items and when it comes to the management and rolling out of the stock, we apply the FIFO method – first in first out.”

Implementation tip

Implementing FIFO in ecommerce enhances operations, customer satisfaction, and profitability, with efficient inventory management systems being crucial. These systems track goods, monitor arrival times, and ensure seamless progression from inventory to delivery.

Linnworks, a comprehensive solution, automates and streamlines these processes. Its robust inventory management aids in arranging inventory by arrival times, prioritizing the oldest stock per FIFO. This reduces manual tracking, maintains fresh stock, and optimizes order sequencing. By leveraging Linnworks, ecommerce retailers can fully utilize FIFO to improve the inventory management process and business performance.

2. LIFO (Last in First Out)

LIFO shines in industries where costs fluctuate frequently. By selling newer, higher-cost inventory first, you can align rising costs with current revenue—reducing your taxable income. However, the downside is clear: older inventory can pile up, especially if it doesn’t have a long shelf life. 

LIFO works best in environments with non-perishable goods, like raw materials or bulk commodities. 

To avoid the risks, businesses using LIFO need strict controls to ensure older stock is periodically reassessed and repurposed if necessary. Consider blending LIFO with discounts or promotions for older inventory to keep things moving.

How does this work in practice?

As prices increase, businesses often pay more for new inventory. By selling the more expensive items first (those ‘last in’), companies can record higher cost of goods sold, reducing their taxable income. In this way, LIFO can significantly aid in financial management during periods of inflation.

While it may seem counterintuitive, especially when compared to the logical flow of FIFO, LIFO inventory management can be a financially prudent strategy in the right circumstances.

However, it’s important to note that due to its impact on taxable income and reported profits, this method must be applied consistently and appropriately to maintain accurate and compliant financial records.

Implementation tip

Effective implementation of LIFO in ecommerce relies on advanced inventory management systems like Linnworks. Tracking and prioritizing the newest stock, a task made easier by Linnworks ensures streamlined operations and accurate LIFO method application. With automated inventory processes and the categorization of incoming stock, Linnworks allows swift identification and prioritization of new items.

Particularly during inflation, Linnworks’ sale prioritization of pricier, recent items calculates a higher cost of goods sold, reducing taxable income. Linnworks, supporting strategic methods like LIFO, provides a competitive edge in dynamic ecommerce environments.

3. JIT (Just in Time)

JIT (Just in Time), also known as lean manufacturing, is an inventory management technique that offers both efficiency and cost-cutting benefits. With JIT, inventory is ordered and received precisely when it’s needed, minimizing the need for excessive storage and reducing holding costs. Toyota is a great example of a company that has harnessed JIT inventory management to cut logistics costs and boost service.

But who benefits most from implementing a JIT inventory method? In essence, any company aiming to streamline its processes, cut unnecessary costs, and increase efficiency. It’s particularly advantageous for ecommerce retailers that create customized products – from furniture to luxury cars and unique jewelry.

How can Linnworks can support a JIT approach?

Linnworks’ innovative inventory management solution allows such businesses to effectively employ JIT strategies, improving their cash flow and freeing up warehouse space.

However, like any technique, JIT has its nuances.

Adding a step to the fulfillment process – purchasing products only once a sale is made – leaves little room for error. But with Linnworks, this potential drawback can be expertly managed. The inventory management software helps to avoid fulfillment issues and safeguards against potential price shocks, ensuring your JIT lean manufacturing process operates smoothly and efficiently.

Implementation tip

Implementing JIT effectively in ecommerce requires a deep understanding of product lifecycle, sales trends, and robust supplier relationships.

Matt Haycox, Founder and CEO of Funding Guru states that “One of the things I’ve learned over time is to invest in supplier relationships. Your suppliers can make or break your inventory management so it’s crucial to keep a good relationship with them.

With a good relationship, you can request quick replenishment of fast-selling items, get better offers, and negotiate better payment terms. Not only that, but they’ll also prioritize you and offer good customer service.”

JIT strategy requires precise control over the supply chain, order fulfillment, and seamless communication between sales and purchasing departments, necessitating technology integration. While challenging, JIT, if well-implemented, can significantly boost an ecommerce business’s profitability by eliminating waste, improving efficiency, and meeting customers’ needs precisely when required.

4. ABC analysis

Product demand varies across inventory, and understanding this variation is key to successful inventory management. This is where ABC analysis comes into play, a technique that organizes your inventory into three categories – A, B, and C, based on demand, value, and cost significance.

Linnworks can help you implement and manage this ABC approach, allowing you to prioritize your inventory management efforts effectively.

A items

Category A items are the crown jewels of your inventory – high-value, low-quantity products. They may be fewer in number but contribute significantly to your overall turnover. They demand careful tracking, precise forecasting, and consistent restocking. Neglecting them risks high-dollar losses. Linnworks ensures these products are handled with utmost care, facilitating secure storage to avoid damage and obsolescence.

These crucial items typically represent about 10-20% of total inventory but account for around 70-80% of annual consumption value.

B items

Category B items are moderately valued with moderate sales frequency. These items, making up roughly 30% of the inventory and 15-20% of consumption value, require balanced stock levels. They require moderate attention but can often be optimized for operational efficiency. 

C items

Category “C” items, though low value, make up the bulk of your stock. Automating their management — like replenishment alerts — frees up resources to focus on “A” items. 

With Linnworks, you can effectively employ ABC analysis, ensuring optimal inventory control, focusing on high-priority items, and ultimately, boosting profitability.

By tailoring how you manage each category, you maximize ROI while reducing unnecessary oversight. Pair ABC analysis with inventory software to automate reporting and decision-making for each category.

Implementation tip

Efficient ABC analysis implementation necessitates robust data and a flexible inventory management system. Ecommerce retailers must continually analyze sales data, adjusting item classifications in categories A, B, and C as market conditions and customer preferences shift.

An up-to-date, perpetual inventory system supports informed decisions on procurement, sales promotions, pricing strategies, and warehouse management. ABC analysis is dynamic, requiring frequent updates to align with the market. An automated system, adapting to changing conditions and continually monitoring sales, will automatically categorize products, ensuring ABC analysis stays relevant and responsive to real-time business needs.

5. Cycle counting

In the realm of inventory management, cycle counting is a tried and tested approach to maintain optimal inventory levels.

Cycle counting is like a maintenance plan for your inventory—small, consistent checkups that keep your operations healthy. Instead of shutting everything down for a full inventory audit, you regularly count smaller, predefined portions of stock. This approach minimizes disruption while ensuring accuracy, making it ideal for ecommerce businesses juggling multiple warehouses or sales channels.

Not all inventory is created equal, though. High-value or fast-moving items demand more frequent attention because even small discrepancies can have big impacts. On the flip side, less critical stock can be counted on a more relaxed schedule. This balance keeps your processes efficient without sacrificing accuracy where it matters most. This means problems are caught and corrected faster than they would be during an annual or semi-annual full inventory count.

Modern inventory systems take cycle counting to the next level. Automated alerts, integrated schedules, and real-time data updates make it easier than ever to stay on top of discrepancies. For your customers, this means fewer fulfillment errors, faster shipping, and a brand they can trust.

How else can cycle counting help your business?

This method also significantly helps businesses to maintain inventory accuracy. With cycle counting, you’re regularly verifying the number of items in stock, ensuring data in your inventory management system matches the physical reality.

Maintaining accurate stock levels is essential in minimizing stockouts and overstocks, allowing for more efficient order fulfillment.

Cycle counting can also reveal patterns in errors, helping to identify the root causes of inventory discrepancies. Whether it’s an issue with a supplier, a particular product, or even a specific warehouse location, consistent cycle counting can highlight where problems are arising, enabling focused and effective corrective action.

By integrating cycle counting into routine operations, businesses can enhance their inventory accuracy, improve order fulfillment, and ultimately provide a superior service to their customers.

Implementation tip

For effective cycle counting, ecommerce retail stores can leverage automated systems like Linnworks’ inventory management software. This system schedules cycle counts, selects items based on set criteria, and analyzes count data to identify inventory trends and issues. It highlights recurring discrepancies tied to specific products, locations, or suppliers.

Linnworks facilitates the cycle counting process and leverages gained insights for decision-making. By employing this tool, businesses can maintain accurate inventory, refine inventory management practices, improve customer service, and enhance profitability.

6. Demand forecasting

Demand forecasting is your crystal ball for ecommerce. By analyzing historical sales, market trends, and customer behavior, it predicts what products you’ll need and when. It helps you stay one step ahead in a constantly shifting market.

The best forecasts dig deep. Seasonal demand spikes, promotional campaigns, and even macroeconomic shifts all play a role in shaping inventory needs. Advanced tools, like AI-driven analytics, go beyond human capabilities by uncovering patterns in the data and making precise predictions. This level of accuracy gives you a competitive edge, letting you prepare for market changes before they hit.

Ultimately, demand forecasting optimizes every aspect of your business. From fine-tuning supplier negotiations to improving cash flow, it helps you make smarter decisions at every step. Businesses that prioritize forecasting don’t just survive—they thrive by delivering exactly what customers want, when they want it.

Forecasting customer demand with inventory management software

With Linnworks, you can master demand forecasting, optimizing inventory levels to avoid the pitfalls of overstocking or understocking. Holding excess inventory not only ties up crucial resources but also leads to increased storage costs. Conversely, inadequate inventory can result in missed sales and customer dissatisfaction – two issues no business wants to face.

Linnworks assists in using demand forecasting as a strategic tool beyond inventory management. It aids in planning production schedules, allocating workforce resources, setting budgeting requirements, and designing marketing strategies.

By predicting future customer demand accurately, Linnworks helps identify growth opportunities, giving your business the competitive edge it needs to thrive in a bustling market landscape.

Implementation tip

Using machine learning to analyze past sales, customer behavior, and seasonal trends, tools like Linnworks accurately predict future product demand, anticipate peak periods, and help scale inventory and operations.

However, success necessitates a proactive approach toward data analysis and market research, with regular review and adjustment of forecasts based on new data, trends, and business goals. Given the dynamic business landscape, a demand forecasting strategy should also be adaptive. Integrating these practices allows ecommerce retailers to effectively utilize the process, enhancing business growth and customer experience satisfaction.

7. Minimum Order Quantity (MOQ) vs Economic Order Quantity (EOQ)

MOQ (Minimum Order Quantity) and EOQ (Economic Order Quantity) are key concepts in inventory quantity management. It is the smallest amount of a product a supplier is willing to sell, which businesses need to factor into their purchasing decisions.

EOQ, on the other hand, is the number of items that a company should order to minimize its total inventory costs. By understanding these quantities, businesses can optimize their inventory management strategies, keeping costs low while meeting customer demand.

Finding the sweet spot between MOQ and EOQ is crucial. When MOQ exceeds EOQ, you risk overstocking, which can tie up cash and rack up storage costs. Go below MOQ, and you’re likely to strain supplier relationships and miss out on bulk discounts. It’s a balancing act, but one that pays off with careful planning.

Smart businesses negotiate MOQ terms, consolidate orders to hit thresholds, or use forecasting tools to align their needs with supplier requirements. The goal is simple: cost-effective ordering that avoids overcommitment while keeping inventory lean.

Implementation tip

Effective implementation of MOQ and EOQ requires a comprehensive understanding of business dynamics. Analyzing order history, understanding sales cycles, and identifying peak and off-peak seasons assist in establishing realistic MOQs and EOQs.

For MOQ, negotiate with suppliers to lower quantities or match your demand forecast. For EOQ, consider ordering and holding costs, and demand rate to minimize total inventory costs. Using an inventory management tool like Linnworks aids in these analyses, automating calculations, and providing insights. Successful MOQ and EOQ implementation relies on data analysis, supplier relationships, and effective technology utilization.

What are the key features to look for in ecommerce inventory management software?

Choosing the right ecommerce inventory management software is about solving real-world problems like stockouts, wasted inventory, and fulfillment delays. Here are the critical features to look for and why they matter:

1. Multichannel integration

Managing inventory across multiple sales channels—like your website, Amazon, eBay, and Shopify—can quickly become a logistical nightmare. Multichannel integration ensures that your inventory is automatically updated in real time across all ecommerce platforms. If you sell an item on one channel, the stock count updates everywhere else. This eliminates overselling (and the dreaded “out of stock” email to a customer), streamlines operations, and keeps your brand reputation intact.

2. Real-time tracking

Real-time tracking gives you up-to-the-minute visibility into your inventory, no matter how complex your operations are. Whether you’re tracking stock in a single warehouse or across multiple locations, real-time tracking ensures you always know what’s available. This feature isn’t just about avoiding stockouts; it also helps optimize storage, reduce waste, and make smarter purchasing decisions. For businesses scaling quickly, real-time tracking becomes the backbone of operational efficiency.

3. Demand forecasting

Ecommerce success is about anticipating what you’ll need tomorrow. Demand forecasting tools analyze historical sales data, seasonality, and market trends to predict future inventory needs. By knowing when demand will spike or dip, you can adjust your stock levels proactively, reducing overstock and minimizing stockouts. Forecasting also improves cash flow by helping you invest in the right products at the right time.

4. Mobile accessibility

Inventory management doesn’t happen behind a desk anymore. Mobile accessibility lets you monitor and manage inventory from anywhere, whether you’re checking stock levels during a supplier meeting or processing orders on the go. A mobile-friendly platform helps your team respond faster to issues.

5. Automation

Manual processes are slow, error-prone, and expensive. Automation handles routine tasks like updating stock counts, generating purchase orders, and syncing inventory data across systems. This reduces human error, saves time, and frees up your team to focus on growth-driving activities.

The right software doesn’t just solve your current inventory headaches—it sets you up for long-term success. By combining these features, you’ll gain the scalability, efficiency, and customer trust you need to stay competitive.

Optimize inventory control and order management with Linnworks

Navigating the labyrinth of inventory management can be challenging, but the right tools can transform it into a path toward business success. Throughout this article, we’ve explored several proper inventory management techniques, including FIFO, LIFO, ABC analysis, cycle counting, and the balancing act between MOQ and EOQ.

Each technique has its merits, and understanding when and how to apply them can significantly improve your business’s efficiency, profitability, and customer satisfaction.

However, implementing these techniques requires an effective inventory management system, and this is where Linnworks steps in.

How can Linnworks help you master ecommerce inventory management?

Linnworks is designed to centralize, automate, and optimize your entire inventory management process. Here’s how it can help you master your ecommerce inventory management once and for all: 

1. Centralized inventory tracking for real-time visibility

Linnworks’ can provide a single source of truth for your inventory. Instead of toggling between spreadsheets, sales platforms, and warehouse systems, Linnworks consolidates your inventory data into one easy-to-use dashboard. 

2. Automation for seamless order management

Linnworks automates key processes to streamline order management. 

For instance, when a product is sold, Linnworks automatically updates inventory levels, syncs stock across all channels, and even triggers reorder alerts when supplies run low. 

The result? You spend less time on manual tasks and more time focusing on strategic growth. Plus, automation reduces errors, which means fewer frustrated customers and lower operational costs.

3. Inventory forecasting and demand planning

Linnworks goes beyond basic inventory tracking with advanced forecasting tools that help you plan for future demand. By analyzing past sales data, seasonal trends, and market fluctuations, the platform predicts when stock levels will need replenishing. 

This not only reduces the risk of stockouts but also minimizes overstock—saving you money on storage and unsold inventory. With Linnworks, demand planning isn’t a guessing game; it’s a data-driven strategy.

Ready to discover the power of Linnworks? Book a demo today. 

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