Top 8 Efficient Inventory Management Strategies To Reduce Costs

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Inventory Management Strategy

Whether we’re talking about personal finance or a publicly-traded company, there are two ways to maximize profits and build capital: increasing your income and decreasing your expenses. It’s not rocket science.

Once your “startup honeymoon” wears off, the new mission begins: tackling one or both of these goals.

If you’re an ecommerce business owner, your daily workflow likely revolves around how to crack the code of higher revenue and lower costs.

In this post, we’re going to focus on the latter: decreasing expenses. One of the definitions of efficient is “causing less waste or requiring less effort than comparable devices or methods while achieving the same result.”

That’s what all ecommerce business owners are after, right? The same revenue with decreased waste.

Here’s the thing about the world of inventory management, warehousing, and stocking: there is a lot of opportunity for waste. Conversely, there’s also a lot of opportunity for tightening up inefficient processes.

Not all the tactics discussed in this post will be relevant to your business. Don’t view this as a prescriptive list, but as an all-you-can-eat buffet. Take the relevant points and leave the rest.

Use this list to spur on ideas and add additional tools to your inventory management toolbox.

Some of you reading this may be new to the world of inventory management and inventory control. Before we move forward, let’s define some key terms.


What is Inventory Control?

Inventory control refers to the nuts-and-bolts process of tracking and managing the materials a company stores in their warehouse or third-party logistics facility. These processes include things like:

  • Integrating barcodes and scanning procedures
  • Maintaining data on a product’s provenance and current location
  • Updating inventory lists and unit counts in real-time as goods are received and shipped back out
  • Taking those updated inventory lists into account when reordering

The inventory management process governs the whole flow of goods right from purchasing through to sale. When it functions well, it ensures that you always have optimal quantities of all the right items, at the right time, in the correct location.

Inventory control includes accounting for ordering and purchasing, storage, sales and shipping, and reordering stock. Inventory control handles the nitty-gritty of managing your actual products-in-hand. It thus constitutes one part of inventory management, which takes a more bird’s eye view on how to minimize your inventory costs and maximize your profits.


What is Inventory Management?

Inventory management refers to a more expansive, bigger-picture set of processes that oversees how a business controls its materials over the entire sales cycle.

It entails methodologies such as:

  • Inventory control (as discussed above)
  • Stock review and forecasting (i.e., looking at current stock levels, past sales, and estimating future demand)
  • Cycle inventory (that is, recounting products at specific points in the fiscal year)
  • ABC analysis (or triaging your stock based on a hierarchy of value)
  • Calculating safety-stock thresholds and reordering points
  • Establishing systems such as bulk inventory management or other methodologies based on an evaluation of your company’s needs

Inventory management and inventory control are central to the success of ecommerce businesses and far too critical to leave to human mistakes or antiquated systems.

These, among many other concerns, is why forward-thinking organizations opt to invest in a robust inventory management system (IMS) like SkuVault.

Life for ecommerce businesses is a lot simpler when a single integrated system efficiently manages all of the elements of inventory control.


Taking the Next Logical Step of Efficiency

Before we dive into the tactical nitty-gritty of efficient inventory management, allow me this disclaimer:

It’s vital that you take baby steps in your inventory management journey and not feel the overwhelming burden of needing to implement all of these in one month (or even one quarter).

In other words, adopt a mindset of taking the next logical step of efficiency. If you’re currently managing your inventory with pen and paper, make a goal to go to an electronic system or spreadsheet.

If you’re currently managing with a spreadsheet, make a goal to move to a more automated IMS platform that can help streamline the daily monotony of inventory control.

We’d do well to heed the fable of the Tortoise and the Hare: slow and steady wins the race. The last thing you want to do is introduce half a dozen inventory control systems and processes you can’t sustain.

That said, let’s dive into some actionable ways you can more efficiently manage your inventory.


Inventory Management Strategies to Enhance Efficiency

Before implementing the following tactics in your business, it’s essential to document the current state of your inventory management.

Perhaps, if you’re just getting your business off the ground, there’s not much to document. Or, maybe you have a real mess on your hands. Whatever phase your business is in, it’s essential to record as many metrics as you can.

You can’t improve what you don’t measure. Determining the efficacy of each of these tactics requires a baseline level understanding of the health of your business.

Some key performance indicators (KPIs) to take special note of are the following:

  1. Revenue on a weekly/monthly/quarterly basis
  2. Number of sales
  3. Carrying costs
  4. Storage lifecycle (how long, on average, you carry a particular product)
  5. Manufacturing costs
  6. Shipping costs
  7. Employee costs (if applicable) 

There may be other metrics key to your particular business, but these are an excellent place to start.

Enough preamble! Let’s get into the strategies.


Leverage Inventory Management Tools and Software

There has been no better time to be an ecommerce business owner. There are so many software solutions designed to automate and optimize the entire business lifecycle from marketing and lead generation, sales, inventory, shipping to customer service.

If you’re using a paper and pen or a non-dynamic electronic system (like a spreadsheet), the first thing I’d recommend is to invest in an IMS platform.

A robust IMS platform is kind of like having a multi-talented full-time employee that never stops working. It specializes in saving you, the business owner, valuable time. IMS platforms have multiple benefits, such as:

  • Channel syncing – you can analyze all your sales channels in one place.
  • Replenishment Reports – you can understand with a few clicks what you need to order more of based on customer demand.
  • Third-party integrations – connect your IMS with your other technology platforms (like point-of-sale, accounting, and web storefront) as part of your broader, automated business strategy.
  • Demand analytics – you can determine with high confidence how your sales will fluctuate based on seasonal variables and stock your warehouse accordingly.

To learn more about the specifics of SkuVault’s features and how it helps you run a more efficient warehouse, check out our feature page here.


Conduct Regular Audits

Conducting audits seems like a stark contrast from the first tip. We went from talking about high-level technology platforms and automation to the humble audit.

There’s a reason for this. The most common pain point we at SkuVault hear from our clients when they come to us is simply: “I have no idea what’s in my warehouse.”

The cause might be an inefficient (or nonexistent) system, uncontrolled growth, or a lack of accountability with warehouse staff.

By far, the most significant source of waste is warehouse ignorance. Audits are the solution to this issue, so we ascribe high value to regularly performing them.

So many inefficient and costly things flow downstream from not knowing the contents of your warehouse. Such as:

  1. Inaccurate stock information resulting in unhappy customers
  2. Dead or unused stock that’s taking up valuable and costly warehouse space
  3. No visibility into purchasing trends or ability to keep up with future demand

If you’ll allow me an analogy, it’s essential to get your house in order before renovating it.

If you haven’t done an audit in a long time, there’s no time like the present. Warehouse ignorance is like a leak in your boat. The more time that elapses, the more the water level rises. It’s not easy, and it’s certainly not fun, but it’s an essential step in inventory management efficiency.

Once you have accurate knowledge of your inventory, the next step is to schedule regular audits based on your stocking patterns and size. This way, you can ensure you never fall into warehouse ignorance ever again.


Make Data-Driven Decisions

There’s no reason not to make data-driven decisions in today’s day and age with the plethora of automation tools at your disposal.

In fact, not tracking data isn’t most business’s problem. It’s interpreting that data. For example, SkuVault will automatically process purchase data to create sales demand projections based on historical performance.

That way, you don’t have to spend the legwork crunching numbers to understand how many of a particular SKU to order and how to preempt demand for that product.

Channel optimization is another example of how data-driven decisions increase efficiency in your ecommerce business.

If you’re an established ecommerce operation, you’re likely selling on more than one storefront. You’ve probably diversified to selling on Amazon, Etsy, your website, a brick-and-mortar store, and others.

Could you, at a moment’s notice, delineate your warehouse inventory between channels and determine which of those are your highest performers?

When it comes time to reorder, are you flying blind or ordering specific amounts based on specific channel needs?

IMS platforms like SkuVault generate purchase orders based on your current inventory, your sales patterns, and the product needs of individual channels.

You can be confident your reorders are based on hard data and not gut feelings.

Robust analysis tools like these visualize which channels are your top performers. From there, you can decide to double down on those channels and eliminate the ineffective ones.

These are just a few of the many ways data-driven decisions eliminate waste and create more efficiency in your daily inventory operations.


Automate Data Entry

Entering data about your inventory by hand is time-consuming as well as error-prone, whether you are entering SKU code or simply recording location details. Frankly, it’s repetitive busy-work and doesn’t move the needle for your business.

Workflow and data entry automation helps systematize part or all of the workflow, improving efficiency, and minimizing human dependencies.

SkuVault not only integrates with all major barcode scanners but is also mobile-optimized. Therefore, employees can move quickly, scan with confidence, all the while mitigating human error.


Optimize pick lists and pick routes

Have you ever thought about how quickly your warehouse employees (or you, if you’re a solopreneur) process orders?

As soon as a customer places an order, you’re working against the clock. If efficiency is the goal, you’ll want to familiarize yourself with picklists and pick routes.

Picklists are the reports that your IMS platform or ecommerce storefront generates when a customer places an order. At the very minimum, these reports include which products to pick from the warehouse at specific quantities.

SkuVault takes this a step further. Once you’ve done an audit and reconciled your warehouse stock location with SkuVault, the platform automatically generates pick routes.

These are instructions for your picker (warehouse employee) on how to maximize their time spent picking, so they don’t waste precious time traversing back-and-forth in the warehouse.

Based on your warehouse layout, SkuVault will show the most efficient path to quickly picking and processing the order, all while minimizing backtracking.

Implement Strict Quality Control

There is no need to fix your mistakes and errors after the fact if you double-check your orders. And this is known as quality control, and it is essential as it adds another layer of responsibility. This process usually entails checking a picked product against an order to ensure it’s correct in SKU and quantity.

Also, having a process to ensure quality is usually directly linked to higher customer satisfaction and business growth. Quality control can also check your items for damage and ensure that you’re shipping them in their advertised condition.

Quality control is often best assigned to someone who’s not picking orders. That way, you have the redundancy of multiple eyes on an order. Accountability increases the likelihood of positive customer experiences and repeat business.


Try the Just-in-Time (JIT) inventory strategy

As mentioned above, one of the simplest ways to increase efficiency is to decrease costs. And one of the most significant expenses to the eCommerce business owner is storage and carrying costs.

Whether you’re just starting and you can’t afford to warehouse, or you’ve realized you simply don’t need the storage, the Just-in-Time (JIT) inventory strategy may be your best bet.

We’ve written on the JIT method extensively in our post about inventory management methodologies here. Just like any inventory strategy, it’s got benefits and downsides that you’ll need to weigh against your business model and goals.

That said, here’s the basic rundown: 

Businesses receive inventory from suppliers on an as-needed basis rather than ordering too much and risking considerable dead stock.

The benefits are the obvious savings in warehousing and carrying costs. However, you’re beholden to the manufacturer to supply products based on customer demand.

In other words, you’re trading a high amount of control for costs. The JIT method is a viable one for eCommerce businesses with a small number of product offerings.

That said, the technique may put you in a bind if you experience a sudden surge in demand that your manufacturer can’t meet.


Adopt the ABC inventory technique

The ABC inventory technique is another one we’ve written on extensively in the post mentioned above. The basic gist of the method is to triage your stock based on a hierarchy of value.

For example:

  • Category A might include products that are high in value but low in quantity
  • Category B, products that are moderate in value and moderate in quantity
  • And Category C, products that are low in value and high in quantity.

Bucketing your inventory this way allows organizations that sell diverse product lines to create bespoke restocking strategies for each product category.

If you’re a sporting goods manufacturer that sells $1,000 snowboards and $10 snow gloves on the same website or channel, it’d be foolish to impose the same fulfillment strategy for both products.

From a purely logistic standpoint, it’s essential to physically place your high volume items, known as high sellers, close to the shipping area.

An ABC analysis will help you understand which products are the highest value to your business, in addition to the low-value ones you can afford to wait on replenishing.

By knowing your high sellers, reordering intelligently, and optimizing your warehouse’s physical layout, you eliminate hours of unnecessary labor costs and time.


Next Steps

There’s a lot to process here. I’ll echo the sentiment I started with: don’t feel overwhelmed. Think Tortoise and the Hare.

As you finish this post, think through one to two practical things you can begin implementing in your eCommerce business and make a plan to do so over the next quarter.

It’s no secret that we’re a bit biased. Still, we firmly believe the best investment you can make in greater efficiency and higher profits is a robust IMS platform at the center of your inventory management strategy.

That’s why we built SkuVault. To help ecommerce business owners maximize their per-pallet revenue, better understand their customers, and save them precious time for high-level business strategy and planning.

To learn more about how SkuVault can help you run your business more efficiently, reach out to our team today for a live demo.

Matt Kenyon

Matt Kenyon


Matt has been helping businesses succeed with exceptional content, lead gen, and B2B copywriting for the last decade. When he’s not typing words for humans (that Google loves), Matt can be found producing music, peeking at a horror flick between his fingers, or spending quality time with his wife and kids.