Inventory Management Techniques: The Best Proven Strategies

What’s your inventory management strategy? Depending on your business and your own preference, there are several different techniques. Maybe you like to keep things light and use drop shipping - where the inventory doesn’t pass through your warehouse at all. Or maybe you’re open to more of a commitment, which means you can order your inventory in bulk shipments and store it in your warehouse for longer periods of time. Which of the techniques will you use? Here are some of the most common methods.

inventory-warehouse

ABC Analysis

You divide your inventory into categories A, B, and C. “A Inventory” is the inventory you consider to be the most important - the highest value goods in your inventory and those that impact your overall costs the most. “B Inventory” is inventory with a bit less of an impact and “C Inventory” is the least. With this method, you focus the most time and energy on analyzing and tracking the “A Inventory”, since it has the biggest effect on your costs.

Backordering

You place an order for inventory only after a customer has placed an order with you. This method means you don’t have to worry about overstocking, but it also means longer wait times for the customer - which may or may not be a big issue, depending on their expectations.

Bulk Shipments

You purchase and ship all your inventory in bulk. This leads to high inventory holding costs, but most likely lower prices and high amounts of profit.

Consignment

You turn over your inventory to retailers, but you maintain legal ownership until the goods are sold. With this method, you maintain low inventory holding costs.

Just In Time

You purchase items only a few days before they are necessary, making your inventory come in  - Just In Time! Low holding costs make for pretty good profit with this method.

Cross-docking

Your inventory passes from an inbound shipment from your manufacturer to an outbound shipment to your customer quickly, with little to no holding time in your warehouse.

Drop Shipping

With drop shipping, you pass the customers’ orders on to the manufacturer and they ship directly to the customer as soon as it’s ready. You don’t have to hold any inventory, but you make less profit on the orders themselves.

Check out this TradeGecko infographic for more information on the inventory holding costs for each of these techniques.

Read next - Inventory Management glossary: 15 terms you need to know

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