Inventory management

Posted on March 7, 2023 at 12:00 am

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In this article, you will learn about the different aspects of inventory management that every business owner should be aware of. From stock valuation to obsolete inventory management, we will cover the key topics that will help you optimize your supply chain and keep your business running smoothly. Whether you are a small business owner just starting out or a seasoned entrepreneur looking to streamline your operations, this article has something for everyone.

By mastering the art of inventory management, you will be able to reduce costs, minimize waste, and improve your overall efficiency. You will learn how to maintain optimal stock levels, organize your warehouse, and track and forecast demand. You will also discover tips for managing returns and exchanges, as well as strategies for handling obsolete inventory. Overall, this article will provide you with the knowledge and tools you need to take your inventory management to the next level and set your business up for long-term success.

Stock Valuation

Stock valuation is an important aspect of managing inventory for any business. It refers to the process of assigning a value to the stock on hand in order to determine the total value of the inventory. There are different methods of valuing stock, each with its own pros and cons.

Methods of Stock Valuation


FIFO, or First In First Out, is a commonly used method of stock valuation. Under this method, the first items received into inventory are the first items sold. This means that the cost of the oldest stock on hand is used to determine the value of stock sold. FIFO is especially useful for businesses dealing with perishable items or items with a limited shelf life.


LIFO, or Last In First Out, is another method of stock valuation. Under this method, goods produced or purchased most recently are the first ones to be sold. This means that the cost of the most recently acquired stock is used to determine the value of stock sold. LIFO can be useful for businesses that are dealing with inflation, as it allows for the most current costs to be used to determine the value of inventory.

Weighted Average

The weighted average method takes into account the average cost of all items in inventory. The total cost of all items in inventory is divided by the total number of items in inventory to determine the average cost per item. This average cost is then used to determine the value of stock sold.

Importance of Accurate Stock Valuation

Accurate stock valuation is essential for businesses to understand their financial health and make informed decisions. It allows businesses to avoid overvaluing or undervaluing their inventory, which can result in financial losses or tax issues. Accurate stock valuation also helps businesses to efficiently allocate resources and make accurate financial projections.


Stock valuation is an important aspect of inventory management that should not be overlooked. Understanding the different methods of valuing stock and implementing accurate valuation practices can help businesses stay financially healthy and competitive in their market. For more information on stock valuation, check out this guide to inventory valuation methods.

Order Fulfillment

Order fulfillment is the process by which a business fulfills and ships customer orders. It is a critical component of any e-commerce or retail business as it involves ensuring that products are delivered to customers in a timely and accurate manner. According to a study conducted by Shopify, 87% of online shoppers consider shipping speed to be an important factor in their purchasing decisions.

Steps in the Order Fulfillment Process

The order fulfillment process typically involves several steps, including:

  1. Receiving and processing orders
  2. Picking and packing products
  3. Labeling and shipping packages
  4. Providing tracking information to customers

Best Practices for Order Fulfillment

Effective order fulfillment is key to providing a positive customer experience and can help drive repeat business. Some best practices for order fulfillment include:

  1. Streamlining processes to minimize errors and delays
  2. Utilizing technology, such as barcoding and automation, to improve efficiency and accuracy
  3. Partnering with reliable shipping carriers to ensure timely delivery
  4. Providing customers with frequent updates and tracking information to increase transparency and build trust

Common Order Fulfillment Challenges

Despite best efforts, order fulfillment can be a complex and challenging process for businesses. Some common challenges include:

  1. Inventory management issues, such as stockouts or overstocks
  2. Picking and packing errors, which can lead to incorrect or damaged shipments
  3. Delays or errors in shipping, such as carrier delays or lost packages
  4. Ineffective communication with customers regarding order updates or issues


Effective order fulfillment is critical to the success of any e-commerce or retail business. By streamlining processes, utilizing technology, and partnering with reliable shipping carriers, businesses can optimize their order fulfillment operations and provide a positive customer experience.

Receiving and Shipping Processes

Efficient receiving and shipping processes are crucial for any successful eCommerce business. This section will cover important factors to consider when developing effective receiving and shipping processes for your warehouse.

Receiving Processes

Receiving processes involve the inspection and acceptance of incoming goods. Inefficiencies in receiving can lead to lost sales, inventory inaccuracy, and damaged goods. Below are some ways to optimize your receiving process:

  • Purchase Order Verification: Ensure that all the products received match the items listed on the purchase order (PO) and packing slip. This will help avoid any confusion or discrepancies with inventory.

  • Quality Control: Conduct a thorough inspection of each item. This includes checking the quality, condition, and quantity of the products received. Any discrepancies should be noted on the packing slip and reported to the vendor immediately.

  • Put-Away Process: Implement a systematic put-away process where all received items are placed in their designated locations in the warehouse. This can help prevent misplaced products and improve warehouse organization.

Shipping Processes

Shipping processes involve the preparation and delivery of outgoing orders. Inefficient shipping processes can lead to increased operational costs, delayed deliveries, and unhappy customers. Below are some ways to optimize your shipping process:

  • Picking Process: Implement an efficient picking process that minimizes the time and labor required to find and pick the products for each order. This can include the use of pick lists, scanners, or other automated tools.

  • Packaging: Package each order carefully to minimize damage during transit. Use sturdy boxes, proper cushioning, and consider the fragility of the products being shipped.

  • Shipping Labels: Ensure that accurate shipping labels are printed and attached to each package. This will help prevent shipping errors and ensure on-time deliveries.

It is important to keep in mind that every business is unique, and there is no one-size-fits-all solution for optimizing your receiving and shipping processes. As your business grows, it may be necessary to adjust and refine your processes to maintain efficiency and reduce operational costs.

For more information on optimizing your receiving and shipping processes, check out this guide by TradeGecko.

Stock levels and replenishment

Maintaining optimal stock levels is essential for any successful business. This means balancing inventory costs with meeting customer demand. Keeping track of inventory levels can be done manually or through software such as inventory management systems.

One common method for determining optimal stock levels is the Economic Order Quantity (EOQ) formula. This formula takes into account order costs, holding costs, and demand to calculate the optimal order quantity to minimize total inventory costs.

Another important factor to consider when managing stock levels is lead time - the time it takes for a supplier to deliver products after an order is made. Longer lead times may require higher safety stock levels to ensure products are available for customers.

Replenishment methods include:

  • Periodic - inventory is checked and restocked at predetermined intervals.
  • Continuous - inventory is continuously monitored and replenished as items sell or drop below a certain level.

Implementing automated inventory management systems can help ensure timely replenishment and reduce the risk of stockouts. In addition to using software, regularly reviewing sales data and forecasting demand can aid in determining when and how much to order.

It's important to note that overstocking can be costly, tying up capital and storage space. Diligent monitoring of inventory levels and sales data can help prevent excessive inventory.

In summary, effectively managing stock levels and replenishment requires careful consideration of order costs, holding costs, demand, lead time, and forecasting. Utilizing software, reviewing data, and implementing efficient replenishment methods can help businesses maintain optimal stock levels while minimizing costs.

Useful resources:

Warehouse Organization

Warehouse organization is the process of arranging all materials and products within a warehouse to optimize storage and accessibility. An organized warehouse is essential for efficient order fulfillment and inventory management. Poor warehouse organization can lead to misplaced products, slow order picking times, and increased errors.

Benefits of a Well-Organized Warehouse

A well-organized warehouse provides several benefits, including:

  • Reduced costs: Efficient warehouse organization helps reduce warehouse operating costs by maximizing space utilization, reducing errors, and improving productivity.
  • Faster order processing times: With proper organization, warehouse staff can quickly locate products, pick orders, and ship products, resulting in faster order processing times.
  • Improved accuracy: Proper labeling and organization of products reduces errors and improves accuracy in order picking and shipping.
  • Better workforce management: Warehouse organization provides clear guidelines and instructions for warehouse staff, improving overall workforce management.

Warehouse Organization Best Practices

To effectively organize your warehouse, you can adopt the following best practices:

  1. Use a location-based system: Store similar products in the same location and organize them by location number, row number, or aisle number.
  2. Implement a labeling system: Label each product with a barcode or RFID tag to enable accurate inventory tracking.
  3. Maximize space utilization: Use vertical space by installing shelves, racks, and mezzanine floors, and use floor space efficiently by implementing compressions and optimizing aisle widths.
  4. Segregate inventory: Separate slow-moving or obsolete inventory from fast-moving products to avoid confusion and improve inventory control.
  5. Ensure safety: Ensure the safety of your warehouse staff by providing clear signage, conducting safety training, and establishing safety protocols.
  6. Continuously review and optimize: Review and optimize your warehouse organization regularly to address any changes in your product range and inventory levels.


Effective warehouse organization is essential for efficient order fulfillment and inventory management. By adopting best practices such as using a location-based system, implementing a labeling system, maximizing space utilization, segregating inventory, ensuring safety, and continuously reviewing and optimizing, you can improve your warehouse organization, reduce costs, improve productivity, and provide better customer service.

For further reading and helpful resources, check out resources such as The Beginner's Guide to Warehouse Efficiency and 9 Tips for Organizing Your Warehouse.

Tracking and Forecasting Demand

One of the biggest challenges faced by businesses is predicting consumer demand for their products. Accurately tracking and forecasting demand is crucial to ensure that there is enough inventory to meet customer needs, while also minimizing excess inventory and the associated costs.

Why is Tracking and Forecasting Demand Important?

There are several reasons why tracking and forecasting demand is important:

  • Meeting Customer Needs: Accurate forecasting ensures that there is enough inventory to meet customer demand, helping to avoid stockouts and lost sales.
  • Efficient Inventory Management: If demand can be accurately forecasted, inventory levels can be optimized to minimize excess stock and associated costs.
  • Maximizing Profits: Forecasting demand can help businesses make informed decisions on pricing and promotions, maximizing profits.

How to Track and Forecast Demand

There are several approaches to tracking and forecasting demand:

  • Historical Sales Data: Analyzing historical sales data is one of the most common methods of forecasting demand. This involves looking at past sales trends over specific time periods, identifying any patterns or trends, and using these to predict future demand.
  • Product Category and Customer Segmentation: Analyzing sales data by product category or customer segmentation can also provide valuable insights into demand patterns. Businesses can use this information to adjust inventory levels and pricing strategies accordingly.
  • Social Media and Web Analytics: Social media and web analytics tools can provide real-time insights into consumer behavior and preferences. This information can be used to anticipate demand trends and adjust inventory and pricing strategies accordingly.
  • Collaborative Planning: Collaborative planning involves working closely with key suppliers and customers to share demand forecasts and coordinate inventory levels.

Tools and Resources for Tracking and Forecasting Demand

There are several tools and resources that businesses can use to track and forecast demand:

  • Inventory Management Software: Inventory management software can help businesses track inventory levels, monitor sales trends, and generate demand forecasts.
  • Data Analytics and AI: Advanced data analytics and artificial intelligence (AI) tools can help businesses forecast demand with greater accuracy, using complex algorithms to analyze sales data and identify patterns and trends.
  • Industry Benchmarks and Reports: There are several industry-specific benchmarks and reports that businesses can use to gauge demand trends and adjust their strategies accordingly.


Accurately tracking and forecasting demand is crucial for businesses looking to optimize their inventory management, maximize profits, and meet customer needs. By analyzing historical sales data, segmenting customers and products, leveraging social media and web analytics, and collaborating with key partners, businesses can gain valuable insights into demand trends and adjust their strategies accordingly. Utilizing the right tools and resources can also help businesses forecast demand with greater accuracy, paving the way for long-term success.

Product Identification and Labeling

Proper product identification and labeling are essential for efficient warehouse operations. When items can be easily identified and tracked, it reduces the chance of inventory errors and helps to streamline order fulfillment processes.

Product Identification

Each product should have a unique identifier, such as a SKU (stock keeping unit) or barcode. This allows for accurate tracking and organization, enabling warehouse employees to quickly locate items when fulfilling orders.


Clear and consistent labeling is important for identifying products and keeping track of inventory levels. Labels should include important information such as product name, SKU, and quantity. If the item has any special requirements, such as a fragile or perishable item, it should also be clearly indicated on the label.

Labeling Systems

Different warehouses have different labeling systems, but it's important to choose a system that works best for your specific needs. Some warehouses use location-based labeling, where each location in the warehouse is assigned a unique identifier. Other warehouses use product-based labeling, where each product is assigned a unique identifier.

Benefits of Proper Product Identification and Labeling

Proper identification and labeling can bring many benefits to a warehouse. For example, it can:

  • Reduce errors and mistakes caused by misidentified products
  • Improve inventory accuracy
  • Facilitate order fulfillment processes
  • Increase productivity and efficiency

In order to make the most of these benefits, it's essential to maintain accurate and up-to-date labels and identification systems. Regular audits can help to ensure that labels remain clear and accurate, and that products are being stored in the correct locations.


Proper product identification and labeling are essential for efficient warehouse management. Through clear labeling and accurate product identification, warehouses can reduce errors, streamline order fulfillment processes, and increase overall efficiency. By choosing the right labeling system and regularly auditing labels, warehouses can ensure that products are properly tracked and organized.


Returns and Exchanges

Returns and exchanges are an inevitable part of running an ecommerce business. A recent survey found that 92% of consumers will return a purchase at some point, while 33% of customers return items specifically because they received the wrong product. Dealing with returns and exchanges efficiently can help reduce customer frustrations and retain customers.

The Importance of a Return Policy

To effectively manage returns and exchanges, ecommerce businesses must have a clear and concise return policy in place. Customers are more likely to return items if they don't understand the policy, which can lead to negative reviews and a loss of customers. Be sure to make the policy visible on your website and establish clear guidelines for returnable items, timeframes, and shipping fees.

Streamlining the Process

To streamline return and exchange processes, consider providing prepaid shipping labels, automating return processing, and providing customer service that is accessible across multiple channels. This can help reduce customer wait times and boost customer satisfaction. Additionally, providing a simple return process can convince customers to continue shopping with your business.

Managing Inventory

Returns and exchanges can impact inventory management and directly affect profitability. Returned items may need to be inspected, repaired, or replaced, causing additional inventory management challenges. Consider implementing an inventory management system that can track returned and exchanged items separately and provide insights on how to best manage the items.

Learning from Returns and Exchanges

Returns and exchanges can also provide valuable insights into customer behavior and preferences. Analyzing this data can help you identify the root causes of returns and exchanges, including product defects or misunderstandings of product descriptions, and make improvements to mitigate these issues.

In conclusion, managing returns and exchanges is a critical aspect of ecommerce business. Developing a clear return policy, providing streamlined processes, and managing inventory can all help minimize the impact of returns and exchanges while providing valuable insight and improving customer experience.

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Obsolete Inventory Management

Managing obsolete inventory is an integral part of any business that deals with perishable or seasonable products. Obsolete inventory refers to the items that are no longer in demand, slow-moving or expired goods that are unsellable in the market. Holding too much obsolete inventory can lead to significant losses for businesses and can tie up valuable capital.

According to a study by the National Retail Federation, the cost of excess inventory for US retailers alone was $473 billion in 2019. Therefore, managing obsolete inventory is crucial to maintaining profitability and avoiding waste.

To manage your inventory effectively, here are some tips to consider:

1. Identify obsolete inventory

The first step in managing obsolete inventory is identifying it. Review your inventory and identify the items that have not sold in a specific period. Determine the reasons why these products are not selling and whether it’s due to slow sales or changes in consumer demand.

2. Prioritize and classify

Not all obsolete inventory is the same, prioritize which items to get rid of first by their level of obsolescence. Categorize your inventory into groups such as high obsolescence with no future sales opportunity and low obsolescence with potential use.

3. Liquidate or donate

There are different ways to dispose of obsolete inventory such as liquidation sales, donation, or repurposing the products into something else. Liquidation can be an excellent option for selling off items quickly to cut losses, while donations offer benefits of goodwill and tax deductions.

4. Review policies

Analyzing your business policies around ordering, purchasing, and inventory management can help prevent excess stock in the future. Determine what changes you can make moving forward to avoid having obsolete inventory in the future.

To conclude, managing obsolete inventory is critical for any business to ensure profitability. By identifying obsolete inventory, prioritizing and classifying, liquidating or donating, and reviewing policies, businesses can proactively reduce excess stock and minimize potential losses. By efficiently employing these strategies, businesses can stay lean and reinvest resources into building their core business.

In conclusion, effective inventory management is essential for any business that wants to stay competitive in today's marketplace. By implementing the strategies and best practices outlined in this article, you can streamline your operations, reduce costs, and improve customer satisfaction.

We began by discussing the importance of stock valuation and how it can help you determine which products to stock and which to eliminate. We then explored order fulfillment, purchase orders, receiving and shipping processes, and how to maintain appropriate stock levels. We also looked at how to organize your warehouse and improve tracking and forecasting of demand, as well as the importance of product identification and labeling.

Additionally, we discussed the importance of handling returns and exchanges effectively, and the need to manage obsolete inventory to avoid costly write-offs. All of these areas are critical components of effective inventory management and require attention to detail and a commitment to continuous improvement.

If you're just getting started with inventory management, we recommend taking a phased approach. Begin by analyzing your inventory data to gain insights into your current processes, stock levels, and customer demand. From there, you can adjust your ordering processes, warehouse organization, and stock management strategies to optimize your operations.

Overall, the key to success with inventory management is to remain agile and adaptable, continuously evaluating and refining your approach to meet the changing needs of your customers and your business. With the strategies and best practices outlined in this article, you can take steps to improve your inventory management and position your business for long-term success.

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