Inventory management and how to get it right

Inventory management is a critical process for any company that handles physical products. Keeping close track of these goods is crucial for meeting demand without generating excessive stock.

In this post, we look at the importance of inventory management and how to optimise it, avoiding both stockouts and overstock. We’ll also break down the different types of inventory, the features of an effective management system and how to implement one to gain better control over your warehouse stock.

What is inventory management and why is it so important?

Inventory management involves tracking and planning the products a business has on hand, from manufacturing or purchasing to their storage and subsequent distribution or sale. The goal is to find the sweet spot: housing enough goods to meet demand without under- or overstocking.

Inventory management and tracking require continuous visibility into your products so you can plan replenishment and optimise storage. Having access to real-time information helps ensure order fulfilment, reduce delivery times and prevent stockouts, overselling or unnecessary product buildup. This is especially vital for organisations with complex inventories, like those with omnichannel strategies or multiple warehouses.

Good inventory management helps balance the flow of products in and out of a logistics facility. Poor control can lead to a lack of stock, hurting customer satisfaction and sales, while excess inventory ties up capital and narrows profit margins.

What is an inventory management system and what features should it have?

Many businesses rely on warehouse management systems — like Mecalux’s Easy WMS — to maintain accurate, real-time inventory control. This software solution automatically tracks incoming and outgoing stock, verifies that recorded products match actual quantities stored, plans product turnover and helps lower excess inventory levels.

For companies operating multiple facilities, an inventory management system provides a comprehensive view of stock availability across all locations. It can also analyse recent sales data, seasonal trends and supplier lead times to anticipate replenishment needs.

Via RF scanners and barcode readers, the software automatically logs every product movement for reliable identification and full traceability, from storage to sale or shipment.

What features should an inventory management software have? When choosing an inventory management system, it’s essential to look for a solution that offers:

• Real-time updates. Accurate, up-to-date inventory information to support fast, data-driven decisions.
• Process automation. Compatibility with automated systems to reduce manual tasks, minimise errors and boost operational efficiency.
• Scalability and adaptability. Flexibility to grow and evolve with your business needs to bring long-term value.
• System integration. Seamless connection with platforms like ERP systems for unified operations management.
• KPI tracking. Performance monitoring through key indicators such as inventory turnover, service level and replenishment time.

How to implement effective inventory management

To achieve successful inventory management, start by analysing your logistics needs and setting clear goals. For instance, do you want to lower stock levels, maximise storage space and/or improve product availability for customers? Well-defined objectives will help you focus resources and strategies effectively.

The next step is to assess current workflows to identify areas for improvement. It’s especially important to look at how inventory data are recorded and updated — poor control could lead to losses and disrupt operations.

You should also establish a certain amount of safety stock. This refers to minimum product quantities kept on hand to prevent stockouts caused by unexpected events such as supplier delays or sudden spikes in demand.

To optimise warehouse management, you can apply inventory models such as ABC analysis, which classifies items based on their value and turnover rate. Likewise, you can leverage machine learning tools to forecast demand more accurately. These approaches help prioritise high-impact items while avoiding both overstocking and product shortages.

Types of inventory management and their characteristics

Understanding the different types of inventory will enable you to tailor stock control to your particular operational needs.

By tax period

• Beginning inventory. Taken at the start of the fiscal period — before new purchases or sales — to record existing stock.
• Ending inventory. Conducted at the end of the fiscal year to precisely account for remaining inventory after all transactions.

By frequency

• Annual inventory. Performed once a year to verify that accounting records match stock levels.
• Periodic inventory. Scheduled at set intervals throughout the year, involving a full count of all stored products.
• Inventory cycle counting. Involves frequent stocktaking spread throughout the year, focusing on specific items based on value, turnover rate or expiry date.
• Perpetual inventory. Continuously updated with each stock movement, providing real-time inventory visibility. This method relies on digital tools such as WMS software.

By function

• In-transit inventory. Tracks products and materials that are en route to the warehouse or have been ordered from suppliers.
• Safety stock. Reserve inventory kept on hand to handle unexpected events like supplier delays or sudden demand spikes.
• Seasonal inventory. Stockpiled in anticipation of predictable surges in demand during specific times of the year. Unlike safety stock, it covers planned events.
• Decoupling inventory. Maintains a buffer between two manufacturing processes with different paces, ensuring a smooth flow of materials.

By production stage

• Raw materials inventory. Tracks the materials used to manufacture finished goods.
• Factory supplies inventory. Includes items employed in production that are harder to quantify precisely, such as screws or paint.
• Work-in-progress (WIP) inventory. Covers partially finished items currently in production.
• Finished goods inventory. Consists of completed products ready for sale.

The future of inventory management

Inventory management is evolving alongside technological advances and shifting market demands. In turn, organisations are adopting automated solutions to streamline operations, reduce costs and enhance customer satisfaction.

In an increasingly dynamic environment, having a digital inventory system offers a competitive edge to maintain profitability and support business growth. If your company is looking to improve inventory management, a specialised solution like Mecalux’s Easy WMS can help you achieve operational efficiency. Contact us to learn more about the advantages of digitalising your supply chain — no strings attached.