Inventory Management

by Etaily Admin November 24, 2020

I used to dread the word “inventory.” As a part-time cashier in high school, the word meant only one thing: lots and lots of counting. It’s common for businesses to reconcile their inventory at the end of the year by counting all their physical stock and making sure it matches what’s on the books. For big companies like the one I used to work for, this requires everyone's help.

These days, I understand just how important solid inventory management is. Inventory is a placeholder for money. You paid money for your inventory, and you’ll get that money back (and then some) when you sell it.

Holding inventory ties up a lot of cash. That’s why effective inventory management is crucial for growing a company. Just like cash flow, it can make or break your business.

What is inventory management?

Inventory management is the act of keeping track of your ecommerce company’s stocked goods and monitoring their weight, dimensions, amounts, and location. The goal of inventory management is to minimize the cost of holding inventory by helping business owners know when it’s time to replenish products or buy more materials to manufacture them.

What is inventory control?

Inventory control can be used interchangeably with inventory management. Essentially, it refers to when you have control over your stock, typically due to effective inventory management processes. It’s much easier to maintain control of your inventory with centralized inventory management.

Why inventory management is important

Effective inventory management is essential for ensuring a business has enough stock on hand to meet customer demand. If inventory management is not handled properly it can result in a business either losing money on potential sales that can’t be filled or wasting money by stocking too much inventory. Inventory management also helps your business in a number of other ways.

Inventory management saves you money

1. Avoid spoilage

If you’re selling a product that has an expiry date, like food or makeup, there’s a very real chance it will go bad if you don’t sell it in time. Managing inventory effectively helps you avoid unnecessary spoilage.

2. Avoid dead stock

Dead stock is stock that can no longer be sold but not necessarily because it expired—it could have gone out of season, out of style, or otherwise become irrelevant. By adopting a diligent strategy, you can address this costly inventory mistake.

3. Save on storage costs


Learn more: Everything You Ever Wanted to Know About Fulfillment Services

Inventory management improves cash flow

Not only is good inventory management more cost-efficient, it improves cash flow in other ways too. Remember, inventory is product you’ve likely already paid for with cash (checks and electronic transfers included), and you’re going to sell it for cash, but while it’s sitting in your warehouse, it’s definitely not cash. Try paying your landlord in dog collars or phone cases.


When you have a solid inventory system you’ll know exactly how much product you have in real time, and based on sales you can project when you’ll run out so you can replace it before then. Not only does this help ensure you don’t lose sales (critical for cash flow), it also lets you plan ahead for buying more by ensuring you have enough cash set aside.


11 essential inventory management techniques


However, every business should strive to remove human error from inventory management as much as possible, which means taking advantage of inventory management software. If you run your business with Shopify, inventory management is already built in.


  1. Set par levels
  2. First in, first out (FIFO)
  3. Manage relationships
  4. Contingency planning
  5. Regular auditing
  6. Prioritize with ABC
  7. Accurate forecasting
  8. Last in, first out (LIFO)
  9. Just-in-time (JIT)
  10. Safety stock
  11. Reorder point

1. Set par levels


Ideally, you’ll typically order the minimum quantity that will get you back above par. Par levels vary by product and are based on how quickly the item sells and how long it takes to get back in stock. Although setting par levels requires some upfront research and decision making, they’ll systemize the ordering process. Not only will it be easier for you to make decisions quickly, it will allow your staff to make decisions on your behalf.



The Shopify Fulfillment Network offers smart inventory allocation across our warehouses, coupled with a Success Team to consult on your fulfillment strategy—ultimately helping you set par levels, manage the relationships with all warehousing partners, and spot check your product. Learn more about scaling with Shopify’s fulfillment solution.

Shopify Fulfillment

2. First in, first out (FIFO)



In order to manage a FIFO system, you’ll need an organized warehouse. This typically means adding new products from the back or otherwise making sure old product stays at the front. If you’re working with a warehousing and fulfillment company, they probably do this already, but it's a good idea to confirm.

3. Manage relationships




4. Contingency planning


  • Your sales spike unexpectedly and you oversell your stock.
  • You run into a cash flow shortfall and can't pay for product you desperately need.
  • Your manufacturer runs out of your product and you have orders to fill.
  • Your manufacturer discontinues your product without warning.


5. Regular auditing


Physical inventory


Spot checking


Cycle counting


6. Prioritize with ABC





Therefore, your A stock represents your most profitable and valuable products. You’ll want to make sure you always have these products on hand so you don't miss out on future sales. Your C stock is your slow-moving or dead stock. This is stock you might want to sell at a discount, so you can get it off your shelves and free up cash from your inventory.

7. Accurate forecasting


  • Trends in the market
  • Last year’s sales during the same week
  • This year’s growth rate
  • Guaranteed sales from contracts and subscriptions
  • Seasonality and the overall economy
  • Upcoming promotions
  • Planned ad spend


8. Last in, first out (LIFO)



In general, LIFO is a really difficult method to actually use to manage inventory. If you keep your oldest merchandise on the back of the shelf, it’s more likely to become obsolete and unsellable at a certain point. This rings true for both perishables and non-perishables. Items can get damaged, worn, and outdated.

9. Just-in-time (JIT)




10. Safety stock


Safety stock has a formula:





11. Reorder point



Reorder Point = Lead Time Demand + Safety Stock


An inventory management system can work for a small business


When you use a powerful inventory software to help you track stock, you get access to benefits like stock alerts, automated purchase orders, year-end inventory reporting, and user permissions and accounts. Combined, inventory tracking software features give you complete control and insight into your business and how inventory moves from suppliers to customers and everywhere in between.

An inventory management system like Stocky, Shopify's inventory management solution for Shopify POS Pro, provides you these advanced inventory management features, and syncs with your Shopify store in real time. The best part is it grows with you—so you can scale your business with a tech stack capable of handling your inventory now and in the future.


Get more than just a point-of-sale

Shopify POS has the advanced inventory features and big picture analytics that you need to manage your business. All from one back office.

Request info

Take control of your inventory



Original Article: https://www.shopify.com/blog/inventory-management


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