5 Effective Inventory management Strategies

Inventory management is crucial for the successful run of a business as it helps to control the cost and enhance profitability. Further, efficient management of an inventory leads to free cash flow as your money does not remain tied in the inventory for a longer time.

The purpose of effective inventory management is to hold the right quantity of goods so that you never miss timely delivery to your customers. In addition to this, effective inventory management helps avoid excessive stock holding, leading to higher costs of the warehouse and a higher risk of obsolesce.

1-   Hire warehouse controller for inventory management

Warehouse controllers can play an extremely crucial role in managing different aspects of inventory management. The controller is responsible for managing, evaluating, and reporting on all aspects of inventory arrival, holding, and dispatch.

Further, the accuracy of the warehouse record can be enhanced with this hiring because the warehouse controller is expected to perform the following activities that lead to detailed and highly relevant documentation.

  • Checking purchase orders, delivery note, bills, and the quality of the goods received by the business.
  • Performing inspection on the physical goods at the warehouse.
  • Reconciling the complete chain of inventory documents like material requisition, purchase order, and goods received notes etc.
  • Ensuring mandatory compliance with health and safety regulations.

The responsibilities of the controller can be changed in line with the requirement of the business. For instance, some inventory items require maintenance of a specific temperature; the warehouse controller may also be allocated this responsibility.

2-   Maintain master excel file for inventory

Master excel file contains all details regarding movement and current status of the inventory hold by the business. This file contains different columns that include codes assigned to specific inventory items, description of the items, location of the items, date of arrival, and valuation, etc.

Further, item-wise break-up of the inventory items in the master file can be an extremely helpful feature to trace the purchase and level of stock.

However, it’s important to note that to effectively use the master inventory file, you need to update it as soon as an activity takes place.

3–   Conduct periodic and surprise inventory count

Inventory count is the backbone of an efficient inventory management process. It helps to ensure the inventory in the business record is the same as on the ground.  In other words, it confirms the existence of the stock on the floor of the company.

Once the counting procedure is completed and stock on the floor is the same as stock in the accounting record, the business gets an assurance that the accounting record is complete. The items recorded in the business record exist on the floor.

The frequency of the count can be different depending on the nature and size of the inventory. Sometimes, a surprise count can also be conducted. The benefit of a surprise count is that inventory management staff is expected to perform their duties more efficiently as there can be a surprise audit at any time.

Further, inventory count is extremely helpful in managing the risk of theft and misplacement, and most of all, warehouse staff remains alert about any movement of the stock.

4-   Tagging and labeling of the inventory items

Inventory tagging may sound like something very hard to follow. However, there are several benefits of tagging/labeling an inventory that includes the following.

Stock tracking for inventory management

Sometimes, you see a product in the list but are unable to trace it because of misplacement; someone has placed it at a different place in the warehouse. Tagging helps avoid these types of problems because each item in the warehouse is assigned a certain code, and staff clearly understands that this product should be placed at the specified place because of its serial number.

Hence, stock tracking becomes easy if you’ve placed tags on the physical items.

Ease in inventory count

Bar codes/tags placed on the physical items can be scanned to automate the counting process with the scanner. It greatly reduces the chances of error, and the process can be completed in less time.

Enhanced visibility

Tags help to improve the overall visibility of the product. Related detail of an item like supplier, cost, and additional information entered can be obtained by just a single scan of the product.

5–   Identify stock with low turnover

There may be stock in the warehouse that has not been sold for a longer period. The importance of identifying slow-moving stock increases more when you have a stock that is subject to the time of usage.

To identify a slow-moving stock, you just need to apply the filter on the date column in the master excel sheet. If you notice some old stock, you may want to offer some promotions to boost their sales.  In some cases, there may be a requirement to record impairment on the old stock, like when you expect to sell the product at a price lower than cost.

Accounting perspective of inventory valuation

There are three methods of inventory valuation that include FIFO – First in first out, LIFO – Last in first out, and Average cost method. As we live in a dynamic world, the prices of the product keep changing. Sometimes, you have to pay more to buy the goods, and sometimes you need to pay less to buy the same goods. In the warehouse, you may have product-A units purchased at different times and at different prices. So, now the question arises which of the units should be sold first to the customers when you receive an order.

FIFO – First in, first out method of inventory management

If you choose to sell old items first and new items later, this is called the first in, first-out approach. In other words, the goods that were purchased first will be sold first.

LIFO – Last in, first out

If you choose to sell the new items first and the old item later, this is called the last in first out approach; in other words, the goods that were purchased last will be sold first.


It means using an average price of the goods in the warehouse and charging against sales in the current period.


Effective inventory management is an essential part of business management, and it helps to control the cost and increase the profitability of the business. Active planning and implementation of certain inventory management policies can help to optimize the process of inventory management. These activities include but are not limited to the hiring of warehouse controller, maintaining master excel file, conducting periodic and surprise inventory count, tagging of inventory items, and identifying the stock with low turnover.

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