Udemy logo

inventory management techniquesAn inventory is a warehouse or storage location where a business maintains stocks of its products so that it can ensure swift delivery of those products on the order. With the ever increasing demand in products, more and more management practices have evolved to ease the process of product procurement by the customer. Highly efficient delivery systems and supply chains are developed to ensure efficient delivery of the products to their consumers. In the current scenario when customer satisfaction and service have become a prime reason for a business to stand apart from its competition, the need for effective inventory management is largely seen more as a necessity than a mere trend. Project management is a field of management that deals with the effective management of various types of projects. You can take up a course on project management to learn more about it.

To understand the various inventory management techniques it is crucial to know why it is important.

Various businesses have employed the basic inventory management techniques or inventory control methods to keep their inventory costs in check. Inventory management has become an intrinsic part of supply chain management. There are various methods that an organization may use to manage its inventory:

Just in Time (JIT)

As the name suggests, the JIT inventory management technique says that the item will be ordered only if it is needed for shipping or manufacturing. The item may be ordered a few days back depending on the delivery time promised by the supplier. A mandatory requirement of this approach is the proper identification of each item before the manufacturer or reseller requires it. Since, there can be many goods required by supplier or manufacturer at any time, each and every future requirement should be properly identified and timely ordered.

Another crucial requirement for this technique is the timely delivery of the order by the supplier. Since the item is ordered just before it is needed, any delay in the arrival of the item may delay the whole production process; this may be treated as a drawback in the approach. The JIT inventory management technique helps reduce the size of the inventory and leads to low storage costs. Although, early identification and order of all items required in the future should always be there to make this approach effective. Early identification of risks is also a prime concern in managing a business properly; click here to take a course on how to manage risk in Information Technology.

There are several components to JIT that deserve mention in the text:

 Accurate Response

The inventory management approach of accurate response is an excellent mechanism that helps businesses manages their inventory, which may get overloaded due to improper forecasts. Businesses greatly manage their inventory on the basis of future demand predictions. It has become increasingly important for these forecasts to be accurate for a business to keep itself alive in the cut-throat competition. Since more and more companies have come up with sophisticated inventory management systems that give accurate forecasts on product demands, the need for accurate response is highly needed.

Bad forecasts lead to businesses storing huge amount of inventory due to expected future demands. This leads to many storage costs and bad management of inventory. With the accurate response inventory management practice, one can reduce the unpredictability in the markets by making more accurate predictions. The underlying principle in making an accurate response strategy is identifying the products for which demand can be forecast. Then the product whose demand can’t be predicted is kept away from the predictable products.

The accurate response method helps businesses better manage and predict their inventory. First, all the items that were not available and lead to a drop of sales are incorporated in the total costs so that these products are available for maintaining customers. Second, products are classified as predictable and unpredictable so that proper inventory stock can be maintained for the predictable products.  The various benefits of the accurate response inventory management techniques are:


The method involves a seller making a dropshipping contract with another company. The best part of the technique is that there is no need to bear the cost of inventory; the seller can directly transfer the order to a dropshipping company, which will then take the responsibility of delivering the item to the customer. The seller receives a certain percentage of the sales that he can make. The downside to this method is that the seller does not have any control over the shipping of the item and cannot cross check the quality of the shipment. Check out the top 10 ways of inventory management here.

Procuring Bulk Shipments

This is an age-old method of managing inventories; the method relies on the principle that if you purchase goods in bulk, you are able to procure them in much lower costs. The method can only be employed if a business is sure that he will be able to sell that product. If a product is in high demand then you should consider using this inventory management technique which is sure to save you much money.

Apart from these practices there are many techniques that will help you manage your inventory. As businesses are becoming more competitive, more and more inventory management practices have come into the light. However, there are a certain pointers that should always be kept in mind if you really want to successfully manage your inventory:

In a nutshell, inventory management will lead to low storage costs, ample usage of funds and timely delivery to customers. The various approaches to inventory management may depend on the requirements of the business. To learn about the various management techniques take this course on introduction to management.

Page Last Updated: February 2020

Supply Chain students also learn

Empower your team. Lead the industry.

Get a subscription to a library of online courses and digital learning tools for your organization with Udemy Business.

Request a demo