If you’re constantly overwhelmed by the sheer number of things you have to manage in a business, you’re not alone! It’s no secret that business owners have an endless amount of things to organize, manage, and consider on a regular basis. One of those things is definitely your inventory. This is a common issue area for many business owners, but what can you do about it? One way that you can solve your inventory woes is to focus on inventory management. 

What Is Inventory Management?

Inventory management involves tracking and monitoring the ordering, storage, and carrying costs of all the different products that you stock. This helps you keep your stock in order and provides valuable insights into the process that you can use to cut down costs and optimize the entire process. 

In order to really understand inventory management, you need to know about the different types of inventory as it’s not all the same. Furthermore, not every business is the same and will deal with the same types of inventory. Here are the three main types of inventory that we typically see:

  • Raw materials: This relates to all the raw materials that go into the production of your products -- before they have been produced. Some businesses don’t deal with raw materials, while others do. At the end of the day, it’s important to separate this category from others within your inventory to ensure that you have the right materials in stock to produce your products.

  • Work-in-progress: This relates to products that are currently in the process of being manufactured. These items are not for sale and need to be kept separate from the other categories to ensure that they don’t remain in this stage for long and quickly move through the manufacturing process.

  • Finished goods: This relates to products that have been completed and are ready to be sold to customers. It’s important to keep track of this category to keep customers satisfied with in-stock products rather than promising them products that you don’t yet have -- leading to backorders

Why Is Inventory Management Important?

If you’re a business owner, you definitely need to be practicing inventory management due to the many ways that it can benefit your business. However, if you’re still not convinced about the importance of this concept, here are some of the ways that it can help you effectively manage and grow your business:

  • Inventory management helps you avoid acquiring excess stock. Excess stock that you just can’t seem to move is a business owner’s worst nightmare. Prolonged storage costs cut into your profits and prevent you from stocking better-selling items. So instead of being stuck with a bunch of dead stock, inventory management helps you identify these items and avoid the issue before it even occurs. In business, being proactive is always better than being reactive, and this is essentially what you’re doing by prioritizing inventory management.

  • Inventory management helps you maximize your profits. Investing in inventory management gives you insight into which products are selling versus which are not. From there, you can make smarter and more informed decisions on your stock levels. You can better meet customer needs by stocking more popular items while stocking fewer unpopular items. It also allows you to use the economic order quantity formula to optimize your ordering process to cut down on storage and ordering costs.

  • Inventory management also helps you save time. As a business owner, you know that this is an extremely limited commodity. With all the different things you have going on, do you really have time to sit down to analyze all this information on your own and do a bunch of calculations? Probably not. Instead, you can better allocate your time by focusing on more important things like product development, sales, and building your brand while letting your inventory management software do all the heavy lifting in that arena. 

Types of Inventory Management

While the initial definition of inventory management may have sounded simple and straightforward, there’s really a lot more to it. For example, there are several different types of inventory management that you need to know about in order to really get the full picture of this concept. Here are some different types of inventory management that you may want to explore and implement for your business:

  • Perpetual Inventory: Perpetual inventory is constantly updating information about your inventory every time an order is placed. In the past, this wasn’t always possible or even realistic since it obviously requires a lot of work. Thankfully, technology has made this concept possible and allows you to gain real-time insight into all the different aspects of your inventory.

  • Just-in-Time Inventory: Also known as JIT inventory, this concept involves ordering and manufacturing in order to meet exact demands. Instead of manufacturing in advance, you only manufacture once an order actually comes in to prevent unnecessary surpluses. By using JIT inventory, you can cut down on production costs by identifying and eliminating areas of waste and inefficiency.

  • ABC Inventory: ABC inventory involves categorizing your products into groups depending on what sells and what doesn’t. This type of inventory management is ideal for businesses that have a single product contributing to most of their sales. This best-selling item is denoted as “Item A.” Conversely, “Item C” takes up a lot of space and time but doesn’t sell very well. In the middle, there is “Item B.”

  • Consignment Inventory: Consignment inventory involves a manufacturer that only charges a business for products and materials after they have actually been sold to a customer. This is a less common type of inventory management since it does involve more risk for the manufacturer. As a result, it may be difficult to find a manufacturer willing to do this for your business. However, if you can find the right partnership, it can be very beneficial and save you a lot of money in the long run. 

Essential Inventory Management Concepts for Business

Getting into inventory management will definitely benefit your business, but it can be really confusing at first, thanks to a bunch of terms and definitions that you know nothing about. Thankfully, we here at BoxGenie know all about these essential inventory management concepts and are going to break them down for you: 

  • Reorder point: This relates to a stock level that you do not want to go below. Once stock levels hit the reorder point, you know to reorder -- giving yourself enough time for manufacturing, shipping, etc. Knowing your reorder point will help you eliminate supply-chain issues and bottlenecks so that you can have the products you need when you need them.

  • Safety stock: This relates to a number of extra products that are kept in the warehouse as a type of safety net for unexpected events that may leave you with a shortage. For example, emergencies may cause a supply shortage, or demand may spike. Safety stock should include both raw materials and finished goods to protect against all possible scenarios. You don’t want too much safety stock, but you also don’t want too little -- inventory management can help you determine and maintain the ideal amount.

  • Dead stock: This relates to products that are simply sitting in the warehouse and are having trouble selling. This isn’t an ideal scenario, as dead stock cuts into your profits as a result of increased storage costs. Inventory management helps you identify areas of dead stock so that you can adjust production or make more aggressive moves to get it sold. 

How Businesses Can Effectively Manage Inventory

Clearly, inventory management is a lot, but you don’t have to do it all yourself! Instead, you should definitely invest in inventory management tools so that you don’t have to spend all your time and energy figuring out all these different factors by hand. If you’re serious about prioritizing and investing in inventory management, cloud-based software programs are probably your best bet. 

There are tons of different options out there that you can evaluate based on the unique needs of your business. In fact, there are even specialized inventory management software programs out there that are specifically designed for certain industries. At the end of the day, this is a solid investment for your business and will require planning and research to choose the right one. 

Final Thoughts on Inventory Management

As you can see, inventory management is an essential concept for every business. While it may seem confusing and overwhelming at first, there are tools out there that can help you flawlessly manage your inventory. Sure, these tools require an investment, but it’s a solid investment that can help you save time and money, in the long run, to grow your business effectively. 



  1. https://smallbusiness.chron.com/disadvantage-excess-inventory-22812.html
  2. https://www.forbes.com/sites/viviannunez/2020/04/21/5-things-small-business-owners-should-prioritize-according-to-a-brand-strategist/?sh=5cfdc097456e
  3. https://www.business.org/finance/inventory-management/best-inventory-management-software/

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