Inventory Management Best Practices

How to optimize inventory management at your organization

15 Best Practices for Manufacturers to Help Improve Inventory Management

As a manufacturer, you know that inventory management is one of the most critical processes in your organization, especially if your business focuses on customer satisfaction.

Inefficient inventory management can really hurt your business. Antiquated ERP systems with limited data functionality and key information sitting outside the system interfere with your ability to meet inventory and delivery requirements. Spreadsheet-driven inventory management with disconnected data inputs is prone to human error and result in inventory, delivery and supply chain problems. Furthermore, when your company grows and expands, maintaining inventory at multiple warehouses and manufacturing sites can become a significant challenge.

On the other hand, automated inventory management can:

  • Improve manufacturing and order fulfillment accuracy
  • Keep your inventory organized, using the optimal amount of space.
  • Improve your forecasting
  • Lower your costs and improve production time
  • Reduce waste, including carrying costs and transportation time

Inventory Management Best Practices

There are many common-sense best practices that you can follow to optimize inventory management at your organization. These are described below.

1. Stop Using Manual Inventory Management

Many manufacturers still use Excel spreadsheets to manually track and manage their inventories. Inventory is dynamic, with parts and assemblies constantly moving through your company. Your inventory management solution needs to be dynamic as well.

Spreadsheets affect inventory management in several ways:

  • Spreadsheets are prone to human error: Spreadsheets are prone to human error and oversight and become outdated very quickly.
  • Spreadsheets are static: They don’t let you make corrections or adjustments on the fly.
  • No comprehensive overview: They cannot give you an overview of your company’s entire inventory.
  • Spreadsheets do not improve communication among stakeholders: In fact, they often do the opposite, creating information silos depending on which spreadsheet is owned by which department.

2. Track Inventory in Real Time

Real-time inventory tracking lets you automatically update your current inventory data to match actual inventory. Without real-time tracking, your employees don’t upload inventory data until later, sometimes waiting until they can batch load the data. Inventory data remains out of sync with actual inventory in stock until this process is complete. The problems only increase with multiple inventory locations.

Real-time inventory tracking allows you to:

  • Reduce out-of-stocks, deadstock and preventable returns.
  • Dramatically improve the accuracy of fulfillment and delivery, thus reducing returns.
  • Increase visibility into your inventory, which helps increase the accuracy of forecast demand and other reporting metrics
  • Improve tracking of inventory turnover.

Modern systems, such as Cloud ERP, includes real-time inventory tracking and mobile devices for your employees to input data.

3. Automate Workflows

For organizational leaders, freeing your employees from time-consuming manual tasks is critical to increase productivity and accuracy.

Inventory management workflow automation helps:

  • Reduce data redundancy: When identical data exists in multiple places, it can lead to inconsistent data, data corruption and increased storage costs.
  • Increase speed, efficiency and accessibility: Streamline workflows such as inbound and outbound transfers, label printing and bin tracking.
  • Reduce obsolescence: Automated inventory management replaces outdated products with the newer versions and sends automated backorder notifications and replenishment reports in real time.
  • Automate routing across multiple inventory locations: Save time, speed up fulfillment, and reduce shipping costs.
  • Reduce carrying costs of excess inventory.
  • Reduce stock-outs: Improve the customer experience by filling orders on time.

4. Increase the Accuracy of Demand Forecasting

Accurate forecasting is critical to manufacturing companies. It begins with a deep understanding of past demand to help you predict inventory requirements. Forecasting indicators typically include factors such as the past growth rate, orders, promotional activity, the economy, and even political trends.

Accurate demand forecasts can help you lower costs and improve inventory management. A modern cloud-based system, such as Cloud ERP, lets you analyze supply and demand requirements online and gives you actionable insights.

5. Set Up SKUs

SKUs (Stock Keeping Units) are the product codes that you and others use to search and identify stock from orders, invoices or lists. SKUs identify and differentiate different products and help you monitor stock availability, product locations and types, sell rates, margins, profitability and inventory loss.

If you are still using Excel spreadsheets or some other antiquated software to manage your SKUs, you already know how hard it is to maintain complex naming conventions for SKUs. A modern system like Cloud ERP maintains a unified naming system that does not require manual tasks. Cloud ERP solutions also includes bar code-scanning on mobile devices, bringing another level of efficiency to your inventory operations.

6. Create Product Bundles to Increase Average Order Value

Product bundles are groups or packages of separate items sold as a single unit. In modern inventory management systems, whenever a bundled item is sold, each individual item is automatically linked to the sale.

Product bundling offers several benefits:

  • Track and maintain stock levels more effectively.
  • Prevent deadstock by selling old or unwanted inventory.
  • Increase average order values.
  • Reduce holding and shipping costs.
  • Offer customers flexibility and convenience.

To start using product bundles, first define a pack size (or different pack sizes for multiple products), then select the products to be included in the bundle, and finally use real-time tracking to help you maintain enough stock on hand for each bundle variant.

7. Establish Inventory KPIs

Inventory key performance indicators (KPIs) measure your inventory performance over a specific length time and give you clear milestones for every week, quarter, or year.

Some useful inventory KPIs include:

  • Inventory carrying costs.
  • Rate of inventory turnover.
  • Inventory write-off and inventory write-down.
  • Cycle time.
  • Order status and tracking.

A modern system that displays your KPIs as easy-to-read charts and graphs is the most efficient way to quickly see your inventory performance. The best Cloud ERP systems come with a range of KPIs ready to use out of the box, and let you easily create your own KPIs as your business requires.

8. Categorize Your Inventory Using ABC Analysis

As a manufacturer, you need to maximize turnover, but first you need to prioritize your inventory. ABC analysis (also known as ABC classification) is a technique used by inventory management teams to help identify the most important products and prioritize them over those less important products.

ABC analysis categorizes your inventory into three categories (A, B, and C) to determine levels of importance. ABC categories are:

  • A: Items of high value but small in number.
  • B: Items of moderate value and moderate in number.
  • C: Items of small value but large in number.
Advantages Disadvantages
  • Improves demand forecasting by analyzing a product’s popularity over time.
  • Improves time management and resource allocation.
  • Improves inventory accuracy.
  • Helps with strategic pricing.
  • It may ignore products that are just trending upwards.
  • Can conflict with other inventory strategies.
  • Requires time and human resources.

The decision to adapt ABC inventory analysis should be based on your own business strategies. If you do use it, keep in mind that many modern Cloud ERP systems include the ability to use ABC analysis to categorize inventory.

9. Use Cycle Counting to Improve Inventory Accuracy

If it isn’t already, cycle counting should be one of your regular inventory best practices because it lets you see how accurately your actual inventory matches your inventory records. With cycle counting, you count a small amount of inventory on a specific day without having to do an entire manual stocktake.

Regular cycle counts help you make sure that items accounted for in the inventory system are physically in stock.


Cycle counting offers several benefits to inventory management:

  • It reduces safety stock.
  • It’s faster and more cost-effective than a full stocktake.
  • It can be done without disrupting your operations.
  • It helps keep inventory holding costs low.
  • It can be an effective anti-theft strategy.


Keep the following tips in mind when doing your own cycle counts:

  • Count one category at a time.
  • Choose count categories based on seasonality.
  • Vary your cycle count schedule.

10. Carry Safety Stock

Safety stock is that small, surplus amount of inventory you keep on hand to guard against dramatic changes in demand and lead times.

Important to inventory management best practices, safety stock offers several benefits:

  • It guards against unexpected increases in demand.
  • It prevents stockouts.
  • It can compensate for inaccurate forecasts.
  • It can serve as a buffer for longer-than-expected lead times.

Manufacturers who do not maintain safety stock inventory are the ones who must tell their customers, “Sorry, we’re out of stock,” and then experience loss of customers, loss of revenues and a decrease in market share.

11. Optimize Inventory Turnover Rates

Inventory turnover counts the number of times your inventory is sold or used in a specific time period. Inventory turnover rate is an indicator of sales performance – the higher the turnover rate, the better your sales.

Your inventory management system should be able to calculate your inventory turnover rate, which will give you deeper insight into demand for your products, the amount of obsolete stock you may be carrying, and what you should do to sell or stock more inventory.

Here are some ways to increase your inventory turnover rate:

  • Experiment with pricing.
  • Liquidate obsolete stock.
  • Improve demand forecasting.
  • Redistribute inventory to other locations.

12. Improve Relationships with Vendors and Suppliers Using Collaboration

You need to maintain strong working relationship with your vendors and suppliers, who are important partners in your inventory management system. Poor supplier communication often results in shipping the wrong parts and missing dates, resulting in shortages, missed targets and increasingly poor relationships.

Here are a few tips to get your vendor and supplier relationships back on track:

  • Establish clear expectations for communication and reporting: Once you set these expectations, you can provide a consistent platform for all communications.
  • Know everything you can about the parts you need to discuss with your supplier, including part numbers: Having this information ready reduces emails and speeds resolution.
  • Set up key metrics and track them: These metrics should include on-time delivery performance, quality performance and cost performance.
  • Keep your communications short and to the point.

Modern cloud-based systems typically include collaboration tools out of the box. For example, Rootstock Cloud ERP is native to the Salesforce Cloud Platform, and takes advantage of Salesforce Chatter, a platform collaboration tool.

13. Track Your Products Through Their Entire Lifecycle

Manufacturing companies need to able to track their products through their entire lifecycle, especially in industries like medical device manufacturing that are heavily regulated. Lot and serial number tracking let you track products from raw materials and suppliers to purchase orders and customer records.

Lot numbers allow you to track the quantity of items, the cost of each group of products based on when they were made, and the expiration date. Serial number tracking allows you to select specific serial numbered items to receive or fill orders.

Lot and serial number tracking help your company define fulfillment strategies to minimize waste and ensure the most efficient use of your inventory. Modern Cloud ERP systems like Rootstock Cloud ERP also include full-level traceability trees and comprehensive device history, which not only help with regulatory compliance but also customer service.

14. Train All Workers in Inventory Management Best Practices

The inventory management best practices described here look good on paper but will do nothing if your employees are not properly trained.

To succeed in improving all aspects of your inventory management, the employees who will be affected by any changes must be part of the process. Teach them the new and improved inventory management policies and practices, and train them to master new technology.

Organizations who involve their employees in the process of improving inventory management and properly train them will have a much better chance at success.

15. Put It All Together with Cloud ERP

Fortunately, you don’t need to buy multiple software systems in order to implement the inventory management best practices described above. Rootstock Cloud ERP on the Salesforce Cloud Platform gives you all the tools you need to turn your inventory management processes into measurable outcomes for your company.

Rootstock Inventory Management ERP lets you:

  • Replace spreadsheets with accurate digital records with instant access to all detailed inventory information, including transactions, customizable cycle counts, ABC category analysis, and more.
  • Manage and track inventory in one or multiple locations in real time from anywhere using a cell phone or tablet.
  • Analyze supply and demand requirements online to make informed decisions that help increase inventory turns and improve forecasting.
  • Automate inventory management workflows and create your own customized workflows to match your business requirements.
  • Use complete traceability with lot and serial number tracking and comprehensive audit trail inquiries.
  • Combine Rootstock Cloud ERP with Salesforce CRM to provide a single source of data for all of your operations, including sales.
  • Improve customer and supplier relationships with messaging and social media collaboration tools built into the Salesforce Cloud Platform.


Great inventory management is critical to the success of any manufacturer. With modern solutions like Rootstock Cloud ERP, your inventory no longer has to be an obstacle to your company’s success. If you follow the best practices described above, you’ll be able to point to your inventory management system with pride.