12 Proven Ways to Improve Your Inventory Management

Managing inventory—especially as your business grows—is a delicate balancing act between chaos and control. 

One minute, you’re flush with stock… the next, you’re out of your bestsellers, your warehouse looks like a hurricane hit it, and your team is too busy hunting down missing SKUs to focus on anything else.

Sound familiar?

One misstep and you’re looking at stockouts, surplus, angry customers, or money bleeding out of your balance sheet faster than you can say “safety stock.”

But here’s the good news: there’s a smarter way to do it. And the secret? It’s not about working harder. It’s about applying the right inventory management techniques to keep your operations lean, your shelves full (but not too full), and your business humming like a well-oiled machine.

Let’s break down 12 inventory management techniques that will not only save your sanity—but supercharge your efficiency, reduce waste, and unlock growth. Ready? Let’s go.

1. Cycle Counts

Ever tried to count your entire warehouse in one sitting? Yeah, good luck.

If you’ve ever attempted a full-blown physical inventory count, you already know how much of a logistical nightmare it can be. People calling in sick, half the team triple-checking the same shelf, and someone inevitably finding a box of stuff that no one remembers ordering. Not fun. Not efficient. And definitely not something you can (or should) do often.

Enter cycle counting—the calm, collected, totally manageable cousin of the inventory count.

Cycle counting is the art of working smarter—not harder—by breaking your inventory into smaller, manageable chunks. Instead of one epic annual stocktake (that never goes as planned), you count by category, vendor, or warehouse section on a regular basis.

The strength of this technique lies in its focus on two critical areas:

• High-risk inventory – items that are prone to theft, spoilage, or past inconsistencies. These are the sneaky little troublemakers. The products that constantly disappear (either from theft, damage, spoilage, or gremlins—jury’s still out). If they’ve been corrected a bunch of times or have a suspicious number of write-offs, they need more attention.
• High-value items – those cash-hungry SKUs you must track religiously. These are your money-makers. The expensive, in-demand items that you absolutely cannot afford to lose track of. A couple of missing units here could mean thousands off your books.

By honing in on these two groups regularly, you’ll start seeing patterns—and fixing problems before they snowball. That’s the real benefit of cycle counts: they give you the power to stay in control, spot trends, prevent errors, and reduce those annoying, expensive “surprises” at the end of the quarter.

What's more, if you’ve got a decent inventory management system, cycle counts get ridiculously easy. No more printing out spreadsheets and wandering the warehouse like you’re on a scavenger hunt. You just pull a report, walk the aisles, scan some barcodes, and boom—done.

So if you’ve been avoiding inventory counts because they feel too big, too stressful, or too disruptive to your team’s actual work, give cycle counting a try. It’s a small habit that creates massive impact over time.

By prioritizing what matters most, you reduce shrinkage, catch problems early, and keep your cash tied up in inventory where it truly counts.

2. FIFO (First In, First Out)

Not all inventory is created equal—and neither is the order you move it.

FIFO (First-In, First-Out) is exactly what it sounds like. You sell your oldest inventory first, ensuring perishable goods don’t spoil and dated items don’t sit around collecting dust (and depreciation). That way, you're  keeping your stock fresh and your profits protected.

Think about what happens when you don’t use FIFO:

• Products expire or spoil (especially if you're in food, beverage, or anything time-sensitive).
• Packaging gets worn out.
• Technology becomes outdated.
• You start selling new stock while the old stuff just… sits there.

Before you know it, you’ve got a backlog of unsellable products and a warehouse that feels more like a museum than a fulfilment centre.

It’s also a win for your accounting: FIFO ensures your balance sheet reflects real inventory costs, aligning better with what’s physically happening in your business. 

It’s the industry standard for a reason. FIFO gives you a clearer, more realistic picture of your actual profitability—especially when costs are rising. It also ensures your balance sheet doesn’t look inflated by newer, more expensive stock you haven’t sold yet.

3. ABC Analysis

Think all your inventory deserves the same amount of attention? Think again.

Using ABC analysis, you categorise your stock based on value and consumption. The logic? Not all products are equal, so don’t treat them that way.

It's a method that helps you focus your energy where it counts—by breaking down your inventory into three categories based on how valuable (and how active) they are.

• A-items: high-value, high-impact—items that are managed carefully and consistently. These are your  high-value, high-frequency products that make up the top 20% of your inventory—but often account for 80% of your revenue.
• B-items: moderate value—manage closely. Generally speaking, these are your solid performers that require attention, but not the high-level micromanagement you give your A-list items.
• C-items: low-value—automate or minimise manual attention. Maybe they're add-ons, freebies, or niche products. You still track them, but if one goes missing, it won't have much of an impact on your bottom line.

Here’s what ABC Analysis actually helps you do:

• Prioritise cycle counts so you’re not wasting time on low-impact products.
• Optimize storage space by keeping your most valuable products more accessible.
• Improve forecasting by focusing on what actually drives revenue.
• Make smarter purchasing decisions based on real consumption data.

This technique isn’t just smart—it’s essential. It helps you prioritise what to count, stock, monitor, and replenish first. The result is that you will achieve better results with effectively less effort.

A great bonus is that ABC analysis works great with inventory management systems that allow tagging, filtering, or automating reorder thresholds based on product classifications. That means you can let the system do the heavy lifting while you focus on growing your business.

4. Just-in-Time (JIT)

Running low on storage? Or just tired of tying up capital in inventory that feels like it lingers on your shelves forever? 

Just-in-Time (JIT) might be your new best friend. This technique minimises on-hand stock by ordering goods only when needed. Instead of keeping mountains of stock in your warehouse “just in case,” you order goods so they arrive right before you actually need them. 

This is a popular inventory management technique because inventory is expensive.  I’m not just talking about the cost of buying it. I’m talking about storing it, organizing it, protecting it, insuring it, rotating it, and maybe even discounting it when it gets old or outdated.

And if you’re like most small to mid-sized businesses, you don’t have endless capital to tie up in boxes sitting on shelves. You need cash flow. You need agility. You need freedom.

Why JIT can be a total game-changer:

• No more paying for stock to sit around and collect dust. Your cash stays liquid—ready to be invested in ads, people, new products, or anything else that drives growth.
• Less warehouse clutter. Smaller storage space. Less chance of damage, theft, or misplacement.
• Lower risk of obsolete inventory. If customer preferences shift (and they will), you’re not stuck with a warehouse full of last season’s mistakes.

But here's the catch:  JIT only works if you have rock-solid supplier relationships and systems in place. If your vendor stumbles, your customer experience takes the hit.

Here’s how to succeed with JIT:

• Use real-time inventory tracking so you always know where you stand. This is not a “set it and forget it” model.
• Automate reorder points based on forecasted demand, past sales, and lead times.
• Over-communicate with suppliers. They need to understand your flow—and deliver on time, every time.

So if you’re short on capital and trust your suppliers, JIT can help you run lean, stay agile, and focus your resources on growth—not stockpiling.

5. Taming Surplus Inventory and Dead Stock

Whether it’s overstock, obsolete items, or dead stock that just doesn’t move, excess inventory kills profitability. The longer it sits, the more it costs.

There are several clever ways to get rid of slow-moving or dead inventory—and ideally, avoid it happening again.

1. Cross-Merchandising

Bundle slow movers with fast-selling items. Got a best-selling gadget? Throw in the less-popular accessory at a discount or as a limited-time bonus. You increase perceived value and move stale stock out the door.

2. Sell on New Channels

If your website isn’t moving them, maybe eBay, Amazon, Facebook Marketplace, or Instagram Shop will. New eyes = new opportunities.

3. Donation = Tax Deduction

For certain types of companies, donating unsold stock to qualified charities can score you tax deductions worth up to twice the product’s cost. That’s a win for your conscience and your accountant. 

4. Flash Sales or Clearance Events

Yes, you’ll take a margin hit—but something is better than nothing. Promote the sale with urgency and watch it fly.

5. Forecast Smarter Next Time

Look at the why. Was it a seasonal issue? A trend that fizzled? Faulty data? Tighten up your forecasting to make sure it doesn’t happen again.

Remember, dead stock doesn’t just sit there quietly. It’s shouting “wasted opportunity” every day. The sooner you act, the more cash (and shelf space) you’ll reclaim.

6. Par Levels

Imagine knowing exactly when to reorder every product—without guesswork or panic.

Par levels are your built-in reorder triggers. They are the minimum acceptable quantity for each product. When inventory dips below that set level, it’s time to reorder—before you run out and customers start side-eyeing you in the reviews section.

Par levels is a deceptively simple strategy that is more than just preventing stockouts (although that’s a huge win by itself). It will also help you to:

• Plan and automate reordering. No more gut-feeling guesswork or post-it note reminders.
• Prevent you from over-ordering “just to be safe.” You’re operating from data, not panic.
• Create a sense of rhythm and control in your business. Reordering becomes proactive—not reactive.

Your inventory management system can track and automate par levels for you. Most modern systems can even alert you when stock drops below par.

The result is that you will be able to keep shelves stocked, while preventing over-ordering and with improved cash flow predictability.

7. Safety Stock

Here’s the thing no one tells you when you’re growing a business: even when you plan everything perfectly, something will still go wrong. 

Sometimes the unexpected feels like the inevitable. Your supplier delays. Your ad goes viral. A freak snowstorm shuts down shipping. Without a cushion of safety stock, you’re instantly in a constant struggle to handle backorders in a reasonable timeframe.

That's why you need to keep a level of safety stock on hand to act as your emergency inventory reserve. This is stock that you don't keep on hand for regular sales or to service your standard reordering cycles. It's extra inventory you keep on hand just for those moments when demand spikes or supply stumbles.

But how do you figure out how much extra stock to keep on hand to keep your business running in the safe zone? Use this simple method to calculate a safe buffer:

1. Look at your average sales per day for the product.
2. Multiply that by your supplier’s average delivery time (in days).
3. Add 10–20% more as a buffer, especially if you’ve seen demand or delivery times fluctuate.

With the right type of inventory software you can set up alerts when your stock hits that safety level, so you're reordering proactively before you run into the red zone.

8. Contingency Planning

In e-commerce, things go sideways fast. Your best selling product is out of stock, a supplier ghosts you, or your warehouse software crashes mid-Black Friday.

Contingency planning isn’t paranoia—it’s preparation.

Here are scenarios you must be ready for:

• Stockouts during peak season
• Supplier failure or shipping delays
• Technology glitches
• Sudden spikes in demand
• Product recalls

Having plans in place protects your brand and keeps customers coming back—even when things go wrong.

9. Consignment Inventory

Want to expand your reach without expanding your risk?

Consignment inventory lets you send your products to retailers—without them paying upfront. You still own the goods until they’re sold, splitting revenue on the backend.

Sounds great, right? It is—but it requires clear tracking:

• Who pays for shipping?
• Who handles insurance?
• How do you track sales and returns?

It’s complex, but with the right inventory system, consignment can unlock serious growth with minimal upfront investment.

10. Dropshipping

Imagine running an online store without ever touching a box. That’s dropshipping—where your vendor handles inventory, packaging, and shipping, and your customers never know the difference.

It’s not for every business, but if you:

• Have limited storage
• Want to test new products fast
• Need to scale with minimal cost

...then dropshipping can be a flexible, low-risk way to expand.

Just be warned: you trade control for convenience. So vet your partners well.

11. KPI Analysis

You can’t fix what you don’t track. That’s where inventory KPIs come in.

Start here:

• Gross Margin – pricing and discounts
• Inventory Turnover – cash flow health
• Sell-Through Rate – demand vs. supply clarity
• Units per Transaction – upselling insights
• Rate of Return – product or process issues?
• Perfect Order Rate – fulfilment quality
• Lead Time – supplier reliability

Review regularly. Act on insights. Repeat. This isn’t reporting—it's a growth strategy.

12. Handling Returned Inventory

Returns are part of life in retail. The difference between a cost center and a competitive advantage? How you handle them.

There are two return models to consider:

• Authorised Returns – customers call or email; high control, more effort
• Blind Returns – prepaid labels and easy portals; fast and customer-friendly

Use RFID scanning or return tracking systems to make the process smooth. The goal? Get re-sellable inventory back on shelves fast—and use insights to improve upstream (product quality, descriptions, fulfilment).

Remember: a good return experience turns first-time buyers into lifelong fans.

Conclusion

Inventory management doesn’t have to be stressful or chaotic. With the right techniques, systems, and mindset, you can turn it from your biggest pain point into one of your most strategic assets.

From cycle counting to dropshipping, each of these 12 techniques gives you a lever to pull—so you can reduce waste, boost profit, and create a more scalable, resilient business.

But here’s the thing: trying to juggle all this manually? It’s a recipe for burnout.

Technology is your leverage. A smart inventory management system doesn’t just help you track SKUs. It helps you:

• Prevent stockouts and overstocks
• Automate reorder points and alerts
• Track inventory across warehouses and sales channels
• Forecast demand based on real-time data

Whether you’re running lean with JIT, scaling through dropshipping, or analyzing KPIs to find your next big win—the future of your business depends on how well you manage the present. It's time to make inventory work for you—not against you.