Inventory management is a collection of tools, techniques, and strategies for storing,
tracking, delivering, and ordering inventory. It is incredibly important to control inventory to
minimize losses and maximize profits – which is where inventory management methods
come into play.
Selecting the right inventory management methods for your business is no easy task, but
with the right inventory management methods owners can reduce costs, keep business
profitable, analyze sales patterns and predict future sales, and prepare the business for the
Here are the most popular and effective inventory management methods which could
improve your inventory system.
1) ABC analysis
ABC analysis stands for Always Better Control Analysis. Inventory items are classified into
three categories namely:
● Category A – high-value items with a low frequency of sales,
● Category B – moderate-value items with a moderate frequency of sales,
● Category C – low-value items with a high frequency of sales.
ABC analysis identifies the items you should reorder more often and which items you don’t
need to stock as frequently. ABC analysis optimizes your inventory turnover rate and
reduces obsolete inventory.
2) Economic order quantity (EOQ)
This method helps to determine how much inventory need to be ordered. It does so by
taking into account the demand of the product and its cost. This method can help reduce
costs related to purchases, delivery, and storage of the inventory.
3) FIFO and LIFO
LIFO and FIFO are methods to determine the cost of inventory. FIFO, or First in, First out,
method’s principle is that the first item on the inventory is the first one to go out. FIFO is a
great way to keep inventory fresh.
LIFO, or Last-in, First-out, method’s principle is that the last item on the inventory is the first
one to go out. LIFO helps prevent inventory from going bad.
4) Fast, slow and non-moving (FSN) analysis
FSN inventory method is about segregating items based on their consumption rate, quantity,
and the rate at which the inventory is used. Items are classified as Fast moving, Slow
moving and Non-moving.
● Fast Moving (F): This refers to items that have a high usage frequency.
● Slow Moving (S): This refers to items that have a slow usage frequency.
● Non-Moving (N): This refers to items that are only utilized for a specific duration.
FSN analysis helps to make inventory management decisions. Such as where items should
be placed in the warehouse. For example, fast-moving items could be placed in a location
that is easily accessible. It can also help determine which items are non-moving and costing
money to hold, and what items may require altered ordering plans because they are
5) Just in time (JIT) method
To avoid the costs of overstocking, many companies use “just in time,” or JIT, method. With
this strategy, they order only what they need to meet immediate demand. With no excess
inventory in hand, the company saves the cost of storage and insurance. The company
orders further inventory when the old stock of inventory is close to replenishment. This is a
little risky method because a little delay in ordering new inventory can lead to stock out
situation. Thus this method requires proper planning so that new orders can be timely
Inventory is the biggest asset to your company, so in order to save money and make money,
you need to protect that asset and nurture it in the right direction. Without implementing
inventory management methods, you’ll never get ahead. Choose the right inventory
management methods for your business. It’s time to take control of your inventory
To be continued…