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Inventory management is a fundamental process of every business, including online. It helps your business manage and keep track of stocks efficiently so that you can replenish your inventory when stock count is low to ensure that there will always be ready stock to fulfil your customer order.

Knowing when to restock, the amount to order or produce, when to sell and at what price are also part of inventory management. And with an inventory management system, you are able to keep track of such details effectively on one platform, which can help in better operational efficiency. For example, small businesses who have limited budgets to invest in an inventory management system have to manually count their stocks and input into the system, which is rather time consuming.

Inventory management does not only consist of products that you sell to customers. There are other categories that can be classified under inventory as well. And to help you with it, here are four categories you need to know.

  1. Raw Materials: Regarded as things your business requires during the production process of the finished product.
  2. Work in Process Goods: Represents the goods or raw materials that are still in the production process.
  3. Finished Goods: These are the end products that are ready to sell to the market

Depending on the type of business, your inventory management might consist of either of the three categories, or all three of it.

Why is Inventory Management Important

Consider the main goal of inventory management is to efficiently streamline inventories to avoid shortage or excess inventory. This is extremely vital to your business because you want to make sure that not only is there enough inventory, you are also stocking the right product at the right time and in the right quantities to maximise sales while reducing costs at the same time.

Apart from that, most inventory management systems that come with analytics can help in forecasting as it gives you full control over data and tracking. With inventory data, you can utilise it to plan for future demand through identifying purchasing trends of your customers. And with that, you are able to make more informed decisions when it comes to replenishing your inventory.

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What are the Benefits of Inventory Management

As discussed above, the main benefit of inventory management is to be able to fulfil orders effectively and efficiently, so that your business is able to maximise profits through reducing overstocking that can lead to deadstock.

And by accomplishing this goal for inventory management, you are able to achieve the following too.

Cost effective:

Keeping track of stock means you can better manage your inventory to decrease costs tied up in inventory by only keeping just enough stock to prevent it from going unsold.

Better Cash Flow:

And with proper inventory management, you only get to spend money on products that sell, releasing cash tied up on inventory, so you can have healthier cash flow with cash always moving through the business.

Satisfy Your Customers:

Being able to provide customers with products they want to purchase can improve customers’ satisfaction, which can lead to customer loyalty and potentially turning them into your regular customers.

How Does Inventory Management Works

To understand how inventory management works, you need to first understand the process of it. Generally, the process begins when you place an order (POs) for the required products, stock the products in a warehouse, input it into the system, and the management continues all the way until shipping fulfilment.

This can be categorised into two groups.

Inventory management system: Tracks the flow of products either from suppliers or self-produce and all the way till delivery fulfilment.

Warehouse: A place to stock inventory, from receiving to packing and shipping.

What are the Inventory Management Techniques and Terms

There are different techniques and terms in inventory management that you should know if you are planning to run a business. All of these techniques have one common goal, which is to improve the accuracy of stock keeping to improve the overall efficiency.

  • ABC Analysis: This technique is identifying the most and least popular type of stock.
  • Batch Tracking: The process of grouping similar items to track expiration dates and also to trace for defective items.
  • Bulk Shipments: It refers to buying, storing, selling or shipping your inventory in bulk.
  • Consignment: You do not need to pay suppliers until the product is sold.
  • Cross-docking: Does not require warehousing, inventory is directly loaded to the delivery truck once it arrives.
  • Demand Forecasting: An analysis to help predict customer’s demand
  • Dropshipping: Supplier ships directly from their warehouse to your customer
  • Economic Order Quantity (EOQ): A formula to calculate how much inventory you should order to reduce holding of goods as well as other costs associated with it.
  • FIFO/LIFO: First in, first out (FIFO) refers to moving the oldest stock first whereas Last in, last out (LIFO) refers to moving the most recently purchased inventory first.
  • Just-In-Time Inventory (JIT): A method to maintain the lowest stock levels possible before replenishing inventory.
  • Lean Manufacturing: Removing waste or any item that does not provide value to your customer in the manufacturing process.
  • Materials Requirements Planning (MRP): A system to handle planning, scheduling and inventory control for the manufacturing process.
  • Minimum Order Quantity: A fixed amount of quantity to order before it can be processed.
  • Reorder Point Formula: A formula to calculate the minimum amount of stock to have in your inventory before you should reorder.
  • Perpetual Inventory Management: Recording stock sales and usage in real-time.
  • Safety Stock: Ensuring extra stock is kept aside in preparation for scenarios where replenishment is unable to fulfil.
  • Six Sigma: A data-based method for removing waste from businesses relating to inventory
  • Lean Six Sigma: A method combines Lean Management and Six Sigma to remove waste and raise efficiency.

What is an Inventory Management System

An inventory management system is a software used to track and manage inventory levels, sales orders, and deliveries. To put it simply, it’s for two things – stock levels and stock movements. The system can also generate reports and analyse inventory data to help you make more informed decisions when it comes to ordering and stocking the right products to meet customers’ demand.

How to Choose an Inventory Management System

Choosing the right inventory management system depends on how you want to define your business and how your operations work. For example, apart from stock management, do you need to track movements as well as trends to plan your inventory? So your business needs will likely determine the type of inventory management system to go for.

But there are also general factors to consider no matter the type of business you’re in when choosing an inventory management system.

  • Usability: You should find a platform/system that is easy to use and navigate around
  • Scalability: The system should have the capability to scale alongside the growth of your business
  • Integration: The system allows for third party integrations such as ecommerce platforms
  • Reporting and analytics: The system should provide real-time data, and allowing to generate reports
  • Cost: Find a system that is within your budget and still able to provide features that you need
  • Mobility: You should be able to access the system on different devices, so you can manage and track your inventory on-the-go

Based on these general factors in mind, conduct a thorough research to gather information about the different inventory management systems that are available in the market, and also test the system before making a choice based on business needs.


Inventory management is a fundamental process that helps businesses manage and keep track of stocks on one platform efficiently. With it, it drives better forecasts and planning to reduce costs on overstocking, leading to better cash flows. At Shopboxo, our ecommerce builder is integrated with an inventory management system that allows you to track and manage your inventory on-the-go. Make bulk edits, include discounts and export data, all in on platform!

Common Questions about Inventory Management

Why is inventory management important?

Inventory management is important because it helps businesses efficiently streamline their inventories to avoid shortage or excess inventory. This is vital for a business because it ensures that there is enough inventory and the right products are stocked at the right time and in the right quantities to maximise sales and reduce costs.

What is the objective inventory management

The objective of inventory management is to keep track of inventory in real-time so that you can plan your stocks more efficiently and to have ready stock to sell your customers, keeping them happy.

What are the benefits of inventory management

One of the key benefits of inventory management is in its ability to drive better cost effectiveness by reducing costs that are tied up in inventory. This helps to drive better cash flow for your business since you only get to keep just enough stocks to sell.

Manage your inventory on one platform with Shopboxo

– Accept orders on any device
– Drag and drop functionality
– Create your custom menu
– Pre-built themes
– No coding required

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