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Articles › Strategy • Oct 10th 2024

The Ultimate Guide to Warehouse Inventory Management

Wise Systems

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How you manage inventory can make or break your business. Whether you own a small eCommerce business or a large distribution center, inventory management can give you a serious leg up on the competition—as long as you follow organized, optimized processes.

Warehouse inventory management is the lifeblood of the supply chain. The key is to embrace transformation as needed and allow your inventory management practices to change as your business evolves. In this guide, we’ll break down how warehouse inventory management works, why it’s so helpful, and tips for better managing your inventory.

In this article:

What Is Warehouse Inventory Management?

Forklift operation in a warehouse

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Warehouse inventory management oversees the flow of inventory in and out of a warehouse. This process ensures your team stores, tracks, and retrieves inventory as efficiently as possible.

Warehouse inventory management can get out of hand if you manage everything manually, so warehouses use inventory management software or warehouse management systems (WMS) to monitor inventory levels, manage stock movements, and ensure product availability.

Effective inventory management ensures that products flow seamlessly from suppliers to warehouses to customers. It reduces the likelihood of stockouts (the dreaded “we’re out of that item” scenario) and minimizes excess stock that can tie up valuable resources.

Businesses also use warehouse inventory management solutions to:

  1. Reduce costs: By maintaining optimal inventory levels, you avoid the costs associated with overstocking (like storage fees and product obsolescence) and understocking (like expedited shipping fees and lost sales).
  2. Improve efficiency: Streamlined inventory management processes lead to faster turnaround times, less time spent on manual tasks, and improved use of warehouse space. That adds up to serious improvements in the time and hassle required to process inventory.
  3. Boost customer satisfaction: Happy customers are the ultimate endgame. Accurate inventory management reduces complaints by ensuring customers receive their orders on time and in full.

How Warehouse Inventory Management Works

Warehouse workers picking items from totes

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Every step of the warehouse inventory management process ensures products move seamlessly from the supplier, through your warehouse, and to the customer. Several steps make this process work smoothly.

Inventory Control

Inventory control is all about keeping the right balance of stock to meet customer demand without overstocking or running out of products. It’s best to follow a strategy for inventory control across your warehouse. Every organization follows a different process, but some of the most common options are:

  • FIFO (First In, First Out): This method ensures that the oldest stock (first in) leaves the warehouse first (first out). It’s particularly useful for perishable goods and prevents spoilage.
  • LIFO (Last In, First Out): This technique is the opposite of FIFO, where the most recently added items (last in) are sold first (first out). LIFO is more prevalent in industries where prices fluctuate often.
  • JIT (Just-in-Time): JIT minimizes the amount of inventory you have to store. With this method, you only order and receive goods as needed, ensuring fresher stock and reducing storage costs.

Tracking

Tracking is a must for warehouse inventory management. With tracking, you get greater visibility into every step of the supply chain and more control over your stock levels.

Some warehouses do manual tracking, where employees physically count stock and record the data. This is relatively simple, but it’s time-consuming and prone to errors.

Automated tracking is the gold standard. With this option, you can use software and technology like RFID and barcode systems to monitor inventory in real time. This frees employees to focus on more high-value tasks and ensures timely, accurate inventory data.

Layout Optimization

Inefficient warehouse design forces employees to spend more time walking from aisle to aisle, wasting precious time. A well-designed layout improves productivity by reducing the time it takes to locate and retrieve items.

Just like inventory control, there are several strategies you can follow for warehouse layout optimization, including:

  • Zone layout: This layout divides the warehouse into separate zones based on product type or picking frequency.
  • Cross-docking: Cross-docking unloads products from incoming trucks and loads them onto outbound trucks. With this approach, there’s nearly zero need for storage, reducing the need to catalog warehouse inventory in the first place.
  • Vertical storage: This option allows you to utilize vertical space with tall shelving units. The downside is that it can take more time and effort to access inventory on tall shelves, and you’ll also need to purchase specialized machinery to access these tall shelves. However, it can be a good option if you have a small warehouse or require longer–term inventory storage.

Automation

Manual processes are slow, expensive, and less efficient. Regardless of its size, your warehouse will benefit from embracing automation technologies instead of manual work. This doesn’t need to be expensive or complicated, either. Many organizations automate their warehouses with:

  • RFID: Radio frequency identification tags store data on each item. The plus side is that scanners can read these tags remotely, making it easy to track inventory without line-of-sight.
  • Barcode systems: Barcodes provide a simple and cost-effective way to track inventory. Scanning barcodes speeds up data entry and reduces errors, although this isn’t quite as foolproof as RFID.
  • Automated Guided Vehicles (AGVs): Have you ever seen warehouse robots? AGVs transport goods around the warehouse autonomously, reducing the need for manual labor.
  • Automation software: Warehouse automation software can streamline many aspects of warehouse operations, while solutions like the Wise Systems delivery automation platform make it a cinch for businesses to streamline every aspect of delivery after products leave the warehouse.

Discover how the Wise Systems delivery automation platform can streamline your last mile. Book a demo today!

Benefits of Warehouse Inventory Management

Automated robot in a warehouse

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Whether you do it manually or with automated tools, warehouse inventory management is a must-have for any warehouse. It offers a range of benefits, from reduced costs to data-driven decision-making.

Cost Reduction

Maintaining optimal inventory levels minimizes expenses. Never worry about the costs of under- or over-stocking; with proper inventory management, you only stock what you need. This process strikes a better balance, keeping costs in check without compromising on product availability.

Warehouse inventory management also makes better use of your space. Instead of renting out more warehouses or paying for an expensive additional building, inventory management makes the most of the space you already have. You may need to expand down the line, but proper inventory management will better manage inventory storage costs in your current space.

Improved Customer Experience

Happy customers keep your business moving. While the last-mile delivery experience has a bigger impact on the customer experience, warehouse inventory still matters. In fact, accurate inventory tracking ensures customers get the right products, on time, and in full. Customers expect 100% accuracy at a minimum, and warehouse inventory management practices help you deliver on customer expectations.

Better Data

Warehouse inventory management provides accurate, real-time data on inventory movements. You’ll need inventory management software to track this, but the right solution will compile helpful data on trends, demand, and more to help you plan accordingly. It’s a refreshingly proactive approach that helps you avoid bottlenecks, unexpected costs, and seasonal changes in demand.

Operational Efficiency

Nobody wants to do rework or deal with the hassles of disorganized inventory. Warehouse inventory management will make your warehouse much more efficient and cost-effective. It makes your organization efficient in many ways, including:

  • Reduced waste
  • Better supplier relationships
  • Simplified compliance
  • Improved space utilization

5 Tips for Better Warehouse Inventory Management

Worker standing in warehouse aisle

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You’re free to execute warehouse inventory management however you see fit. That leaves a lot of room for interpretation, which is both good and bad.

You’re free to customize warehouse inventory management to your needs, but it’s still important to optimize your processes. Whether you’re a seasoned pro or completely new to managing warehouse inventory, following these five tips will streamline and optimize your business’s warehouse management.

1. Accurate Demand Forecasting

The better you understand demand, the more accurately you can predict when customers will order more (or less) products. With this data, you can anticipate how many products you need and optimize inventory levels to meet that demand.

But no demand forecasting technique is perfect. After all, you can’t always predict when one of your products will go viral on TikTok. However, you can improve the accuracy of demand forecasting by:

  • Using historical data: How did demand fluctuate last year? Or the year before that? Every business has natural ebbs and flows, so check your previous data to understand demand better. Analyzing historical performance will help you identify trends and patterns that repeat from year to year.
  • Looking at the market: Market conditions, seasonality, and economic indicators are external factors that have a big impact on inventory management. For example, if you sell luxury goods in a receding economy, you’ll likely experience lower demand and may need to adjust your inventory baseline.
  • Collaborating: Work with your suppliers to gather information on the market and trends. If you’re new to warehousing, many suppliers can offer direction or recommended inventory levels to help you get started. After all, when you succeed, they succeed.
  • Using advanced analytics: This is the easiest way to do accurate, personalized demand forecasting. Advanced analytics uses machine learning algorithms and predictive models to forecast demand for you based on both internal and external data points.

Need greater insight into last-mile delivery? The Wise Systems delivery automation platform offers tools for strategic planning, performance management, and more. Request a demo to learn how Wise Systems can enhance your visibility.

2. Regular Audits and Cycle Counting

Automated systems improve accuracy, but they aren’t perfect. You still need to conduct audits and cycle counts to ensure accurate inventory records.

With an audit, you manually count inventory in the warehouse and compare it against what your software says. That makes it easier to spot discrepancies, errors, or losses.

Cycle counting, on the other hand, happens on a more regular basis. It counts smaller inventory sections instead of everything at once. Keep in mind that you may need to do cycle counting more frequently for high-turnover items.

3. Effective Replenishment Processes

Warehouse inventory management is all about managing the flow of inventory in and out of a warehouse. One of the biggest challenges is knowing when to request replenishment from your suppliers. Order too late (or too little), and you’ll experience stock-outs, while ordering too soon (or too much) means you pay more to store overstock.

Demand forecasting is undoubtedly helpful for inventory replenishment, but calculating reorder points (ROPs) is also a must. With this calculation, you set reorder times based on lead time, demand, and stock levels. Warehouse inventory management systems automatically trigger replenishment if your data triggers any of these criteria.

Safety stock is also a good idea. With a little extra stock on hand, you have a buffer against the natural uncertainties of supply and demand.

You don’t need a lot of safety stock just enough to deal with supply chain disruptions or sudden spikes in demand. Use a safety stock calculator to determine the best safety stock level for your business.

4. Implementing a Warehouse Management System (WMS)

A warehouse management system (WMS) is a must for warehouses of any size. This software streamlines warehouse inventory, but it also automates:

  • Space utilization
  • Fulfillment
  • Picking, packing, and shipping
  • Inventory analytics

A WMS is essentially an all-in-one dashboard for controlling every aspect of your warehouse, including inventory. Most WMS include automation features to speed up time to value and take more work off your plate, freeing you to do more high-value work.

5. Embrace Emerging Technologies

WMS will do a lot of the heavy lifting for you, but it doesn’t always include the latest technologies. Look for solutions that integrate these features to stay on the cutting edge of what’s possible in warehouse inventory management.

AI and Machine Learning

Artificial intelligence (AI) and machine learning are popular buzzwords, but that doesn’t minimize their usefulness for inventory management. AI and machine learning revolutionize inventory management by providing advanced analytics and predictive capabilities. These technologies analyze vast amounts of data to identify patterns and trends, enabling more accurate demand forecasting and inventory optimization in less time.

Wise Systems leverages artificial intelligence and machine learning to automate and streamline last-mile delivery processes. Request a demo today to learn more about our Dynamic Optimization Engine (DOE) and how it can transform your business.

Internet of Things (IoT)

IoT connects physical devices to the internet. A great example is how warehouses use RFID tags to monitor real-time inventory levels. Whether you use RFID or other IoT solutions, they’re great for:

  • Monitoring equipment health
  • Tracking inventory locations in real-time
  • Tracking products throughout the supply chain

Blockchain Technology

Blockchain is popular in finance and cryptocurrency, but this technology is also great for verifying inventory. It tracks the origin and movement of products to ensure authenticity and reduce the risk of counterfeits. Since transactions are encrypted and unchangeable, blockchain also reduces the risk of fraud.

Perfecting the Supply Chain, From the Warehouse to the Streets


Warehouse inventory management might seem simple on the surface, but it’s a surprisingly complex process with plenty of opportunities for optimization. Regardless of the size of your warehouse, following the tips in this guide will help you reduce costs, improve the customer experience, and minimize hassle.

But what happens when inventory leaves the warehouse? Last-mile logistics is no picnic. Wise Systems helps organizations optimize every aspect of the last mile, from routing to dispatching to communications. Extend your efficiency with Wise Systems: Schedule a no-strings-attached demo now.

Frequently Asked Questions

How can I improve picking accuracy at my warehouse?

Barcode or RFID tracking systems are great at improving picking accuracy. An efficient warehouse layout ensures your staff follows the most efficient picking path possible. Picking strategies like zone picking are also helpful for accuracy and speed.

What does a warehouse management system (WMS) do?

A WMS is software that streamlines all aspects of warehouse operations. Every solution is different, but most include features for managing:

  • Warehouse layouts
  • Inventory tracking and management
  • Ordering
  • Replenishment
  • People and labor
  • Reporting
  • Integrations

How can I determine the right safety stock level for my warehouse?

Historical demand data, lead time variability, and desired service level will help you determine the right safety stock level. Use statistical models like standard deviation to calculate the variability in demand and lead time. This data will help you choose an appropriate safety stock level that minimizes the risk of stockouts without holding excessive inventory.

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