Understanding the Importance of Inventory Management

July 26, 2022

Inventory management is an essential component of any well-run business.

To get the most out of the products you sell, it’s vital that you do everything you can to be as efficient as possible. Chaotic, disorganized warehouses with little to no inventory management are a hallmark of a poorly run business. If you’re going to succeed, becoming as organized and effective as possible, inventory management is as good a place to start as any.


Inventory management is all about storing, ordering, and selling goods and eliminating any and all redundancies. Maximizing profits, reducing costs, and improving the flow of your goods while minimizing overstocks in order to ensure you’re on time and within budget are the bread and butter of great inventory management.

Understanding the Importance of Inventory Management

Whether you’re a retail, eCommerce, or even a hospitality-based business, the importance of inventory management cannot be understated. Inventory management acts as a way for you to easily and accurately oversee your inventory to get the most out of your products and goods.

Enhances stock control

One of the most obvious reasons why inventory management is the effect it has on your stock.


In a retail context, for example, retail inventory management is essential due to the sheer amount of stock you deal with as well as the temperamental and seasonal nature of fashion.

Any business that sells goods has to have a stockpile of those goods, which can often prove unwieldy if left to accumulate. If you wind up overstocking, that stock may wind up needing to be sold cheaply or even destroyed.

That’s a revenue stream that gets completely erased.

Even if you try to counter this effect by ordering less, without inventory management, you may wind up not having enough stock to meet your customer’s demands.

That could mean permanent customer loss as they move to a more organized competitor.

Allows you to create reports

Great inventory management can offer you and your business valuable insights to help grow and improve.

Once you’ve taken the effort to involve proper inventory management, you’re able to quantify the day-to-day, monthly, or even yearly data. That data can then be easily compiled into reports that allow you to analyze said data. That allows you to make informed, effective decisions to benefit your business.

Information is the key to success so being able to create reports that tell you exactly what’s going on with your business and its stock, is vital.

Encourages cost savings

Cost saving is one of the most important effects of instituting inventory management.

Better planning as a result of inventory management can directly impact the cost of things like security and insurance, and even reduce costs in terms of distribution and labor. If you know exactly what you need to order and how to stock it, you’ll also save money on storage and maintenance.

Instead of acting on guesswork, inventory management can also make sure you never waste money over ordering poor-selling stock. The last thing you want is thousands of dollars in inventory sitting around in a warehouse for months on end.

Even if it’s non-perishable stock, stock that doesn’t move is almost as bad as lost stock.

Maximize profits

As well as mitigating costs, inventory management can actually help you increase your profits.


Inventory management allows you to make decisions based on data and informed insight which directly increases profits. Being able to identify and sell dead stock, quickly and easily identify stock customers are searching for, track mistakes, and even remove bottlenecks in your inventory are all direct benefits of stock management.

Being able to improve efficiency and fully utilize your inventory can go a long way toward maximizing your business’s profits.

Real-time integration

Manually managing your inventory isn’t only tedious, it’s incredibly time-consuming.

Even worse, transferring all that information from one digital platform or service to another is a major headache. Luckily, modern inventory management systems are often very integration oriented.

This is incredibly useful for businesses that operate across both digital and physical premises since it allows you to merge the inventory in your warehouse as well as your store. When sales are made, it’s useful to be able to see, in real-time, how that affects your stock and make decisions about when and how to go about sourcing more.

Being able to automate stock updates saves hours in manpower and makes tracking, organizing, and ordering more stock much easier.

Improves productivity

Productivity is one of any business’s core concerns. It directly impacts profit as well as employee satisfaction.

If you’ve involved core principles of inventory management, you’re able to locate and find stock or equipment much faster than by manually searching for it. Imagine, working in an Amazon factory and trying to find the goods someone has ordered without knowing where to even begin looking. You’d be there for days!

A white paper detailing the amount of time technicians spend looking for the right part found that this was almost 25% of their time. Instead of actually doing what they were paid to do or were most effective at, they lost a quarter of their time. That means, just by having a more effective system in place, they’d be 25% more efficient and thereby more productive.

Not only does an inventory management system improve productivity on its own, if it’s mobile-friendly, but this productivity increase is also multiplied drastically.

Reduces product waste

Product waste is one of the most damaging things that can happen to a business.

According to one report, as much as 63 million tons of food is wasted every year. In terms of cost that can be as much as $25 billion each year, in the restaurant industry alone.

Depending on the industry you’re in, there’s a good chance a lot of your inventory consists of perishable items. Even if it’s not food, fashion trends change season to season and tech can quickly be outdated.

Great inventory management can help ensure that you move your products before this and avoid wasting your valuable products.

Improving customer satisfaction

When a customer tries to order or purchase an item, only to find it out of stock, rather than waiting for that item to arrive, they tend to move on. Very often, to competitors.

Essentially, businesses that can continuously, directly meet the needs of their customer’s needs tend to be one customer come back to. Customer loyalty is a major component of a successful business and providing reliable service is key.

A well-developed and holistic inventory management system can use tracking features to ensure you know what’s in and out of stock at all times. Great inventory management ensures orders can be fulfilled faster and more efficiently.

In today’s fast-paced, hyper-competitive markets, you can’t afford any delays, so having a system that speeds things up is vital.

Lat late deliveries or “out of stock” signs are frustrating for customers and quickly erode consumer confidence and loyalty. Loyal customers not only return, but they also act as a marketing device for your business. Word of mouth is one of the most effective marketing tactics and having happy customers means you have customers telling other people how happy they are with your service

Final Thoughts

One of any business’s most valuable and expensive assets is its inventory.

Whether it’s retail, manufacturing, or eCommerce, having inadequate inventory can be catastrophic. Having too much, or the wrong types of products can be just as bad. Not only is your inventory at risk when it comes to things like theft and expiration, as long as you’re holding on to inventory that doesn’t move, but it’s also essentially a loss for your business.

Adding to that, despite discounts when purchasing inventory wholesale, once you’ve received stock, it’s nearly impossible to get your money back. If that’s the wrong stock or stock that’s slow to move, our business is going to suffer.

Whether you’re a small business or a large corporation, inventory management is essential.

Not only does it help you keep track of your inventory, but it also helps you reduce unnecessary costs, maximize profits, and a whole host of other benefits. From customer satisfaction to employee productivity, there are not a lot of downsides when it comes to introducing an inventory management system.

Planning and organization is the key to success now and as well as in the future.

The sooner you implement an inventory management system, the sooner you and your business can reap the exciting rewards it has to offer.

Author Bio:

Ryan Fick is a Cape Town-based, internationally raised, opinionated writer who is passionate about politics, social justice and a firm believer in the link between “Amandla” and “Awethu”. With a background in Journalism, Travel, and all-round Content Writing – as well as a burgeoning interest in all things SEO – he is a perpetual knowledge seeker who knows enough to know he doesn’t know it all.

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