Why is inventory management important?

How does inventory management work?

Inventory is the goods or materials a business intends to sell to customers for profit. Inventory management, a critical element of the supply chain, is the tracking of inventory from manufacturers to warehouses and from these facilities to a point of sale. The goal of inventory management is to have the right products in the right place at the right time. This requires inventory visibility — knowing when to order, how much to order and where to store stock. The basic steps of inventory management include:

  1. Purchasing inventory: Ready-to-sell goods are purchased and delivered to the warehouse or directly to the point of sale.
  2. Storing inventory: Inventory is stored until needed. Goods or materials are transferred across your fulfilment network until ready for shipment.
  3. Profiting from inventory: The amount of product for sale is controlled. Finished goods are pulled to fulfill orders. Products are shipped to customers.

What is inventory visibility?

In multichannel order fulfillment operations, it is common for inventory to be distributed across various locations within the supply chain. Inventory visibility plays a crucial role in ensuring businesses have a comprehensive understanding of their inventory and its respective locations. By maintaining accurate inventory visibility, businesses can ensure the seamless fulfillment of customer orders, expedite shipment turnaround times, and effectively minimize issues such as stockouts, oversells, and markdowns. Achieving this level of inventory visibility is vital for optimising operational efficiency and enhancing customer satisfaction.

Businesses often lack a precise understanding of their inventory status.

In today’s technological era, one might assume that inventory accuracy is a given, but unfortunately, that is not always the case. Various factors contribute to the lack of inventory accuracy. For instance, your inventory may be distributed across different channels, such as both physical stores and distribution centers, or even at the locations of your business partners. Alternatively, if your business operates in a rapidly fluctuating industry like chain groceries, where numerous SKUs are involved in each order and thousands of transactions occur every hour, maintaining precise inventory levels becomes a significant challenge. Moreover, if your company has undergone acquisitions, managing multiple inventory tracking systems can further complicate matters. Instead of having a comprehensive, global view of all available-to-promise inventory, companies often find themselves with only a limited perspective.

The consequences of not having an accurate, up-to-the-minute view of inventory are far-reaching. Companies suffer from lost sales opportunities as they display stockouts when stock is actually available. This not only frustrates customers but also leads to overpromising and, consequently, the giveaway of margins through markdowns and rush shipping charges. Moreover, the inability to accurately track inventory restricts companies from entering new sales channels and forces them to carry excess safety stock in an attempt to prevent stockouts. These challenges undermine business efficiency, profitability, and growth potential.

The tabs below represents the top inventory challenges businesses face.


In the evolving omnichannel model, consolidating a unified view of inventory across various channels, including web, retail, and wholesale, poses a significant challenge.



CPG (Consumer Packaged Goods) companies often operate under a consignment model with retailers, necessitating visibility into inventory across both their own facilities and the retail stores. The substantial volume of transactions further compounds the visibility challenge.


B2B companies typically have SLA-based contracts with customers that mandate penalties if orders aren’t delivered on time. A better view of inventory will help improve their on-time delivery metrics.



Similar to retailers, telecom companies often maintain a retail presence and require visibility into their stores to deliver an integrated omnichannel experience for the sales of phones and other accessories. This visibility enables them to seamlessly connect their physical stores with online channels, ensuring a cohesive customer experience.


Medical and pharmaceutical companies are actively striving to set themselves apart by implementing innovative distribution and consignment solutions. However, the lack of inventory visibility has posed significant challenges to the successful execution of these new strategies.

Having a comprehensive understanding of your inventory’s location and effectively tracking inventory changes are pivotal in delivering an exceptional customer experience and safeguarding your profit margins. As your operations become more intricate, involving a higher volume of transactions, diverse SKUs, multiple channels, and distribution outlets, the significance of maintaining an accurate, real-time inventory count becomes even more paramount.

Maximise the ROI on your inventory

The majority of companies find it necessary to maintain inventory as a safeguard against demand fluctuations and lead times, making inventory one of the most valuable assets they possess. Despite the numerous challenges faced in today’s business landscape, effectively managing unsold inventory is crucial for optimizing the overall management of your company’s assets.

Inventory represents capital in an alternative form, essentially money at rest.

However, in the new omnichannel landscape, valuable inventory is dispersed across multiple locations such as distribution centers, stores, partner sites, or consignment arrangements. Customizing inventory stock becomes a complex task, particularly when dealing with multiple locations. The lack of accurate inventory visibility across all these venues often leads to carrying excessive safety stock to avoid disappointing customers. Consequently, a significant amount of capital ends up being tied up in inventory. In the retail sector, this can result in excessive markdowns at the end of each season or, in worse cases, liquidation of unsold stock. In the B2B realm, it may involve carrying costly and specialized parts for an extended period, adversely impacting the bottom line. Conversely, insufficient safety stock poses the risk of lost sales and a damaged reputation due to the inability to fulfil orders in a timely manner.

Enhanced visibility into your inventory also plays a pivotal role in effective inventory planning. Traditional calculations used by firms for inventory planning, based on service level, projected demand, and lead time, often fail to account for the new challenges posed by siloed inventory. While there will always be inherent uncertainties in projected demand, real-time re-planning based on actual inventory demand becomes crucial for short-term needs. To make informed decisions regarding inventory placement, it is critical to have a comprehensive view of all owned inventory and its respective locations.

Conventional inventory management software and technology can only provide visibility within their limited scope, unable to offer a comprehensive view across various channels. To achieve optimal results and maximize the return on investment (ROI) of your inventory, it is essential to have up-to-the-minute insights spanning all channels and locations, allowing for balanced inventory management.

Why is inventory management important?

Inventory holds immense significance as a company’s most valuable asset. Inventory management serves as the focal point where all components of the supply chain intersect. Insufficient inventory at the right time and place can lead to customer dissatisfaction. On the other hand, maintaining a large inventory carries its own set of drawbacks, including storage and insurance costs, as well as risks of spoilage, theft, and damage. Companies with intricate supply chains and manufacturing processes face the challenge of striking the optimal balance between holding excessive inventory and experiencing shortages. Finding this equilibrium is crucial to ensure operational efficiency and customer satisfaction.

3 ways AI can help solve inventory management challenges

Forecasting fulfilment presents unique challenges, especially when it comes to predicting demand, which is often more unpredictable than supply. To accurately anticipate allocation needs, data science plays a critical role in analyzing historical supply and demand data, considering uncertainties and anomalies within each dataset. Anomalies can arise from both supply and demand factors, as unexpected fluctuations are bound to occur. A customer-behavior-centric model is essential, taking into account not only where products are desired but also how and when customers prefer to receive them.

By leveraging AI, inventory management solutions can enhance store inventory levels by analysing consumer fulfilment preferences and shopping behaviours. This enables businesses to make data-driven decisions to optimize inventory allocation and meet customer expectations.

Having a comprehensive understanding of available-to-promise inventory, including its quantity and location, is vital for businesses to surpass customer expectations. In today’s intensely competitive landscape, where companies like Amazon provide guaranteed delivery windows, the ability to communicate estimated product arrival times holds increasing value and necessity. Numerous factors contribute to enhancing the accuracy of these estimation models, and retailers must have the capability to simulate and analyze the calculations made. This ensures that every fulfillment decision aligns with the business’s priorities, whether it be focused on cost optimization or meeting time-sensitive demands.


Traditionally, businesses have relied on static inventory levels, setting fixed quantities or percentages for their stock. This approach often includes reserving a minimum par for walk-in sales, which doesn’t take into account e-commerce or other fulfilment channels. However, in today’s dynamic consumer landscape, coupled with the rise of omnichannel engagements, relying on generalized information is no longer sufficient. To meet evolving customer expectations, stock levels must dynamically adapt to leverage and respond to incoming demand.

Automated inventory re-balancing addresses significant challenges such as maintaining brand loyalty by avoiding promises of inventory that cannot be delivered, and mitigating the risk of overselling and subsequent over-purchasing, which can result in missed opportunities.  Utilising predictive rules to access both in-store and warehouse inventory, moving beyond linear, rules-based sourcing to meet seasonal customer demands while considering margin requirements.

To achieve profitable results in the omnichannel realm, retailers require capabilities that intelligently balance fulfilment costs with service levels, ultimately enhancing return on investment, improving customer experiences, and driving repeat purchase behaviour.

What are the types of inventory management?

Periodic Inventory Management: The periodic inventory system is an accounting method used for financial reporting purposes, where inventory is physically counted at specific intervals. This approach involves taking inventory at the beginning of a period, adding new inventory purchases during the period, and deducting the ending inventory to calculate the cost of goods sold (COGS).

Barcode Inventory Management: Businesses employ barcode inventory management systems to assign a unique number to each product they sell. This system allows for the association of various data points with the barcode, including supplier information, product dimensions, weight, and even real-time stock levels.

RFID Inventory Management: RFID (Radio Frequency Identification) is a wireless system that transmits a unique serial number to track products and provide detailed information about them. RFID-based warehouse management systems enhance efficiency, increase inventory visibility, and enable rapid self-recording of receiving and delivery processes.

Key features of effective inventory management

Inventory tracking

Know exactly where inventory is across the supply chain


Create and manage purchase orders

Stock transfer management

Move product to where it's most valuable

Reporting and analytics

Evaluate patterns in processes to forecast future demand planning and sales

Order management

Customise pricing, send quotes, track orders and manage returns

Shipping capabilities

Automate shipping to reduce errors such as late deliveries or delivering incorrect packages

The future of inventory management

The management of inventory is being reshaped by globalization, technology advancements, and the increasing influence of empowered consumers. Businesses are adapting to these changes by leveraging technologies that offer valuable insights to enhance supply chain performance. By proactively identifying potential anomalies in logistics costs and performance, supply chain operators can take preemptive measures. Additionally, they gain valuable insights into areas where automation can yield substantial scalability benefits.

Looking ahead, these technologies will continue to revolutionize inventory management, driving further transformation in the field.

Internet of Things

The integration of Internet of Things (IoT) and Artificial Intelligence (AI) is empowering supply chains to access and analyse a wider range of data sets in real-time. This convergence allows supply chains to observe and understand events and scenarios as they unfold, providing valuable insights and enabling proactive decision-making.

The integration of IoT-enabled devices, AI, and the forthcoming 5G technology is revolutionizing how companies extract valuable insights from their assets, including products, machinery, and facilities. This advanced level of intelligence empowers engineering, IT, and supply chain leaders to confidently identify optimal next actions and make informed decisions.

According to Gartner, the abundance of IoT data and the integration of external data sources like weather or traffic conditions enable organizations to anticipate future scenarios and make more informed recommendations in critical areas such as supply chain planning, sourcing, and transportation.

Many clients are already harnessing the power of IoT and AI through personalised dashboards that automate data collection and analysis. These tools provide invaluable insights that help anticipate risks, mitigate disruptions, and uncover hidden opportunities. With this technology, they can:

  • Employ predictive maintenance strategies to proactively address machinery repairs in the field, reducing costs by 15% – 20% and extending asset lifespans by years.
  • Remotely monitor shipment conditions to ensure temperature and humidity thresholds are maintained, receiving timely notifications if issues arise.
  • Identify patterns of space utilization to optimize warehouse occupancy, resulting in potential savings of up to 20% on overall facility operations costs.
  • Utilize prescriptive recommendations to anticipate problems and find alternate routes, thereby avoiding shipping delays caused by adverse weather conditions.

In the future, the combined insights derived from AI, machine learning, IoT, 5G, and edge computing will enable organizations to build more resilient operations and enhance transparency across the entire supply chain.


Disparate parties will be connected through a unified and immutable record of all transactions.

Blockchain technology serves as a trusted and transparent platform for documenting the history of transactions or information exchanges, establishing a foundation of trust between multiple parties. Every entry in a blockchain is permanent and immutable. The permission-based, controlled, and shared nature of blockchain data enables ecosystem participants to identify and address areas of friction, enhance agility and resilience, and foster trust and transparency with each interaction. Implementing enterprise blockchain technology within supply chains helps participants improve data integrity, facilitate smarter data exchange, and automate decision-making processes. This is particularly beneficial for globally-connected and complex supply networks, allowing them to securely and efficiently manage procurement, sourcing, manufacturing, and logistics operations across a diverse range of stakeholders, regardless of organization size.

Blockchain can be utilized to document product movement and establish permanent transaction histories, leading to reduced costs, minimized delays, and mitigated human errors typically associated with manual transaction handling. Noteworthy use cases of blockchain in action include:

  • Real-time traceability of food items from farm-to-fork within a global ecosystem of producers, suppliers, manufacturers, and retailers, leading to faster identification and resolution of food recalls, improved supply chain insights, increased consumer confidence, and more.
  • Paperless trade involving exporters, importers, freight forwarders, and customs authorities, who share cross-border shipping information to expedite transactions, enhance efficiency, transparency, and cost savings.
  • Procurement leaders benefitting from secure access to pre-verified supplier information, streamlining the identification, onboarding, and management of new vendors.
  • Business users gaining deeper insights into B2B transactions through an immutable, shared record of real-time, multi-enterprise digital events across the supply chain. The integration of AI and machine learning enables proactive alerts and predictions for event completions, empowering users to stay ahead of potential supply chain disruptions.


Intelligent order management

Supply chains will master inventory visibility with improved demand forecasting and automation.

Supply chain leaders are recognizing the value of intelligent order management in meeting customer expectations effectively. In today’s challenging landscape, delivering what customers require, precisely when and where they need it, poses significant hurdles. However, by implementing intelligent order management solutions, businesses can navigate through complexity, maintain seamless operations, and prioritize cost optimization while ensuring customer satisfaction.

The changing global landscape has rapidly transformed the needs and expectations of retail customers. Recent events have propelled more shoppers to rely on online purchases not just for convenience but out of necessity. As a retailer, it is crucial to meet these evolving customer demands by providing the right products through a diverse range of reliable fulfillment options such as buy-online-pickup-in-store (BOPIS), curbside pickup, and ship-from-store (SFS), along with flexible return solutions.

Intelligent order management solutions offer a viable solution to address these new buying patterns and customer interactions. By integrating end-to-end inventory visibility with intelligent order orchestration powered by AI, retailers can achieve efficient and flexible fulfillment while optimizing cost-to-serve. In today’s unpredictable retail environment, this capability becomes a competitive necessity, enabling retailers to adapt and thrive.

Industrial leaders operating in wholesale distribution, manufacturing, assemble-to-order, or logistics face the challenge of meeting high customer expectations and complex requirements. The ability to reliably deliver performance-based products and services is crucial, as these offerings play a critical role not only for your customers but also for their own customers and the broader supply chain.

Intelligent order management solutions are invaluable for industrial leaders, providing essential inventory visibility even in complex ecosystems that encompass multiple acquired companies and divisions. This real-time view of inventory enables optimization of stock levels, reduction of shipping costs, and ensures seamless order fulfillment while minimizing back orders. Furthermore, intelligent order orchestration capabilities support dynamic pricing, enabling faster quote generation and processing of complex orders.

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Do you need to

✅ Safeguard your Team?
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✅ Improve Inventory Management?
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