What Is Inventory Management?

Inventory management is the process of monitoring and organizing item quantities, costs, locations, reorder points, vendors, and more. It should be noted that inventory management means different things to different people. For gamers, it refers to the items they have collected and how they are organized. For business people, well, it actually means something really similar, but on a much grander scale. There is a big difference between managing an inventory of digital goods and managing an inventory of physical goods in a single warehouse or across multiple locations.

We are going to focus on the business side of inventory management as we explain exactly what it is by breaking it down into three main categories:

  • Inventory storage
  • Inventory movement
  • Inventory delivery

Let’s get right into it.


At its core, inventory management is about knowing what you have in stock. To properly manage your inventory, you need to know where every single item should be in the warehouse down to each aisle and shelf. Tagging items with barcodes and specific locations within your inventory management system allows you to keep track of them. It is next to impossible for an individual to commit all of these locations and items to memory, so it is important to have the assistance of some type of computer system to aid in this responsibility.

But you should not stop there because that is just the beginning of the inventory management process. Once you know where everything is, you can decide whether or not you would like your items to stay where they are or if they would be better off in new spots. For example, you can analyze the pick paths that your warehouse workers make to see if certain products are often sold together or if certain raw materials are often needed for manufacturing jobs. If one such part or product is at the front of the warehouse and the other one that is connected to the first one is at the back, your warehouse workers are spending more time than necessary to go and get them when they could save a lot of time if they were closer together, possibly even on the same shelf. Many changes of this nature can significantly boost efficiency. In addition, you can see which items you go through more often than others and then place the high sellers closer to the dock area for rapid receiving and shipping.

Armed with this information, you can decide the best ways to restructure your warehouse. Doing this will maximize efficiency and ensure your business is making the most of its resources, which is one of the primary purposes of inventory management.


Before parts can be compartmentalized and stored in a warehouse, they first need to make their way to that warehouse. How is this done? It begins with a purchase order. A warehouse worker might conduct a cycle count and, during his pass through the warehouse, he notices that a part is getting low. He can simply fill out a purchase order and send it to the appropriate vendor to replenish that item’s stock.

Even better, companies can create minimum and maximum inventory levels and keep track of inventory quantities at each of their locations in a digital inventory system. So then, when they scan and sell enough of a particular item, they will know that they need to reorder it. Still better, they can set up automatic reorder points and default vendors. These allow companies to automate much of the reordering process. When the number of items in stock reaches the minimum level, the inventory software can automatically generate a purchase order with the necessary quantity to bring it back to the maximum level. It will also already have the vendor on it, as well as the negotiated prices and payment terms. All a warehouse manager has to do is review and issue the purchase order.


The goal of inventory management is not simply to obtain goods, but to make sure they end up in the right hands. It facilitates the movement of inventory from vendors to a warehouse and then to the customers. When you send out a purchase order or receive a sales order, it signifies that an order is about to be either delivered to your warehouse or shipped out from your warehouse. And when a shipment is made, depending on the shipper, you should receive a tracking number. This allows you to estimate the time of delivery and pinpoint the location and status of the shipment.

You can use this tracking information in two main ways. First, you can spot potential problems, such as delays, and strive to work with the vendor or customer to ameliorate them. It is better to find out about bad news early than to be ignorant of it and face a crisis later. Second, you can send an email to your customers letting them know when to expect their orders to be delivered and confirming what they will receive. If you have inventory software, it may even allow you to automate this process by filling out detailed information (such as packing list, total price, tracking number, and estimated arrival time) in a template that you have created prior to the sales order being received. This keeps your customers in the loop and it also maintains an open channel of communication between you and them.


Now that we have discussed what inventory management entails, we should note that there are two main ways to manage inventory:

  • Manually
  • Digitally

Manual methods include using sheets of paper, Excel spreadsheets, and workers’ memory. Each of these inventory management methods has its pros and cons. They are all inexpensive and they can work well when a company’s inventory load is small. But they lack any type of automation and they can easily lead to data errors, breaches, and even losses. Plus, they are not scalable, so they can’t keep up with heavy growth.

Digital inventory management involves software, barcode scanners, barcode printers, and other tools to streamline much of the inventory management process. This method is, of course, far more expensive than the manual ones – plus, it is more complex and it takes longer to be trained on. But the benefits include scalability, automation, accessibility, decreased workforce requirements, and improved data accuracy and security.


Inventory management is the process of tracking and organizing a company’s physical resources, such as goods, parts, and raw materials, as efficiently as possible. Three key parts of inventory management include the storage, movement, and delivery of goods to customers. There are two main inventory management methods: manual and digital. Digital inventory management is more expensive than manual, but it offers many benefits that make up for the added cost.

Get a Demo