Warehouse Inventory Management: Processes & Best Practices

Warehouse inventory management is a sometimes complicated, always-vital process for managing a company’s physical goods. It touches on many key aspects of operations – including finance, sales, and logistics – and directly impacts the efficiency with which a company conducts business.

With the right approach, effective warehouse inventory management will help you increase productivity and profitability while keeping customers loyal and happy.

Keep reading to learn about the processes, tools, and best practices you can implement to optimise your warehouse inventory management strategy.

What is warehouse inventory management?

Warehouse inventory management is the process of overseeing and controlling the flow of goods and materials within a warehouse or distribution centre. It aims to improve stock accuracy, optimise storage utilisation, and increase profitability.

The warehouse inventory management process is comprised of several activities designed to establish optimal inventory levels, track stock movements, and ensure accurate fulfilment of customer orders.

These include tasks such as receiving, order picking, demand forecasting, and stock control.

The difference between inventory management and warehouse management

Inventory management and warehouse management are closely connected and both important components for ensuring smooth supply chain operations and meeting customer demands effectively.

However, they focus on different aspects of managing a company’s operations.

Inventory management focuses on the strategic planning and control of inventory levels across the supply chain, whereas warehouse management is more concerned with the operational aspects of managing warehouse facilities and internal processes which support inventory handling and order fulfilment.

This table shows the similarities and differences between inventory management and warehouse management:

7 benefits of effective warehouse inventory management

Effectively managing warehouse inventory will help you cut costs and increase productivity, giving you more time and resources to put towards revenue-generating activities.

Here are some of the key benefits of warehouse inventory management for modern businesses.

1. Space utilisation

Inventory management ensures that warehouse space is utilised cost-effectively and efficiently.

By organising inventory based on factors like SKU, size, and demand frequency, you can maximise storage capacity and reduce the need for additional warehouse space – saving on rental or construction costs.

2. Reduced carrying costs

Proper inventory management helps minimise inventory carrying costs by maintaining optimal stock levels determined by accurate demand forecasting and sales analysis.

Optimising your inventory control reduces holding costs related to:

• Storage
• Handling
• Insurance
• Obsolescence

3. Better operational efficiency

Warehouse inventory management streamlines operations by improving workflows and eliminating bottlenecks. When you implement efficient picking, packing, and shipping processes, productivity goes up and costs come down.

A good inventory management strategy will also improve order fulfilment accuracy and speed.

4. Improved inventory accuracy

Accurate inventory management systems and processes help reduce the errors and discrepancies that lead to stockouts.

Maintaining accurate inventory records and implementing the right warehouse inventory management tools will help you minimise costly disruptions in operations. It’s been found that improving inventory accuracy can lead to a 10% reduction in inventory costs.

5. Enhanced order fulfilment

Efficient warehouse inventory management enables faster and more accurate order fulfilment. This is because optimised picking, packing, and shipping processes can expedite order processing and reduce your order cycle times.

6. Better supplier relationships

Effective inventory management fosters closer collaboration with suppliers. By sharing demand forecasts, optimising order quantities, and improving lead times, you can negotiate favourable pricing, discounts, and terms with suppliers. This results in cost savings and improved supply chain efficiency.

7. Data-driven decision making

Warehouse inventory management systems provide valuable data and insights that enable informed decision making.

You can analyse key performance indicators (KPIs) – such as inventory turnover, fill rates, and order accuracy – to identify areas for improvement. Then, based on these findings, you’ll be able to implement corrective actions to drive cost savings and productivity gains.

Warehouse inventory management processes

Warehouse inventory management is an activity that touches on multiple arms of the business. It’s made up of several key processes aimed at efficiently handling, tracking, and controlling inventory goods within a warehouse or distribution centre.

Here’s a quick breakdown of those processes and how they work.

Receiving

The receiving process involves accepting incoming shipments of goods from suppliers.

Warehouse personnel inspect the received items for quantity, quality, and condition, and update inventory records accordingly. This ensures that the warehouse receives the correct items in the right quantities and good condition.

Storage and organisation

Storage and organisation are essential for optimising warehouse space and facilitating efficient inventory handling. Inventory is stored in designated locations within the warehouse based on factors such as SKU, size, weight, and demand frequency. Effective organisation ensures that items are easily accessible, minimising search times and improving productivity.

Inventory tracking and control

Inventory tracking and control processes involve monitoring inventory levels, movements, and locations within the warehouse.

Barcode scanners and inventory management software are commonly used to track stock movements and maintain accurate inventory records. This ensures real-time visibility into inventory levels and helps prevent stockouts or overstocking.

Picking and packing

Picking and packing processes involve selecting items from inventory to fulfil customer orders and preparing them for shipment. Efficient warehouse picking methods – such as batch picking or zone picking – help minimise travel time and increase productivity.

Once picked, items are packed securely using appropriate packaging materials and methods to prevent damage during transit.

Shipping and dispatch

The shipping and dispatch process involves preparing customer orders for delivery and coordinating with carriers for shipment. Warehouse personnel verify order accuracy, generate shipping labels, and arrange for timely delivery.

Effective shipping processes ensure that orders are dispatched accurately and on schedule, ultimately leading to better customer satisfaction rates.

Inventory replenishment

Inventory replenishment is the process of restocking inventory to maintain optimal stock levels. Replenishment decisions are typically based on factors such as demand forecasts, lead times, and safety stock levels.

Timely replenishment helps prevent stockouts and ensures product availability to meet customer demand.

Cycle counting and inventory audits

Cycle counting involves regularly counting a subset of inventory items to verify accuracy and identify discrepancies. Inventory audits are conducted periodically to reconcile physical inventory counts with inventory records.

These processes help detect errors, reduce shrinkage, and maintain inventory accuracy.

How to manage warehouse inventory: Methods and strategies

There are some common methods and strategies to aid with inventory management within a warehouse or distribution centre.

These include:

• ABC analysis: ABC analysis categorises inventory items into three groups based on their value and importance. A-items represent high-value items with lower inventory quantities but high demand, while C-items are low-value items with higher inventory quantities but lower demand.
• Just-In-Time (JIT) inventory: JIT inventory management involves ordering and replenishing inventory only when needed – based on actual demand. This strategy helps reduce excess inventory levels, optimise warehouse space, and minimise carrying costs while ensuring timely order fulfilment and customer satisfaction.
• Cross docking: Cross docking involves transferring incoming goods directly from receiving to outbound shipping without storing them in inventory. This method is particularly effective for perishable goods, time-sensitive shipments, and high-volume distribution centres.
• Slotting optimisation: Slotting optimisation involves organising inventory within the warehouse based on factors such as SKU, size, weight, and demand. By placing high-demand items closer to shipping areas and optimising picking paths, you can reduce travel times and boost order accuracy.
• Warehouse layout design: Designing an efficient warehouse layout is crucial for optimising space utilisation, minimising congestion, and facilitating smooth material flow. Consider factors such as aisle width, storage systems, equipment placement, and workflow design to maximise operational efficiency and minimise handling costs.
• Inventory management systems: Implementing robust inventory management systems and technology solutions enables real-time tracking, monitoring, and control of inventory levels and movements within the warehouse. This results in greater visibility into inventory data, streamlined operations, and improved accuracy and efficiency.
• Demand forecasting: Accurate demand forecasting helps you anticipate future inventory requirements and plan replenishment strategies accordingly by analysing historical sales data, market trends, and customer insights.
• Supplier collaboration: By sharing demand forecasts, establishing vendor-managed inventory (VMI) programs, and negotiating favourable pricing and terms with suppliers, you can enhance supply chain efficiency and reduce your inventory costs.
• Continuous improvement: Implementing a culture of continuous improvement enables you to identify inefficiencies and implement best practices for managing warehouse inventory. Regular performance monitoring, data analysis, and feedback mechanisms help drive operational excellence and maintain competitiveness in the marketplace.

Warehouse inventory management solutions

Inventory management solutions are software systems and hardware tools designed to improve your warehousing stock management processes. They come in many shapes and sizes, so let’s explore some of the more common ones.

Warehouse inventory management in Excel

Warehouse inventory management in Excel involves using spreadsheet software to organise, track, and analyse inventory data within a warehouse or distribution centre.

While Excel may not offer all the features of dedicated inventory management software, it can still be a cost-effective solution for small to medium-sized businesses or those with simpler inventory management needs.

Here are the steps to conducting warehouse inventory management in Excel:

1. Create a spreadsheet
2. Enter inventory data
3. Use formulas and functions
4. Implement data validation
5. Apply conditional formatting
6. Create inventory reports
7. Apply barcode scanning
8. Backup and secure data
9. Regular maintenance and updates

While Excel offers flexibility and customisation options, it's important to recognise the limitations of spreadsheet-based solutions, especially as your inventory complexity and volume increase.

Cloud-based warehouse inventory management software

Cloud-based warehouse inventory management software operates on remote servers hosted on the Internet. It allows you to access and manage inventory data from anywhere with an Internet connection. There's no need to install or maintain software on local computers, as all software updates and maintenance tasks are handled by the software provider.

Warehouse inventory management software provides real-time data synchronisation, ensuring that inventory data is up to date across all devices and locations. Any changes made to inventory levels, orders, or transactions are instantly reflected in the system.

Useful features to look for in warehouse inventory software include:

• Real-time inventory tracking
• Integration with other cloud-based systems
• Multiple warehouse inventory management
• Barcode scanning
• Multiple currency conversions
• Demand forecasting
• Purchasing and supplier management
• Inventory reporting
• Order management and fulfilment

By leveraging the power of the cloud, you can streamline your inventory management processes, improve data visibility and accessibility, and drive operational excellence in today's dynamic business environment.

Warehouse inventory management tools

Warehouse inventory management tools encompass a variety of physical devices and equipment used to streamline inventory operations, improve accuracy, and enhance efficiency within warehouse environments.

Here are some of the most common warehouse inventory management hardware tools:

• Barcode scanners: Handheld devices used to scan barcode labels on inventory items, storage bins, and pallets. They capture and decode barcode information, allowing warehouse personnel to accurately track inventory movements and conduct cycle counts.
• RFID readers and tags: RFID (radio-frequency identification) readers and tags use radio waves to transmit and capture data wirelessly. RFID readers communicate with RFID tags attached to inventory items, enabling automatic identification and tracking of items without line-of-sight requirements.
• Mobile computers and tablets: Mobile computers and tablets equipped with inventory management software enable warehouse personnel to access inventory data, perform inventory transactions, and receive real-time updates from anywhere within the warehouse.
• Pick-to-Light and Put-to-Light systems: Pick-to-light and put-to-light systems use light indicators mounted on shelving units or storage bins to guide warehouse personnel through the order-picking and replenishment processes. Lights illuminate above the designated pick or put locations, indicating the items to be picked or stored.
• Automated Storage and Retrieval Systems (AS/RS): AS/RS systems automate storage and retrieval processes within the warehouse using mechanised equipment such as automated conveyors, robotic arms, and vertical lift modules (VLMs).
• Voice-directed picking systems: Voice-directed picking systems use speech recognition technology to provide verbal instructions to warehouse personnel during the order-picking process. Warehouse workers wear wireless headsets and receive voice commands guiding them to the correct pick locations and confirming task completion.
• Forklifts and material handling equipment: Forklifts, pallet jacks, and other material handling equipment facilitate the movement, storage, and handling of inventory items. Forklifts are used for transporting palletized goods, loading and unloading shipments, and replenishing inventory in storage locations.
• Warehouse security systems: Warehouse security systems – including surveillance cameras, access control systems, and intrusion detection sensors – help protect inventory assets and prevent unauthorised access, theft, and vandalism within the warehouse facility.

What is multi-warehouse inventory management?

Multi-warehouse inventory management refers to the strategic coordination and control of inventory across multiple warehouse or distribution centre locations.

Inventory is distributed across multiple warehouses or distribution centres based on factors such as geographic location, customer demand, and supply chain considerations. By strategically positioning inventory closer to end customers or key markets, businesses can reduce shipping costs, shorten lead times, and enhance customer satisfaction.

With multiple warehouse locations, you can optimise order fulfilment processes by leveraging the nearest warehouse with available inventory to fulfil customer orders. Multi-warehouse inventory management also helps mitigate risks associated with single-point-of-failure scenarios.