Basics of Inventory Management

Aug 27, 2021

For many companies, inventory represents a significant asset on the balance sheet. Whether it’s goods for resale, work in process, or raw materials, the sum of these can represent a significant portion of a company’s assets.  Given the size of this asset, it’s critical that companies effectively manage and monitor all aspects of inventory from “receipt of goods” to “finished goods” in order to maximize profitability, ensure quality control, and minimize shrink and loss.  Our Retail and Manufacturing and Distribution Professionals at DWH suggest the following tips to ensuring a solid inventory management system:

Receiving Function – is one of the most critical functions as it sets the bar for the quantity and quality of materials and goods as they enter door.  As such, it’s critical that companies identify a trusted receiver who can successfully manage the inspection, counting, and validation processes. In addition, the receiver plays a key role with preventing vendor theft and ensuring proper handling and storage practices and protocols are followed.

Storage & Handling – training employees on how to properly handle and store materials and goods can help prevent issues related to spoilage, damage, and shrink. Proper rotation practices such as FEFO (First Expired, First Out), knowing load limits, and proper stacking practices to mitigate issues related crushed or damaged product, as well as understanding the parameters around certain items that require climate-controlled storage, and installing alarms that provide an advance warning when conditions go below acceptable levels, can prove beneficial with preventing losses with inventory.

SKU Rationalization – one exercise that we recommend retailers and manufacturers alike conduct on an annual basis (at minimum) is to review inventory levels for certain goods whether they be in storage or on the sales floor to evaluate the “need” and/or the sales velocity of each item to assess the likeliness those items will sell or be introduced into the production process in a timely manner. In short, this process is designed to determine what companies should keep, what they should discard, and in some cases what they should donate as shelf space in the retail store is prime selling territory and items that sit too long on warehouse shelves simply cost companies money.

Flow and Organization – manufacturers should be cognizant to the fact that raw materials storage should be strategically aligned and organized closely with the production processes to ensure a smooth and efficient introduction to the manufacturing process. Additionally, placing common ingredients closer to the production process will assist with reducing both cycle time and friction within warehouse and manufacturing processes.

Security – keeping raw materials and finished goods protected from theft, whether it be from an internal or external source, is another key element to effective inventory management.  Restricting access to areas where key items, critical components, high-value materials, or finished goods are located can play a key role in ensuring any theft or misappropriation losses can be prevented.

Shoplifting & Financial Loss Prevention – no matter if it’s simple theft or organized crime, shoplifting continues to be a prime source of loss for retailers.  Retailers should embrace some simple and inexpensive ways to combat this issue.  Thieves don’t want to be noticed – strong customer service and associate interaction with customers provides a solid method to mitigating theft.  Also, training associates on how to spot counterfeit currency and coupons, tracking product returns by customer, and implementing strict return/receipt protocols can help reduce financial losses.


As previously mentioned, inventory can comprise a significant portion of a retailer’s or manufacturer’s assets and how it’s managed can play a key role in the success or failure of an entity.  However, understanding and embracing some basic, key concepts as to how raw materials and finished goods are managed can play a key role in the profitability in your entity.

For more information on how DHW’s Retail and Manufacturing and Distribution team can assist your organization, please contact Tim Reynolds at 828-322-2070 or at