If your small business stores goods in a warehouse, inventory management is a key part of how you control your stock. Learn the basics of warehouse inventory management.
- Warehouse management is a subset of inventory management and is focused on knowing which products are incoming and outgoing, as well as where each item is located.
- Warehouse management is similar to inventory management, except more narrowly focused on the operation of a specific storage facility, including data on product quantities and locations, as well as operator performance.
- To run an efficient warehouse, appoint a knowledgeable warehouse manager and implement a warehouse inventory management system that helps you keep tabs on process and product.
- This article is for small business owners who are expanding into their first warehouse or who want to streamline the operations of their existing warehouses.
If your small business stores the goods you sell in a warehouse, warehouse management is an integral part of your supply chain management. Warehouse management is essential to tracking the products your business keeps on hand, as well as ensuring you maintain optimal levels so you can quickly fulfill customer orders. Understanding how to develop a warehouse management plan – and choose the inventory management software your business needs to support it – is key to staying apprised of your stock, preventing loss and theft, and keeping customers happy by quickly filling orders.
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What is warehouse inventory management?
Warehouse inventory management is the process by which stock stored in a warehouse or other storage facility is received, tracked, audited and managed for order fulfillment. Warehouse management also includes the replenishment of stock when predetermined minimum quantities are reached, refreshing your stock to optimal levels based on historical sales data. Much like broader inventory management processes, warehouse management is focused on managing incoming and outgoing products, all the while knowing where individual pieces are located.
"Inventory management is controlling the inflow and outflow of your inventory, as well as maintaining and controlling that inventory," said David Singletary, CEO of tech consulting firm DJS-DIGITAL. "So, [inventory management is] being able to know where your pieces are at all times."
Warehouse management is a specific subsection of a broader inventory management plan, which governs all products held by a company from the point of creating purchase orders for suppliers to ensuring the safe delivery of products to customers. Warehouse management is focused on the organization and tracking of stock while it is in storage, as well as how quickly certain items are sold.
"Warehouse management is all about volume and velocity," said Gavin Davidson, ERP product management lead at Oracle NetSuite. "You don't want your warehouse to get in the way of shipping products. You want to make sure your employees are able to pick, pack and ship as many orders as they're given."
Key takeaway: Warehouse management is the process by which warehouses operate in an efficient and reliable manner. It is a smaller part of the broader inventory management process that a business uses to governs stock across its entire ecosystem.
What is the difference between warehouse management and inventory management?
Warehouse management is specifically related to goods that are stored in warehouses and storage facilities, rather than those kept in storefronts or those that are used in the manufacturing process. It is part of the larger inventory management process, which monitors stock from the point of acquisition to the point of sale. But while that stock is in storage at your warehouse, you need a process in place to ensure it doesn't go missing, so it is ready to go when the time comes to sell it.
Warehouse management relates to a broader inventory management process by ensuring that items are shipped out to storefronts or customers in a timely manner. When a sale is made or a transfer order comes in, the warehouse should be set up to enable employees to quickly pick items, pack them and ship them. This means storing items in predictable locations and then tracking them as they move out the warehouse door through final delivery.
"When you go to multi-store, people often realize inventory management software doesn't do that well," said Corey Holton, founder and executive VP of product development for Evosus. He recommended a software tool with more advanced warehouse management features for operations with multiple locations and a centralized storage facility.
Key takeaway: Warehouse management is part of a broader inventory management plan, focused specifically on your storage facilities.
How do warehouse inventory management systems work?
Warehouse inventory management software offers several key features to help you monitor the goods within your storage facilities and oversee inventory control. In some cases, warehouse management software is built into broader enterprise resource planning (ERP) software solutions; in other cases, warehouse management software serves as a stand-alone system. It is best to purchase a seamlessly integrated process if you want to manage your inventory across the entire ecosystem of your company.
Inventory management software covers the acquisition, tracking, and shipping of products, ensuring you know what products are where at what time. They can also serve as forecasting tools, helping you to order items based on expected customer demand according to historical sales data. Some also offer alerts and notifications to improve the operational process of your warehouse, indicating when it is time to perform cycle counts, for example.
Key takeaway: Warehouse inventory management software is available as a standalone solution or as part of an ERP system that includes inventory management software.
Best practices for managing your warehouse inventory
These four steps are key to setting up your warehouse for success and efficiency. When first creating your warehouse, ensure these processes are in place in order to maximize efficiency and quickly move products when needed.
1. Appoint a warehouse manager.
Running an efficient warehouse starts with appointing someone capable to lead; your business should recruit a warehouse manager who has extensive experience operating a warehouse similar to the type you will be running.
"If you have an actual warehouse, you need a warehouse manager," Singletary said. "The job of a warehouse manager is to make sure everything is running smoothly … they're the quarterback of the warehouse. [You need] someone who is organized, familiar with warehouse operations and not afraid of technology."
Your warehouse manager will monitor your workers in their day to day positions, ensuring that items are being scanned and cataloged properly. They will also regularly engage with your warehouse inventory management software to maintain a bird's eye view of your inventory. Finally, any anomalies or issues that arise will be handled by your warehouse manager, so they should be able to respond dynamically whenever your warehouse employees identify a problem.
2. Determine the warehouse layout.
The physical layout of your warehouse will either help or hinder your warehouse employees in quickly picking, packing and shipping items out when a sale is made or a transfer order is placed. According to Holton, separating warehouses into zones or lots and numbering aisles and bins can help warehouse workers navigate the storage facility more effectively.
Not every warehouse is set up the same way, but an organized warehouse is a prerequisite to efficient operations. How you design your warehouse space could vary depending on what types of products you store. For example, a warehouse storing large machinery might have specific zones but is unlikely to have bins and aisles, like a warehouse storing smaller retail products.
You should consider how a warehouse employee will move throughout your warehouse when you're designing the physical space. Make sure your high-value and high-transaction-volume items are easily accessible, Davidson said.
"You would typically have … rows of racks, and you might organize those into different zones," he said. "Maybe you reorganize your warehouse as your business changes. Part of that is identifying the items moving quickly through your warehouse and positioning those in locations that are easier to get to."
3. Establish a workflow.
With a leader appointed to monitor the operations of your warehouse and a system of organization in place, you will also need to put in place a specific workflow. The warehouse manager should have experience in this area, so work with them closely on how to establish a warehouse workflow that makes sense for your business. According to Singletary, your workflow should address several key points:
- How do I receive new inventory?
- When new inventory is received, where does it go?
- How is inventory tracked when it arrives, when it is moved and when it leaves the warehouse?
"When it's time to sell that piece, knowing [its location] is very helpful," Singletary said. "You need a system to tell you to go to the exact place where the product lives. You need to track it as it gets moved from its location all the way out the door to delivery to the customer."
In addition, you should discuss several operational considerations with your warehouse manager, including:
Inventory location tracking: Determine whether you need serial tracking, lot tracking or a mix of both. Tracking is a key part of inventory control, helping operators to know precisely where a product is when it comes time to pick it. Serial tracking is useful for high-value items that sell in low quantities, while lot tracking is effective for low-value, high-quantity items. Barcoding features can be employed to automate the updating of tracking information for individual items within a warehouse inventory management software. Tracking is especially important when selling on multiple sales channels, preventing you from overselling and running into negative quantities by mistake.
Cycle counts and regular inventory audits: Performing regular cycle counts is important for loss prevention and inventory control. Without regular cycle counts, units could be lost or stolen unbeknownst to your warehouse manager. If you only conduct inventory counts once a year, you could quickly recognize that you've lost a lot of inventory over time. It's especially important to implement regular cycle counts when dealing with goods that expire. Run inventory counts more frequently on your highest-value or bestselling items.
Accounting methods: Depending on how your warehouse operates, you might prefer to use first in first out (FIFO), last in first out (LIFO), or average costing methods. These accounting methods are important to your warehouse management, because most inventory management software integrates with your accounting software to prevent the need for double entry and eliminates the risk of human error. Your warehouse inventory management software should have a costing method compatible with the rest of your accounting.
- Data reporting: Warehouse managers are responsible for generating and distributing data reports, which can be generated and customized in your warehouse inventory management software. These reports include information like product quantities, sales data, requisition data from vendors and information about any lost or expired products.
4. Implement warehouse inventory management software.
A warehouse inventory management software can help automate and simplify a number of warehouse management tasks, as well as update a record of all existing stock in real time. As long as your warehouse team properly scans and catalogs items as they come into your warehouse and move throughout it, your warehouse inventory management software will reflect all your existing stock and its specific location in the warehouse.
"Most information should be available in the ERP software," Davidson said. "The information tells you which items should be cycle counted and how often they need to be counted – that comes from transactional data."
"It should also look at trends over time, like how many packages did you ship this month versus last month and the month before," Davidson added. "Look for trends to see if something is happening on the operational side of your business to prevent shipping and receiving."
Additionally, warehouse inventory management software can be set up to automatically reorder stock when products reach a predetermined minimum quantity. The best software automatically analyzes historical sales data to determine optimal minimum quantities for automatic reordering, as well as to which quantities it should replenish each product.
Key takeaway: To efficiently operate a warehouse, hire a reliable warehouse manager, implement effective inventory management software and devise a workflow that includes regular cycle counts, inventory tracking and robust data reporting.