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Updated Oct 26, 2023

Your Guide to Warehouse Inventory Management

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Adam Uzialko, Business Strategy Insider and Senior Editor

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If your small business stores the goods you sell in a warehouse, managing that warehouse 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 inventory 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. 

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 replenishing stock when predetermined minimum quantities are reached and refreshing your stock to optimal levels based on historical sales data. Much like broader inventory management processes, warehouse management focuses on managing incoming and outgoing products, all 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 creating purchase orders for suppliers to ensuring the safe delivery of products to customers. Warehouse management centers on the organization and tracking of stock while it is in storage, as well as tracking how quickly certain items are sold. 

“Warehouse management is all about volume and velocity,” said Gavin Davidson, Director of IT & Business Systems at Trusscore. “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 TakeawayKey takeaway
Warehouse management is the process by which warehouses operate in an efficient and reliable manner. It is a small part of the broader inventory management process that a business uses to govern stock across its entire ecosystem.

What is the difference between warehouse management and inventory management?

Warehouse management is specifically related to goods stored in warehouses and storage facilities, rather than those kept in storefronts or those 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. While that stock is in storage at your warehouse, you need a process in place to ensure it doesn’t go missing. Then, when the time comes to sell it, it will be ready to go.  

Warehouse management relates to the 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 enable employees to quickly pick, pack and ship items. This means storing items in predictable locations and tracking them as they move out the warehouse door through final delivery.

“When you go to multistore, 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.

Did You Know?Did you know
Warehouse management is part of a broader inventory management plan that focuses 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 and ensures you know which products are where at what time. It can also serve as a forecasting tool that helps you order items based on expected customer demand and to historical sales data. Some also offer alerts and notifications to improve the operational process of your warehouse, such as indicating when it is time to perform cycle counts.

FYIDid you know
Warehouse inventory management software is available as a stand-alone solution or as part of an ERP system that includes inventory management software. [Read related article: Best Inventory Management Software]

Best practices for managing your warehouse inventory

The four steps below are key to setting up your warehouse for success and efficiency. When you first create your warehouse, ensure these processes are in place 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 and ensure 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, your warehouse manager will handle any anomalies or issues that arise, 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. The way you design your warehouse space could vary depending on what types of products you store. For example, a warehouse that stores large machinery might have specific zones but is unlikely to have bins and aisles, like a warehouse storing smaller retail products.

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 implement a specific workflow. The warehouse manager should have experience in this area, so work closely with them 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 that helps operators know precisely where a product is when it needs to be picked. Serial tracking is useful for high-value items that sell in low quantities, while lot tracking is effective for low-value, high-quantity items. You can use barcoding features to automate the updating of tracking information for individual items within a warehouse inventory management software. Tracking is especially important when you’re selling on multiple sales channels because it prevents 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 without your warehouse manager’s knowledge. If you only conduct inventory counts once a year, you could suddenly realize that you’ve lost a lot of inventory over time. Regular cycle counts when dealing with goods that expire. Run inventory counts more frequently on your highest-value or best-selling 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. Your accounting method is important to your warehouse management because most inventory management software integrates with your accounting software to prevent the need for double entry and eliminate the risk of human error. Your warehouse inventory management software should have a costing method compatible with the rest of your accounting. [Read related article: Best Business Accounting Software]
  • Data reporting: Warehouse managers are responsible for generating and distributing data reports, which can be created 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 each item’s 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, you can set up your warehouse inventory management software 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 the quantities needed to replenish each product. 

To efficiently operate a warehouse, hire a reliable warehouse manager, implement effective inventory management software, and devise a workflow. This workflow should include regular cycle counts, inventory tracking and robust data reporting.

The present and future of warehouse inventory management

As brick-and-mortar retail shops decrease, and ecommerce and online shopping websites increase, the need for more warehouse storage is also growing. Several developing trends can help ease the process.

  • On-demand warehousing: Just like it sounds, this practice allows businesses to flex their warehouse capacity as needed, taking on more during busier times and sloughing off unneeded space during slower periods. Third-party providers, such as Shopify’s fulfillment network, can take on the entire function for your business.
  • Artificial Intelligence: You’ve seen AI popping up in other areas, but it’s also showing up in the warehouse. It may be able to help your warehouse manager make better decisions and create better strategies by using algorithms to predict demand, adjust stock levels, and make suggestions on the most expedient shipping routes. [Read related article: Ways AI Is Changing HR Departments]
  • Robots, drones, VR and wearables: The use of robots in warehouses is nothing new. But we expect more tech-based solutions to be employed in the future that reduce manual labor costs and safety risks, increase picking and packing speeds and efficiencies, and allow workers to focus on other needs. 

Determining the right warehouse inventory management solution for your business

Your business may not be ready to start rolling out robots or arming your employees with drones. But if you’re storing goods in a warehouse, it may be time to look at whether you need to fine-tune your warehouse inventory management system. Whether it’s shoring up your best practices or investigating an emerging trend, you may find there is room for improvement in your warehouse. 

Jessica Porree contributed to this article. Source interviews were conducted for a previous version of this article.

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Adam Uzialko, Business Strategy Insider and Senior Editor
Adam Uzialko, senior editor of Business News Daily, is not just a professional writer and editor — he’s also an entrepreneur who knows firsthand what it’s like building a business from scratch. His experience as co-founder and managing editor of a digital marketing company imbues his work at Business News Daily with a perspective grounded in the realities of running a small business. Since 2015, Adam has reviewed hundreds of small business products and services, including contact center solutions, email marketing software and text message marketing software. Adam uses the products, interviews users and talks directly to the companies that make the products and services he covers. He specializes in digital marketing topics, with a focus on content marketing, editorial strategy and managing a team.
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