Inventory Management in a Nutshell

A business’s inventory is usually their largest asset and is an important input in the budgeting process. Having a well organised and consistent inventory with a definite structure and predefined procedures for adding new products, handling the purchasing and sales processes and managing stock movements is vital.

Nowadays inventory lists exist on multiple platforms or channels, each with different hierarchical definitions and so it becomes pertinent that all of these lists remain up to date and consistent across all platforms and channels.

Merchandise Classification

Merchandise classification is the hierarchical structure used to classify product data across the organisation by developing common definitions, terminology and variations.

Variations are most usually consist of different colours, sizes, gender and so on, that are available for the same product. Combine this with product categories and tags (tags can be any random key word or phrase used as an additional identifier for sorting inventory) and you can see how important a merchandise classification strategy becomes.

Merchandise classification can differ significantly between brands and categories but by ensuring that this classification is well defined, easy to understand and easy to manage can save you a lot of time and money.


With the ability for modern inventory management systems to integrate with other business management applications, including e-commerce platforms, as well as synchronise stock across all of them, it becomes more relevant to have your inventory sorted in such a way that it renders correctly within each application and across all channels throughout the organisation. This includes stock, customer and financial data.

Often times, inventory lists contain non-identical duplicates. For example, the list on the accounting system may have a Men’s Black T Medium and on the online store it may be listed as a Black T Medium Men’s. In such an instance we would use the SKU code (Stock Keeping Unit) to match data across various platforms. However, the default setting within each platform is usually to automatically generate SKUs if it has not been pre-specified and allocated (and this is often the case). The result: the existence of the same product with different and/or multiple identifiers. With additional data including multiple currencies, various price tiers, product descriptions and variables, it quickly becomes messy and time consuming to fix.

Having product, customer and financial data synchronised across all platforms can be highly advantageous so long as it’s consistent and well managed.

A good inventory management system will allow you to perform the following tasks:

  • Draft and process purchase orders and goods received
  • Draft and process quotations, sales orders, invoices and all associated activities
  • Manage customer and supplier data
  • Manage multiple price lists and currencies and allocate specific price lists to the relevant suppliers and customers
  • Manage stock and consignment locations. This includes 3PLs as well as customers and products supplied on consignment (this is applicable to both suppliers and retailers)
  • Perform live stock takes within the system either manually updating items or using a barcode scanner
  • Integrate with accounting, e-commerce and CRM/database applications
Multiple Locations

Being able to manage stock across multiple locations including consignment stock and 3PL (third party logistics), provides accurate stock and financial data and also allows for improved tax management across different tax regions. Exchange rates also play a role across international markets and having the ability to manage this in real time is highly advantageous as all of this data synchronises with your accounting system.

Moving Average Cost (MAC)

Additional overheads may vary depending on quantities and additional resources required to produce or fulfil orders. This includes labour costs, handling, additional packaging requirements, shipping, wastage as well as inventory replenishment costs if applicable.

These will all effect the moving average cost (MAC) which is calculated based on such variables and provides an indication of cost variations over time compared to cost of goods sold (COGS) and acquisition or purchase price.

The difference in landed costs between air freight versus sea freight is an example of a factor that would effect MAC.

Factors such as changes in warehousing costs, utilities and similar factors would not initially effect MAC and provisions for inclusion of significant fluctuations would need to be included in the pricing strategy for the following fiscal period. This is the advised process for keeping things consistent and traceable, however there are exceptions.

Cred: Samuel Zeller | Unsplash

Product Manufacturing

Managing inventory in a production run becomes vital as various components are allocated to produce a single sellable item. Being able to pre-allocate components to finished products speeds up the process and allows for quick order fulfilment where finished items are not held in stock. This is often the case for high value items such as jewellery.

Components are often sourced from different suppliers and ensuring that stock levels for each component remain at a useable level is useful. Being able to set stock re-order points where you get notified when stock dips below a preset point can mean the difference between producing on time and retaining a customer.

Managing Relationships

Suppliers, wholesale and retail customers all have different order quantities, pricing, and ordering cycles. Managing each of these types of relationships by being able to create profiles for each and allocate specific predetermined pricing, payment terms, discounts and setting up automations eliminates a lot of manual work allowing you to service each customer more efficiently.

There are many more advantages to using an online inventory management system but in summary, due to the level of integrations, synchronisation and automations that can be set up, you can be saving yourself and your staff a lot time. Such systems also prevent deviation from standard procedures and ensure consistency and inventory integrity.

After working in many different inventory management systems and implementing several, having to deal with customer support and setup integrations, I decided to parter with TradeGecko for the simple reasons that they offer a complete inventory management solution with exceptional customer service and easy to setup integrations.