Back to top

How to Set Up An Optimal Inventory Management System.

Regardless of your company size, you need to have a system of tracking the products you’re selling. Otherwise, there’s a…

How to Set Up An Optimal Inventory Management System

6th December 2021

Inventory Management

Regardless of your company size, you need to have a system of tracking the products you’re selling. Otherwise, there’s a high risk of having excess inventory or replacing your stock faster before it runs out. It’s believed that the best way to avoid such an issue is by having an inventory management system. With this system, you also save yourself the hassle of manually trying to track your inventory because this only increases the chances of making an error when doing counting, forecasting, or tracking. 

Knowing this, it’s advisable as an entrepreneur to set up an inventory management system that ensures you don’t make these avoidable mistakes, thereby streamlining your day-to-day operations. Without further ado, here’s a guide on the steps to follow when setting up an optimal inventory management system.  


What’s An Inventory Management System

The inventory management system is a combination of procedures, technology, and processes that allow you to maintain and monitor your stock levels easily. This means you can use tools such as radio-frequency identification or RFID inventory tracking software and the like to monitor your products’ status across the whole supply chain with ease.

Inventory management programs help companies have a bird’s eye view of the whole supply chain: from production down to sales. The type of inventory you’ll handle usually depends on what you’re selling and this include:

  • Raw materials; 
  • Maintenance, repair, and operation (MRO) goods;  
  • For-sale or finished goods; 
  • Safety stock that provides cover when there’s an increase in demand or supplier shortages; and
  • Work-in-progress goods. 

But with an inventory management system, you’ll have an excellent grasp of how much inventory you have, how to manage it, and where it is. Therefore, you won’t struggle with issues like excess or too little on-hand inventory, restricted cash flow, and others. 


Steps to Follow When Setting Up An Inventory Management System

There are several steps you should follow when setting up an inventory management system for your business’ inventory needs. Here’s a look at these steps to follow:


1. Conceptualization

When creating an inventory management system, the first thing to do is to examine your company’s day-to-day activities. Doing this will help you pinpoint functional areas involved and with data that you can easily track. 

It’s highly advisable to look at what systems other businesses in your industry have to gauge how they’ve helped boost efficiency. In addition, you need to identify everything you need, as this will help you create a practical solution that solves your specific problems. 


2. Identify Your Business Goals 

What’s the exact reason you’re setting up an inventory management system? You must ask yourself this question right from the start when setting up an inventory management system, and common reasons include:

  • To increase revenue; 
  • To minimize inventory expenses;
  • To boost customer satisfaction; and
  • To address pricing issues.  

With a precise goal in mind, you’ll be able to ensure clear communication between you and your team during the onboarding process to ensure proper inventory management. 


3. Get An Inventory Management Software 

Before getting to manage all the data, you need to choose a suitable inventory management software. Ideally, you should do this before choosing the style of inventory control to use or recording items in a meaningful way. 

An inventory management software provides you with an outline to follow. When deciding which software to get and third-party company to hire, you should assess how much you’re ready to spend for one and how it handles complex tasks to know the exact features it should have. 


4. Organize Your Storage Location 

You need to come up with a clear organizational plan that best suits your product line. This is important to maximize every storage space available. It’s only after doing this that you should start labeling your products; that is, stating their name and location help ease tracking. 

Make sure to choose a logical organizational plan by labeling the columns, rows, shelf numbers, and aisles. This way, even persons who’re unfamiliar with your inventory management system can easily track an item. After choosing a specific labeling system, you want to create physical labels that distinguish the different spaces. This is important because what might seem straightforward to you might be confusing to others. 


5. Describe Your Items 

Now that your storage facility has a clear labeling system, the next step is to develop a labeling system for the products. If the products differ in color or size, they should be kept completely separate. 

For the labeling system, ensure it’s informative to ensure there’s no confusion regarding what’s contained in each pallet, box, or container. As a result, your employees can easily monitor the number of items in stock at any given point. This may help in not confusing your workers while they’re still getting used to the inventory management system. 


6. Number Your Items 

To ease of locating products, you should give every product a number. This is a quicker and shortened technique of telling apart quantities, sizes, colors, and product details. As your product line grows, these numbers serve as a useful reference. This helps avoid ordering the incorrect item and eradicates any errors and confusion when placing orders on products. 

Once you adopt a number system, it’s recommended to create a number system for your products. This will help anyone who inputs or looks at your inventory management system. Doing this eliminates any confusion when fulfilling shipments or filling our orders. 


7. Take Measurements 

Typically, the measurements differ depending on the exact item you’re handling and how it’s been packaged. And for the storage containers, it’s also recommended that they have a numbering system. 

For instance, you should state the exact number of 750ml bottles in each container when dealing with wine cases. It’s best to do this even though it might look obvious, but doing so reduces any chances of making an avoidable error by making sure everything is a lot clearer. 


8. Calculate Your Stock Levels 

This is the last step when setting up an inventory management system. All you need to do is enter your location, measurements, numbers, and descriptions into the inventory management spreadsheet or software. After that, start your count to determine the exact number for every product. You should pay close attention to your starting count to confirm that your inventory management system is accurate and works correctly. 



Properly managing inventory is challenging because correctly predicting demand can be difficult. As a consequence, you can end up having excess or less inventory, and either of these causes you to lose money. This is why it’s essential to have an inventory management system to mitigate such problems from happening. And to help you implement this system, detailed in this article are the steps you should follow when setting up an inventory management system.   

Categories: Articles, Logistics

Discover Our Awards.

See Awards

You Might Also Like