[eCommerce Management] 7 Inventory Management Strategies to Quickly Boost Profits

It’s no secret that how you manage your inventory plays a crucial role in your overall profit and growth potential. In fact, there are five main stages of inventory management, and at each stage, even the smallest inventory management strategies can dramatically change your business for both.

In short, any one of these stages holds the key to optimization:

  • Purchasing
  • Production
  • Stock holding
  • Sales
  • Reporting

So, where to start?

In this post, we highlight seven labor-saving inventory management strategies that save you on costs and inventory losses while boosting revenue.

Let’s jump in!

1. Streamlining Your Supply Chain Management

Optimizing your supply chain management is the first way you can improve your inventory management. The idea is to look for even the slightest hiccups, bottlenecks, or challenges that you can optimize to improve. As your online retail business grows, the number of vendors, sales, and team members increases, and even the slightest tweak can help improve efficiency while driving down costs, which in turn improves profits.

Beginner Note: Supply Chain Management vs Inventory Management

While inventory management involves tracking and controlling all your store’s stock internally, supply chain management is related to overseeing the flow of raw material or product sourcing and distribution from suppliers until logged into inventory. Therefore any supply chain issues can throw your inventory management into chaos.

To streamline your supply chain management, you will want to start with an in-depth review of your entire brand’s supply chain processes. This will help you assess where your challenges are and point to areas in your production line where costs can be reduced or where the supply chain can be sped up for more efficiency.

Here are some steps to streamline your supply chain processes and management to get you started:

  1. Assess manufacturers, vendors, suppliers, and/or sourcing partners to ensure you get the highest quality raw materials or products at the lowest possible cost for the best possible lead times
  2. Evaluate your fulfillment/shipping times and costs to see where you need to improve with additional systems, or 3PL (third-party logistics) services, or tweaking your own logistics
  3. Set your goals and baseline supply chain ROIs
  4. Look to improve internal and external communication to make sure all departments are working together
  5. Inspect admin systems to look for duplicate processes, tasks, and data that are sucking productivity
  6. Upgrade management technologies to incorporate AI

2. Combining Retail and Marketing KPIs to Optimize Inventory

Another important inventory management strategy is ensuring your retail KPIs are working seamlessly with your marketing goals. Why? This ensures you are driving demand for products that you have an excess of or that provide the best margins for peak profitably.

The best way to do this is to recommend, promote, or display products (AKA, online merchandising) that factor in several key parameters, not just one sorting criteria.

For instance, let’s say you are a fast-growing online fashion retailer. If you are only sorting your product categories by one parameter, such as bestsellers, then your potential customers are only seeing a small percentage of your inventory. This could mean you are sitting with a lot of slow or dead stock, which, when the seasons change, you may need to sell at a considerable profit loss to move.

However, by factoring in not only bestsellers but advanced inventory parameters such as days in store, conversion rates, days to finish inventory, or real margins (after discounts) — to name a few — you can present shoppers with products they are likely to be interested in, while also ensuring you maximize the profitability of those sales.

Strategy Example

Swarovski (IL), for instance, adapted this multi-parameter sorting strategy for all of their category pages and collections, resulting in a 29% decrease in non-moving stock, an 18% increase in conversion rates, and an overall 8% increase in profits in just four weeks. (You can read more about how they did that here.)


The best way to implement this strategy is with an advanced automation tool, especially for those on Shopify, where you can only sort collections by one parameter at a time. This is where Kimonix comes in.

Kimonix is a holistic, AI-powered merchandising solution that allows you to execute ROI-driven merchandising strategy based on your real-time business needs. We allow for advanced product sorting by multiple parameters, such as:

  • Margins
  • Real margins after discounts
  • Discount
  • Inventory value
  • Days to finish inventory
  • Variants stock ratio
  • Sales quantities or revenue amount
  • Days in store
  • Days since back in stock
  • Pageviews
  • Conversion rates
  • Product reviews
  • Product demand and price competitiveness in the market

You can sign up here for a free demo.

3. Getting Super Organized with Warehouse and Inventory Storage

For brands not outsourcing to a 3PL service, how your inventory is organized can affect order processing and inventory management task efficiency, both of which can affect day-to-day operations and influence profits.

When setting up your warehouse, you want to consider safety, security, and, of course, accessibility. Then you will want to factor in sales volume to tweak. Why? Even the slightest upgrade can make pick, pack, and ship processes quicker and less costly.

To optimize your warehouse organization, consider:

  • Auditing and reviewing constantly
  • Mobile shelving for more seasonal products
  • Ensuring there is enough space in your receiving area
  • Making warehouse aisles as clear as possible
  • Providing regular maintenance and cleaning
  • Using information labels in abundance
  • Keeping faster-moving products at the front
  • Using vertical space more efficiently with stacking
  • Setting shipping container size limitations
  • Reassessing your warehouse floor plan
warehouse optimization example

[Source: Emerge]

4. Optimizing Demand Forecasting and Inventory Planning Strategies

We know that how you manage demand forecasting and inventory planning is crucial for long-term eCommerce business profitability and growth. However, it may surprise you that even the slightest change in strategy can have dramatic effects on profitability.

The trick is finding the right way to meld demand forecasting and inventory planning together.

Demand Forecasting vs Inventory Planning

  1. Demand forecasting. Using inventory levels and historical sales data to predict future customer demand for a specific product line.
  2. Inventory planning. Determining the optimal inventory needed to fulfill demand and reach revenue objectives.

Let’s say you’re a growing online t-shirt retailer who made $300k in revenue last quarter selling around 11,000 t-shirts. And your goal for next quarter is $450k. If you’re using traditional top-down inventory planning, you would then aim to increase your inventory to increase revenue to meet your goals. However, this method doesn’t factor in unit economics and can actually harm long-term growth.

Instead, by switching to a bottom-up inventory planning approach, using your demand forecast to determine your baseline stock level needs, you can layer key growth assumptions to limit deadstock, lower overall costs, and increase revenue. All of which boosts profits. 

(You can read more about this method in full detail in our How to Improve Inventory Planning with a Bottom-Up Approach guide.)

And it doesn’t stop there. Here are some inventory planning hacks and tweaks you can use to help boost profits:

  • Harness the power of automation and SaaS tools to be able to optimize in real-time
  • Consolidate all your inventory and sales data to make decisions based on solid analytics
  • Use a variety of demand forecasting methods to improve the supply chain and leverage with 3PLs to avoid deadstock

5. Streamlining Inventory Management with Automation

As your business grows, you and your management teams will need more and more automation to be able to maintain good inventory management. Not just because a growing business means more sales and more inventory. You also need to consider the ever-increasing competition in your online retail niche — without automation, you may find it hard to compete.


Inventory management automation benefits include:

  1. Complete real-time visibility of inventory
  2. Elimination of human error
  3. Enhanced team productivity  
  4. Improved accuracy
  5. Easier scaling

All of these keep costs down, speed up production and supply, and help improve sales. There are a variety of automation apps, tools, and services available, and whether you go for an all-in-one or use separate tools, you want to make sure you test automating the following:

  • Stock recording and transfer
  • Barcode scanning
  • Forecasting (real-time)
  • Inventory alerts and notifications

But it doesn’t stop there. There are also a host of automation trends in terms of warehouse management, including Cloud-based Warehouse Management Systems (WMS), automated machinery, big data and analytics, advanced radio frequency systems, automated cross-docking, and more.

6. Decreasing Shrinkage Dramatically

Let’s be honest; shrinkage is a part of retail. However, suppose you are plagued with far too many damages, breakages, and losses. In that case, you may want to look at areas in inventory management that could be the likely culprits, including vendor fraud, employee mistakes or theft, damage, and administrative shortfalls.

Why? Inventory shrinkage that goes undetected will:

  • Reduce profits
  • Damage customer relationships
  • Ruin your brand reputation

Beginner Tip: How to Calculate Shrinkage Rate

To get a better idea of where you stand, you will need to calculate your inventory shrinkage rate. To do that, you can use the following formula:

Inventory shrinkage rate = (Recorded inventory – actual inventory) / recorded inventory

Then multiply by 100 to get your percentage.

So, how can you optimize your inventory management to decrease shrinkage dramatically? Here are eight strategies you can look at:

  1. Give all variants a SKU
  2. Install item tracking
  3. Reorganize your warehouse for streamlining picking and packing
  4. Count inventory often
  5. Conduct surprise audits
  6. Track and monitor purchases in real-time
  7. Increase security measures
  8. Upgrade to a 3PL that offers zero-shrinkage policies

7. Driving Optimization with the Right Analytics

Whether you decide to invest in good quality inventory optimization tools or grow your management teams, to reduce supply bottlenecks and shrinkage, the secret to your inventory management success lies in your data analytics.

In fact, never underestimate the data you already have access to when optimizing your inventory management. By collecting and collaborating data (even better if it’s in real-time) across your entire shopping journey, you can not only better predict demand, but:

  1. Improve inventory planning
  2. Increase cash flow
  3. Better profit margins
  4. Eliminate or limit non-moving stock
  5. Use inventory KPIs to drive sales

And much more!

ways data analytics help improve inventory management

[Source: App Inventiv]

Wrap Up

There you have it, seven inventory management strategies to test for your online retail brand to help streamline and grow your business while boosting revenue and growing profits. Like with any business upgrade, make sure you test tweaks on a smaller scale to ensure they have the potential for your specific store before diving headlong into expensive optimization.

Got inventory optimization questions? Our experts are standing by to help with outstanding merchandising ideas. You can reach out here.

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