Inventory Health — How to Improve and Maintain It

Improving Inventory Health may sound like a big project, but beginners can make meaningful progress with a handful of practical steps. A friendly, step-by-step approach helps you balance holding costs with customer service so inventory becomes a business enabler, not a burden.

Start with three foundational principles

• Measure what matters: Focus on a few clear KPIs such as inventory turnover, days on hand, fill rate, and percentage of obsolete stock.
• Segment your inventory: Not all SKUs are equal — treat fast movers differently from slow movers.
• Improve data quality: Inventory decisions are only as good as the records they’re based on.

Practical tactics to improve Inventory Health

1. Perform ABC/XYZ segmentation: Classify SKUs by value and variability. "A" items (high value or high volume) need closer control and tighter forecasting, while "C" items (low value) can have simpler rules. XYZ segmentation (based on variability) helps set safety stock differently for predictable vs. unpredictable items.
2. Set basic reorder points and safety stock: Use average daily usage and supplier lead time to define when to reorder. For beginners, a simple formula (reorder point = lead time demand + safety stock) is effective. Safety stock can be conservative initially and refined as you gain data.
3. Adopt simple forecasting: Start with basic methods like moving averages or month-over-month trends for each SKU or SKU group. Even basic forecasts beat reacting to every order.
4. Run regular cycle counts: Instead of annual full counts, count a portion of SKUs regularly (e.g., daily or weekly) with a focus on high-value items. This keeps records accurate without disrupting operations.
5. Reduce slow-moving stock: Identify SKUs that haven’t sold within a set period and create clearance, bundling, or donation plans. Freeing up space and capital is often the fastest win.
6. Improve supplier collaboration: Share simple forecasts with key suppliers, negotiate better lead times, and consider vendor-managed inventory for high-impact items.
7. Use technology appropriately: You don’t need enterprise software to start. Even a basic inventory management tool or a well-structured spreadsheet can help track KPIs and trigger reorder alerts. As complexity grows, consider a WMS or integrated ERP to automate processes.
8. Standardize receiving and putaway: Clear procedures reduce errors at the point goods enter the warehouse. Barcode or SKU labeling, simple quality checks, and consistent putaway locations improve accuracy.
9. Optimize packaging and storage: Right-size storage to reduce damage and handling time. Organize the warehouse by velocity so fast movers are most accessible.
10. Monitor returns and quality issues: Track returned items and root causes. High return rates can hide deeper product or fulfillment problems that hurt Inventory Health.

Implementation tips for beginners

• Start with a pilot: Choose a subset of SKUs (e.g., top 20% by value) and apply segmentation, forecasting, and cycle counting to prove benefits.
• Use simple dashboards: A visual report with a few KPIs helps teams stay aligned and spot problems quickly.
• Set realistic targets: Don’t chase perfect accuracy overnight. Aim to reduce DOH by a small percentage or cut obsolete stock within a quarter.
• Involve cross-functional teams: Purchasing, sales, operations, and finance should all understand Inventory Health to avoid conflicting goals like maximizing availability while minimizing stock.

Example of a small-step implementation

1. Week 1: Run an inventory accuracy check on top 100 SKUs and calculate turnover.
2. Week 2: Classify SKUs using ABC and set reorder points for A items.
3. Week 3–4: Implement weekly cycle counts for A items and create a clearance plan for slow movers.
4. Month 2: Review supplier lead times, adjust safety stock, and monitor fill rate improvements.

Common quick wins that improve Inventory Health fast

• Clearing obsolete stock to free cash.
• Fixing data errors that cause unnecessary reorder or stockouts.
• Moving fast SKUs to more accessible pick locations to speed fulfillment.

Maintaining Inventory Health is an ongoing effort. The key is consistent cadence: measure regularly, act on the insights, and refine policies as you learn. With small, friendly steps and a focus on the most impactful items, any business can improve Inventory Health and start seeing better cash flow, fewer stockouts, and smoother operations.