How to Take Control of Your Inventory and Optimize Your Supply Chain

Twenty years ago, I sat in a classroom learning about EOQ (Economic Order Quantity), reorder points, and safety stock levels. At the time, it struck me: this could actually help me manage my inventory better. But back then, the biggest challenge wasn’t understanding the theory—it was finding an affordable way to apply these inventory management techniques with the data I had access to.

Most inventory and supply chain management systems were too expensive. So I set out to build my own spreadsheet model—something practical and powerful enough to reduce costs and streamline operations without a hefty software investment.

Getting Started with Inventory Management

If you're new to inventory management or it's been a while since you’ve dealt with inventory control, start by reviewing the key terms in the spreadsheet model I explained below. They walk you through exactly what to input and how to interpret the results.

📥 Download the free model here:👉 Inventory Optimization Spreadsheet

The model is fully editable and we’re happy to help with customizations—simple tweaks are on the house. You can create a copy and modify it as you wish.

Inventory Optimization in Action

Once I started using the model, I reduced my inventory levels by over 30%. It gave me clarity on:

• What items to reorder

• How many units to carry

• What inventory to liquidate or avoid overstocking

You don’t need to be a large business to improve your supply chain management. Small businesses can gain immediate benefits by using tools like this spreadsheet to make data-informed decisions.

Key Performance Indicators That Drive Inventory Strategy

One of the key performance indicators I tracked religiously was inventory turns—how often I sold and replenished inventory. While the model doesn’t directly calculate turns, it does provide a target inventory level you can use to measure performance. Here is a blog post about inventory turns.

Let’s say you place advance orders without knowing exact demand. Compare your target inventory to actual stock levels to spot overstocked items. This gives you a clear signal to reduce future orders, cancel line items, or even negotiate shipment delays with vendors.

For example, I used to split prebooked orders by category—shoes on one, accessories on another. This gave us flexibility to receive only what we needed and push back or cancel the rest. Pro Tip - you don't want to get in a habit of cancelling pre-orders with your suppliers!

How to Use the Inventory Management Model

1. Start small. Test the model on a handful of SKUs.

2. Compare recommendations to your actual stock levels.

3. Expand gradually once you see improvements.

4. Monitor inventory health using target levels and supplier lead times.

After implementing this approach, I was able to stock more of what customers actually wanted and eliminate excess inventory that just sat on the shelves. My cash flow improved and so did customer satisfaction.

Inventory Management Techniques That Really Work

We also made process changes to tighten inventory control:

• Barcode Scanning: Every inbound and outbound inventory item was scanned and matched to our purchase orders (not vendor packing slips). That one shift exposed dozens of items that were shipped to us by our supplier but never ordered. Scanning out going orders against the sales receipt, reduced picking mistakes and improved customer satisfaction and our inventory control too.

• Cycle Counts: We performed monthly cycle counts using the scanned data. This drastically improved accuracy and caught mistakes early.

• Theft Prevention: Sadly, we discovered employee theft—particularly in warehouse blind spots. Installing cameras and monitoring systems reduced the problem, and we added tighter internal controls to reduce the ease of employees stealing. Pro Tip - be just as worried about employee theft as customer theft.
  

Final Thoughts on Supply Chain and Inventory Control

Improving your inventory control doesn’t require an expensive ERP system. You just need better visibility, smarter decisions, and a system to track what matters. This model is a starting point—and it works. The key is to take action and implement changes one step at a time.

📌 Download your free inventory optimization spreadsheet: https://docs.google.com/spreadsheets/d/1rYKZmqvTXNItJHVHGnXwvsktkY-a8g_Uier39S-_tpA/edit?usp=sharing

💬 Have feedback or need help customizing the model? Reach out—I’d be glad to help.

Inventory Management Key Terms and Model Inputs

The model is color coded with yellow cells where you need to enter data. If you're new to inventory control, here’s a breakdown of the key terms you'll encounter in the model:

Demand

Input your historical or forecasted product demand. You can also estimate demand for new products using similar SKUs. Just adjust the demand up or down based on your estimates of expected demand.

Cost of Product

The price you pay for each unit—used for calculating inventory value and holding costs. This should be the amount you see for the item on your balance sheet.

Order Cost

Includes labor involved in placing, processing, shipping costs, and receiving orders. Even $1 per order can add up.

Holding Costs

An annual percentage estimate that includes rent, storage, insurance, and cost of capital. We used 20%.

EOQ (Economic Order Quantity)

Automatically calculated. This is the ideal order size that balances ordering cost and holding costs.

Demand Per Week

The average weekly sales of a product. This helps identify slow-movers. This is a calculation so no input from you is needed.

Sigma (Standard Deviation)

Shows demand variability. Used in safety stock calculations. This is a calculation.

Service Level and Safety Stock

Adjust the service level based on product criticality. High-demand or high-priority items could have higher service levels (e.g., 95%), while others can be lower (e.g., 85%).

You can customize service levels by product category (A/B/C classification) to fine-tune your inventory optimization strategy. In order to do that, move the service level to the row for each product and change the calculation. We tried to keep the model as simple as possible.

Reorder Point and Lead Time

Lead time is how long it takes to receive a product after ordering. The model uses this in your reorder point calculation to help automate purchasing decisions.

Weeks of Demand to Be Ordered

This shows how many weeks of demand your order will cover—helpful for spotting overbuying.

Target Inventory

Calculated by adding EOQ to your reorder point. This is your benchmark to avoid overstocking.