Best Practices for Managing Year-End inventory

Last Updated: January 31, 2024

So often ecommerce brands have the primary objective of selling, but with a sales-only mindset, inventory management will take a back seat and it can be detrimental to your overall business growth.  

Performing a physical inventory count after your busiest sales season will tell you a lot about your brand. What you have in stock (or not in stock) will give you the clues to make your next moves as a business—whether that’s evaluating your supplier, choosing to iterate and create new products, or expanding your sales channels to new markets.  

No brand should make any business decisions until they can see exactly what they have in stock. Here are the steps to follow to manage your year-end inventory and finally close your books from last year.

Steps to Manage Your Year-End Inventory

1. Conduct a Physical Inventory Count 

At least once per year ecommerce brands should take the time to count all units they have in stock. This is called a physical inventory count. This is the first and most critical step to managing your year-end inventory.  

Only after you’ve fully identified and evaluated your inventory can you make informed decisions and strategize for product iteration, sales, and promotions. 

There are two outcomes you’ll need from a physical inventory count:  

1. Sync what you have in your physical inventory with what is reflected in your WMS system and online sales channels.  
2. Identify and investigate any discrepancies and make necessary adjustments. 

Once you’ve completed a thorough assessment of your year-end inventory, the following steps will guide you through best practices for Q1 inventory management. Remember that the specific steps may vary based on the nature of your business, industry, and the type of inventory you manage. It’s also crucial to involve key stakeholders, including finance, operations, and procurement teams, in the inventory process for a comprehensive and accurate assessment. 

2. Review and Update Documentation 

• Double-check documentation related to inventory, including purchase orders, sales orders, and invoices. 
• Ensure that all transactions are accurately recorded and up to date. 

3. Dispose of Obsolete or Excess Inventory

• Identify items that are slow-moving, obsolete, or overstocked. 
• Develop a plan to sell, donate, or dispose of such inventory to avoid carrying unnecessary costs. 

4. Evaluate Supplier Relationships 

• Review supplier performance and relationships. 
• Negotiate terms for the upcoming period and consider consolidating orders or renegotiating contracts for better pricing. 

5. Optimize Stock Levels 

• Analyze historical sales data to identify trends. 
• Adjust stock levels accordingly to meet demand while minimizing excess inventory. 

6. Utilize Technology 

• Leverage inventory management software to streamline processes and maintain accurate records. 
• Explore automation options for routine tasks to reduce errors. 

7. Financial Analysis 

• Assess the financial impact of your inventory management. 
• Calculate key performance indicators (KPIs) such as inventory turnover, days of inventory, and gross margin return on inventory investment. 

8. Training and Communication 

• Ensure that your team is well-trained in inventory management procedures. 
• Communicate any changes in processes or expectations to relevant stakeholders. 

9. Compliance Check 

Ensure compliance with any regulatory requirements related to inventory reporting and management. 

10. Plan for the Next Period 

• Develop a strategy for the upcoming period based on insights gained from the current inventory close. 
• Set goals and objectives for improving inventory management processes. 

Methods for a Successful Inventory Count  

There are a few different ways to perform an inventory count, they vary from more involved to less—a full counts, cycle count, tag count, or ad hoc count. Learn more about the different physical inventory counting methods here.  

No matter the type of count you perform, and when, it’s an important exercise to be detailed and thorough about. Any misses or mistakes may ripple into larger issues down the line. Make use of automation when you can or outsource to an inventory auditing company to make sure it’s done properly.  

What to Expect from a Physical Inventory Count?  

If you work with a 3PL or fulfillment provider, you may be under the impression that all inventory counting is out of your hands. It’s not. You are, in the end, responsible for the inventory you have in stock. Even if you’re not performing the physical inventory count yourself, you need to take a very active role in verifying the final inventory numbers.  

Here are a few details that ecommerce brands may not know to expect.  

• All order movement stops for at least 48 hours. This is imperative to focus on tagging, reconciling, and counting.  
• No products can be expected from your manufacturer—everything must be in person without, all supplier transactions are completed.  
• Your business is essentially on hold for two days, sometimes more.  
• Expect to be in daily meetings with your 3PL combing through and finalizing the inventory. 
• You’ll be asked to thoroughly review inventory numbers and your tagged inventory audit report. 
• Be prepared to cycle up or cycle down if there are discrepancies between your books and what your 3PL or auditor counts in physical stock. 

How Your 3PL Should Support Brand Growth  

If you outsource fulfillment and logistics to a 3PL, your provider should help you set up a physical inventory count and assess the data. A 3PL with experience will prove valuable when you have more or less of a product you’d expected. Working with a provider who supports omnichannel fulfillment may be especially helpful to help your brand grow into new sales channels.