Inventory Management

Effective inventory management is critical for Australian organisations seeking to balance customer service, operational efficiency and financial performance.

In a market defined by long transport distances, seasonal peaks and increasing supply chain volatility, getting inventory right is both a challenge and a significant opportunity.

This article outlines best practices for inventory management and highlights how our team at efm can support your business in turning these tips into measurable results.

At a glance

• Set clear policies to balance customer service with financial goals.
• Segment products by value and demand to create smarter stock rules.
• Improve forecasting with better data, seasonality insights, and visibility.
• Position stock strategically across your network to cut cost and protect service.
• Collaborate closely with suppliers, carriers, and warehouses.
• Maintain accuracy through disciplined warehouse processes.
• Build resilience with peak planning, returns management, and sustainability.
• Choose a strategic partner to gain visibility, flexibility and warehousing capability.

Read on for more detailed insights.

Align inventory policies with customer and financial objectives

Effective inventory management starts with being clear on your promise to customers and ensuring you can deliver that promise without tying up too much capital in inventory.

To achieve this, define service levels, delivery times, and product availability targets up front and then build them into practical inventory rules. Consider:

• Days of cover: A single rule for everything (e.g. “hold 30 days of stock”) doesn’t make sense and leads to waste or shortages. Stock levels should reflect the nature of each product. For example, fast movers will need more frequent replenishment with fewer days of stock held, while slow movers might need more stock on hand to avoid frequent reordering.
• Working capital targets: Connect stock policies directly to financial goals so you can see the trade off between capital invested in inventory and service reliability.

With clear policies in place recognising that not every product warrants the same treatment, the next step is segmentation to ensure stock rules reflect value and demand.

Segment products by value and demand characteristics

Product segmentation provides a practical way to set differentiated policies. The combination of the below two methods is useful to create tailored inventory strategies:

• ABC analysis: Identify high-value or high-volume items (A-class) that require close management, compared with lower-value items (C-class).
• XYZ analysis: Segment by demand variability, distinguishing between stable (X), variable (Y), and highly erratic (Z) demand patterns.

The combination of ABC and XYZ segmentation will enable targeted strategies. For example, an AX item demands accurate forecasting and frequent replenishment, while a CZ item may be better managed through make-to-order or supplier flexibility.

Once products are segmented, accurate forecasting becomes even more important to make sure each category is managed with the right level of precision.

Strengthen forecasting through better data and signals

When plans reflect real demand, businesses can hold the right products at the right levels, making it easier to keep shelves stocked without overfilling warehouses.

But achieving this often requires more than standard in-house tools. It depends on drawing together multiple data points and aligning warehouse and transport capacity.

Consider:

• Multiple horizons: Weekly forecasts for execution, monthly for sales and operations planning and quarterly for capacity planning.
• Data layering: Incorporating historical demand, promotions, pricing changes, e-commerce traffic, wholesale orders and store-level events.
• Seasonality factors: Accounting for Black Friday, Christmas, back-to-school, end-of-financial year, and international events which may impact sales.
• Continuous improvement: Measure forecast error and bias, then feed insights back into both systems and team behaviours.

To put these practices into action, you need visibility across orders, stock, warehousing and transport. Without a connected view, forecasts can quickly come unstuck, leading to either empty shelves or overstocked warehouses. To close that gap, consider working with a specialist partner that can integrate these elements into a single, connected plan.

Forecasts set the plan, but where inventory is physically located across the network will ultimately determine how quickly and cost-effectively you can meet demand.

Position stock strategically across the network

In Australia, because of the long distances and transport networks, network design has a big impact on both service levels and costs.

There are a number of ways to position stock strategically across the network to balance service and cost:

• Node placement: Keep fast-moving products where customers are so you can deliver quickly, while centralising slower-moving items to reduce duplication.
• Cross-docking: For predictable, high-volume flows, move goods straight through a cross-dock facility to minimise dwell time.
• Multi-echelon optimisation: Think about inventory across all levels of the network (central DCs, regional warehouses, cross-docks). Often, shifting safety stock upstream can reduce the total amount of inventory you need to hold.
• Carrier coverage: Be aware of state-specific transport lead times and cut-offs, to avoid false stockouts caused by replenishment delays.

Placing inventory in the right locations is critical, but performance also depends on how well suppliers, carriers, and warehouses work together to keep stock moving.

Collaborate with supply chain partners

Inventory performance doesn’t just depend on what happens inside your business; it depends on your supply chain partners – warehouses, suppliers, strategic advisors and carriers – working in sync.

Consider:

• Sharing demand plans: Give partners advance visibility of your forecasted demand, so they can prepare capacity and avoid bottlenecks.
• Negotiating order parameters: Work with partners to set order sizes, minimums and lead times that match your demand pattern.
• Vendor managed inventory (VMI): For predictable, high-value items, let the supplier take responsibility for replenishment (or use consignment stock) to reduce risk.
• Integrate KPIs: Extend performance measures beyond DIFOT to include warehouse accuracy and turnaround times that directly affect stock availability.

Even with strong collaboration, accuracy inside the warehouse itself remains the foundation of effective inventory management.

Ensure warehouse accuracy and operational discipline

Accurate inventory records depend on disciplined warehouse processes. If stock isn’t handled consistently and correctly inside the warehouse, the numbers in your system won’t match reality, which creates downstream problems in replenishment and transport.

• Scan discipline: Enforce barcode scanning at every movement, including receiving, put-away, picking, packing, dispatch and returns.
• Cycle counting: Regularly count smaller portions of stock, with focus on high-value products or error-prone areas, instead of relying only on annual stocktakes.
• Optimised slotting: Position fast-moving SKUs in ‘golden zones’ – the most accessible spots – to reduce errors and improve pick rates.
• FIFO/FEFO compliance: For products with expiry dates, enforce “first in, first out” or “first expiry, first out” so soon-to-expire stock is shipped before newer stock.
• Shrinkage reduction: Standardise pack handling and storage for bulky or irregular freight, which is harder to manage and more vulnerable to damage or theft.

For all of these practices to work consistently, the underlying systems and data need to be clean and connected.

Integrate systems and improve data quality

To make these theoretical inventory practices work in practice, you need clean, connected data that provides a single source of truth across the supply chain.

Key priorities include:

• Data accuracy: Make sure product details such as pack sizes, carton dimensions, units of measure, and barcodes are consistent and correct across all systems.
• System integration: Link core platforms such as Enterprise Resource Planning (ERP), Warehouse Management System (WMS) and Transport Management System (TMS) so orders, stock and shipments all reflect the same information.
• Automation: Use tools like barcode scanning or Radio Frequency Identification (RFID) to reduce manual entry and errors.
• Dashboards: Create real-time visibility of critical issues such as stockouts, negative balances, overdue receipts, and backorders so managers can act quickly.

Technology provides the accuracy and visibility needed to plan, replenish, and deliver effectively. But strong inventory management is not just about optimising efficiency today, but also about preparing for the uncertainty of tomorrow.

Build resilience and lift performance

Building resilience and lifting performance means preparing for peaks and disruptions while continually improving service, cost, and sustainability outcomes.

Focus on five key actions:

• Plan for peaks and disruptions: Lock in forecasts early, secure warehouse and carrier capacity, line up additional labour, and position buffers where natural disasters or infrastructure challenges are most likely, such as rail derailments or port congestion. After peak periods, reduce surplus quickly to protect working capital.
• Manage returns efficiently: Prevent avoidable returns with better product information, then triage stock quickly so saleable items are returned and unsaleable goods are directed to refurbishment, secondary channels or recycling.
• Measure what matters: Track a focused set of indicators across service, accuracy, efficiency, inventory health, and planning quality to drive improvement.
• Run disciplined Sales and Operations Planning (S&OP): Bring together demand, supply and finance into one agreed plan rather than each function working in silos.
• Balance cost and sustainability: Use cost-to-serve analysis to protect margins and embed practices that cut waste, reduce linehaul and lower emissions.

How efm can support your inventory management

Effective inventory management aligns service, cost and risk in a way that drives both customer loyalty and sustainable business growth.

At efm we combine multi-carrier orchestration with warehousing capability to give customers end-to-end control not only of inventory, but of the entire supply chain.

We offer:

• Warehousing integration: ~76,000m2 of safe, secure and moden warehousing at strategic locations throughout Australia.
• Single view of stock: Proprietary technology that provides visibility across both warehouse and transport activities.
• Data-driven planning: Advanced business intelligence analytics that support demand forecasting, safety stock optimisation, and cost-to-serve modelling.
• Flexible fulfilment: Co-ordination of both storage and delivery, ensuring the right balance between service levels and working capital requirements.
• Carrier management: A network of 200+ carrier partners, matching each consignment with the right provider to deliver reliable service, competitive cost, and the flexibility to scale or pivot.

Take action

Ready to take control of your inventory and supply chain? Get in touch to explore a smarter, more connected approach.