A complete guide to lean inventory management

As an ecommerce business owner, you always look for new ways to reduce costs, improve efficiency, and increase profits. Lean inventory management is helping many businesses do just that.

But what exactly is lean inventory management? How can it help improve your bottom line? And how can you implement it in your business?

Read on to unearth the answers to these questions and gain a thorough understanding of lean management best practices. Then, you can determine whether it’s the right inventory management style for your business or not.

Let’s go!

What is lean inventory management?

Lean inventory management focuses on minimizing waste by holding only the necessary stock to meet current demand. It uses just-in-time (JIT) practices to reduce excess inventory, cut costs, and improve efficiency. It aims to enhance flexibility, streamline operations, and respond swiftly to market changes.

Lean inventory management is all about cutting the clutter. It’s about reducing waste, optimizing production, and putting the customer at the heart of everything you do. At its core is the kaizen philosophy – the idea of continuous improvement. 

The idea is that you’re always looking for ways to do things better. Whether it’s minimizing resources or tweaking processes to run smoother.

The goal is simple – streamline your operations while keeping customers happy. The five lean principles: value, flow, pull, responsiveness, and perfection, guide you to do just that.

In today’s world, it means leveraging automation tools to keep things running without hiccups. Lean inventory management is all about constantly refining and improving your processes. This saves time, reduces costs, and gives your customers exactly what they want.

What are the benefits of lean inventory management?

The benefits of lean inventory management include reduced storage costs, minimized waste, and improved cash flow. It enhances operational efficiency, allows for quicker response to changes in demand, and lowers the risk of overstocking. This approach also increases flexibility, helping businesses stay competitive.

Let’s consider some of these benefits individually: 

Faster delivery times

Speed is everything. And lean inventory management helps streamline your processes so you can reduce delays and shorten lead times. By focusing on efficient production and optimized workflows, you’re better equipped to adapt to shifting customer demands. With real-time data and automation tools, lean management boosts delivery speed while enhancing flexibility.

Increased quality

Lean management focuses on minimizing defects and reworks, but now with even more emphasis on precision and automation. 

Integrating innovative tools means you can reduce human error and ensure consistency across your operations. Smaller inventory levels also mean closer relationships with suppliers, which improves communication and forecasting, ultimately leading to higher quality outputs and fewer mistakes.

Boosted profits

Lean practices help reduce costs by cutting waste.

Businesses using lean strategies can not only lower costs but also improve cash flow by reducing unnecessary stock. You can then reinvest the saved money for further growth.

Linnworks customer, Graff City, struggled with overstocking and overselling due to the use of manual spreadsheets. Integrating Linnworks stock forecasting to replace manual processes and make data-driven decisions enabled them to completely overhaul their inventory management. 

“We’re no longer holding on to too much or the wrong stock, or not selling enough of the right stuff because it’s out of stock. The insight is valuable to the whole business.”

– Graff City

Reduced inventory waste

JIT inventory management remains a cornerstone of lean inventory and it’s easier than ever to implement.

Only stocking what’s needed when it’s needed means businesses reduce the risk of dead stock and excess inventory. Modern JIT practices also give you better insight into potential bottlenecks in your supply chain. This allows you to optimize your processes and eliminate waste.

What are the key principles of lean inventory management?

The five key principles of lean inventory management include value, flow, pull, responsiveness, and perfection. Lean inventory management aims to increase efficiency by applying five principles.

Let’s look at these principles in more detail: 

1. Value

Customer value is everything that customers will pay for. And nothing they won’t.

An ecommerce business implementing lean inventory management practices will regularly review its products from the eyes of the customer.

2. Flow

The flow principle involves analyzing each step in the process to maximize efficiency, reduce waste, and remove friction. Removing friction from your supply chain helps to clear away any obstacles in your current processes.

Common causes of friction in inventory management might look like:

• Supplier delays
• Multiple stakeholder approvals on purchases
• Relying on manual reporting to make decisions

3. Pull

The third principle of lean management is pulling inventory when requested by the customer.

A pull system bases inventory on customer demand. This means you only restock items after they’ve been sold, keeping minimal inventory in your warehouse. In contrast, a push system relies on forecasting, where production levels are set by the retailer based on past sales data.

Consequently, a push system can result in overstocking, delays, product obsolescence, and increased inventory carrying costs.

On the other hand, a pull system enables you to carry just enough inventory to meet customer demand. In turn, this keeps costs low. This means you’ll see reduced inventory carrying costs.

What’s more, a pull system means new work only starts when there is demand for it. In other words, it’s a JIT inventory management tactic.

4. Responsiveness

With a continuous evaluation of your inventory flow, you’ll benefit from the ability to adapt to change quickly.

This level of responsiveness will ensure that your inventory is kept at appropriate levels. In turn, preventing increased carrying costs and obsolete inventory. Building a responsive culture that quickly fixes problems and ensures high quality is key to successful lean management.

5. Perfection

The last of the five principles is perfection. You need to always refine your inventory management processes to improve quality, boost efficiency, and reduce costs.

Focus on enhancing activities that generate the most value while removing or reducing as many wasteful activities as possible.

The 5S framework: A cornerstone of lean inventory management

The 5S framework remains a fundamental tool for improving efficiency and reducing waste. It originated from the Toyota Production System (TPS) in post-war Japan. It is used to streamline operations by organizing workplaces and promoting continuous improvement.

The five actions – Sort, Straighten, Shine, Standardize, and Sustain – are more relevant than ever. Following these steps results in businesses creating a more organized and efficient work environment, reducing mistakes and boosting productivity.

• Sort: Separate necessary items from unnecessary ones and remove anything that doesn’t add value. Inventory management software can help ecommerce businesses automate this process, identifying slow-moving stock and optimizing storage.
• Straighten: Organize your workspace so that items are easy to find and access. Barcode scanners and AI-driven software ensure products are stored in optimal locations for faster picking and packing.
• Shine: Keep your workspace clean and free from clutter. This means keeping your systems and processes streamlined, so you can spot any issues before they escalate. Automated alerts for stock shortages or potential errors are examples of how technology supports this principle.
• Standardize: Ensure your processes are consistent and efficient. Today, ecommerce businesses can leverage automation and integrations to standardize inventory updates, stock levels, and order processing, minimizing the risk of human error.
• Sustain: Maintain these practices long-term by fostering a culture of continuous improvement. In 2024, this involves using real-time data and advanced analytics to refine and improve your inventory management system.

How to implement a lean inventory management system

To implement lean management, you must make sure all elements of production follow the five principles outlined above. Here are three best practices for deployment:

Maintain good supplier relationships

You’re reliant on suppliers to help you maintain optimal stock levels. Timely communication, deliveries, and responsiveness to unexpected problems are all critical to successful implementation.

You should have a main contact at each supplier to handle urgent needs and build a long-term relationship. The key to successful supplier relationship management is to make them feel like they are a part of your business.

Adopt modern inventory management software

Lean inventory management works best when you have real-time access to stock levels. The best way to maintain that visibility into your inventory processes is by adopting modern inventory software like Linnworks.

Inventory management systems synchronize stock automatically, monitor movement throughout your supply chain, and provide regular updates.

With JIT capabilities, Linnworks inventory management software supports these techniques and practices. It does this by avoiding excess inventory and risks such as damaged stock and warehouse fees.

Hold safety stock

Because lean requires minimal inventory levels, you’ll want to balance that with emergency safety stock. This is buffer stock in case customer demand spikes or you encounter sudden problems in production or supplier delivery.

Safety stock isn’t a blanket solution, and you can have too much of it. Determine your optimal level through a detailed analysis of past sales data and purchase history.

Embracing continuous inventory flow

Continuous inventory flow is the backbone of lean inventory management. It ensures that stock is always moving and replenished, without any interruptions in the production process. In other words, your inventory keeps flowing, reducing the need for large amounts of stored stock. This not only minimizes costs but also maximizes efficiency, allowing you to respond quickly to customer demand.

For ecommerce businesses, achieving continuous inventory flow means fewer bottlenecks, lower carrying costs, and the ability to adapt quickly to market changes. With real-time data and automation tools in place, you can keep your supply chain moving smoothly. This ensures you always have the right amount of stock when you need it.

The result? Lower costs, better profit margins, and a more agile business ready to meet customer needs.

Is lean inventory management right for your ecommerce business?

Lean inventory management can be a game-changer, but it’s not one-size-fits-all. It works best for ecommerce businesses that sell high volumes of products with minimal customization. If your business deals in items with few variations, lean practices help streamline production, reduce waste, and improve efficiency. You’ll also need control over production and direct communication with your suppliers to ensure smooth inventory flow.

However, if your customers expect highly customized products, it might not be the best fit. The constant adjustments required for customization can slow down processes. If you don’t have direct control over production, it may be more challenging to implement lean principles effectively.

For those businesses, alternatives like agile inventory management or hybrid models might be more suitable. These methods offer more adaptability to handle customization and fluctuating customer demand while still maintaining efficiency.

Optimize your inventory for lean management practices

Lean inventory management can help your ecommerce business reduce waste, boost efficiency, and meet customer demand more effectively. By implementing lean practices, you can improve delivery times, cut costs, and keep inventory levels optimized. 

Ready to take your lean strategy to the next level? Linnworks offers the tools you need to automate processes and gain full visibility into your inventory. Book a demo today to see how Linnworks can support your lean inventory goals and drive growth for your business.

FAQs

What is lean inventory management?

Lean inventory management is a strategy focused on reducing waste, optimizing production, and delivering maximum value to the customer. The aim is to streamline processes by removing inefficient practices. This ensures that only necessary stock is stocked, and reduces the time products spend in storage. 

By adopting lean principles, businesses can minimize excess inventory and improve overall efficiency. Tools like Linnworks can help automate and optimize lean inventory management. This gives you full visibility into your stock and ensures you meet customer demand with minimal waste.

How is demand management relevant to lean inventory management?

Demand management is crucial to lean inventory management. This is because it ensures you only produce and stock items based on actual customer demand. By accurately forecasting demand, you can avoid overproduction and excess inventory, which are key to keeping operations lean.