6 inventory management techniques to balance cost and control

Organizations often treat inventory management as a warehouse or operations issue, but the reality is that procurement decisions shape inventory performance long before stock ever hits the shelf. Contract terms, supplier lead times, and sourcing choices determine how much inventory you hold, how often you replenish it, and how exposed you are to risk.

When procurement leads the conversation, inventory becomes a strategic lever for cost efficiency, resilience, and compliance rather than a passive outcome. With volatile demand and supply uncertainty, today’s market conditions make it essential for procurement teams to integrate inventory control into their sourcing strategy. 

The goal isn’t just to save money; it’s to balance cost with control, ensuring your organization can respond to disruption without overinvesting in stock. To achieve this balance, you first need to understand procurement’s role in inventory management, how it influences inventory health, and some effective inventory management techniques to drive more confident decisions.

Integrating inventory into procurement strategy for better results

Procurement decisions have a direct and measurable impact on inventory performance. They influence efficient stock management, the resilience of your supply chain, and the amount of capital you have tied up in inventory. In other words, inventory outcomes are a reflection of procurement strategy. 

For example, choosing consistent suppliers with predictable delivery windows allows procurement teams to hold less safety stock. Additionally, flexible reordering clauses in supplier agreements can further reduce excess stock when you reorder.

By reframing inventory as a procurement discipline, you’ll gain better cost control, improved risk reduction, and enhanced supply reliability.

The true cost of stockouts and overstocks

Stockouts and overstocks are two sides of the same coin. Both drive hidden costs, operational disruptions, and lost opportunities.

The cost of stockouts:

• Missed sales or service: If you run out of a critical item, your downstream operations or customers may face delays or additional logistics costs.

• Reputation/service-level damage: Even one stockout can damage internal stakeholder confidence or external customer relationships.

• Expediting cost: To recover from an out-of-stock, you may need to pay for premium freight or rush fees, eroding your margin.

• Opportunity cost: Avoiding shortages sometimes means over-ordering “just in case,” which ties up capital.

   

The cost of overstocks:

• Holding cost: Industry estimates show that carrying costs often equal roughly 20–30% of the total inventory value (including capital cost, warehousing, shrinkage, spoilage of perishable goods, depreciation, etc).

• Obsolescence and waste: Excess inventory ages, becomes obsolete, and gets written off.

• Lean balance sheet: Capital tied up in inventory means less cash for other initiatives, like the procurement of strategic items, innovation, and supplier development.

Because of all of these downstream effects, procurement teams must view inventory turnover as the cost center it is to inform better buying strategies.

Procurement’s influence on inventory health

As a procurement leader, you control many levers that affect inventory health, such as:

• Supplier choice

• Contract design

• Lead time management

• Vendor performance

• Risk mitigation

• Data visibility and analytics

   

Sourcing decisions and supplier reliability

Sourcing decisions and supplier reliability can greatly impact inventory levels and stock outcomes.

For example, consider two suppliers for the same order: 

• Supplier A delivers in 10 days (±2 days) but costs more

• Supplier B delivers in 15 days (±5 days) but costs less 

   

While Supplier B may appear to be a better deal, higher lead time and greater variability require more safety stock and increase stockout risk. To help mitigate risk, you could negotiate better terms with Supplier B, shift more spend to Supplier A, or develop a dual-sourcing strategy.

Supplier KPIs and lead-time analytics

You should consider monitoring performance indicators such as: 

• On-time delivery rate

• Lead-time variance (standard deviation)

• Defect rate

• Responsiveness to expedited requests

• Contract compliance

This data allows you to reward high performers, reduce reliance on underperforming ones, or escalate improvement plans to increase inventory health.

Contract levers that support inventory outcomes

You can also use the following contract levers to shape your inventory management strategy rather than leaving it to operations or logistics teams:

• Lead time guarantees/service-level agreements (SLAs)

• Penalties or incentives for on-time delivery

• Periodic review of lead time performance and supplier scorecards

• Flexibility clauses (e.g., smaller lot sizes, shorter run times) that allow leaner stock

• Shared-risk or vendor-managed inventory (VMI) agreements

   

6 procurement-led inventory management techniques

Procurement-led inventory management is a strategic approach where the procurement function assumes primary ownership of inventory performance, ensuring management of stock levels, costs, and risks through supplier strategy, data visibility, and contractual control.

In this inventory management method, procurement treats inventory as an extension of its sourcing strategy rather than a downstream consequence of purchasing decisions. 

If your organization is headed in this direction, here are six tactical methods your procurement team can use to handle inventory control through tasks it already manages. 

1. Optimize safety stock and reorder points through supplier data

Procurement departments can use supplier data to refine both safety stock levels and order quantities, ensuring inventory meets demand without tying up unnecessary capital.

One proven method for determining optimal order size is the Economic Order Quantity (EOQ) model. EOQ helps procurement teams decide how much to order each time to minimize total inventory costs, balancing ordering cost against holding cost.

Where:

• D = annual demand (units)

• S = ordering or setup cost per order

• H = annual holding cost per unit

Traditionally, EOQ is treated as a purely mathematical optimization model. But when procurement leads the process, EOQ becomes a strategic sourcing lever: a way to use supplier data, contract terms, and performance metrics to adjust variables in the formula and influence total cost outcomes.

Here’s how your procurement team can make the EOQ model more effective:

• Reduce ordering costs (S): Streamline ordering processes, implement e-procurement integrations, or negotiate consolidated shipments with key suppliers.

• Lower holding costs (H): Partner with suppliers to enable smaller, more frequent deliveries, VMI, or consignment inventory.

• Refine demand (D): Use supplier performance and spend data to improve demand forecasting accuracy.

• Address lead time variability: Integrate supplier lead-time analytics into EOQ planning, adjusting order frequency based on reliability metrics.
  
  

For procurement leaders, the goal isn’t just calculating the “optimal” order size—it’s negotiating and structuring supplier relationships so that the underlying costs (S and H) remain flexible and data-driven.

How to put it into practice:

1. Use supplier scorecards to identify which suppliers consistently meet lead time targets.

2. Adjust EOQ assumptions based on supplier performance and reliability data.

3. Collaborate with suppliers to pilot smaller batch sizes or automated replenishment.

4. Combine spend analysis with supplier metrics to prioritize contracts that enable lower holding costs without increasing risk.
   
   

Amazon Business tip: Use Spend Visibility (a Business Prime feature) and Amazon Business Analytics dashboards to track supplier lead times, delivery frequency, and order cost trends. These procurement insights provide actionable data to help procurement teams build and refine their EOQ models.

2. Prioritize high-impact items and suppliers with ABC analysis

Traditional ABC analysis segments SKUs by value or volume (A = high value/high volume, B = moderate, C = low). Procurement can take that further by linking ABC to supplier strategy.

For example:

• “A” items: Source essential items from your most dependable contracted suppliers that have strong SLAs and performance metrics.

• “B” items: Use contracted suppliers for items that can tolerate slightly more flexibility.

• “C” items: Leverage online store flexibility or spot buys for low-value/low-risk items.

By linking supplier segmentation to item categorization, you allocate your procurement effort and governance to the items that have the most impact on inventory cost and risk.

When segmenting items through ABC analysis, inventory valuation also plays a role in determining profitability and calculating the cost of goods sold for high-, medium-, and low-value items. Two common approaches include:

• FIFO (first-in, first-out): FIFO assumes the first items you add to your inventory are the first ones you sell. This method is simpler to manage and better for creating higher profit margins.

• LIFO (last-in, first-out): LIFO assumes the last items you add to your inventory are the first ones sold. This method is best for improving cash flow and reducing taxable income.

Amazon Business tip: Spend Visibility lets you filter spend by supplier, category, and compliance. You can then use this data to classify suppliers and guide item segmentation strategy.

3. Enable lean procurement through JIT, Kanban, and VMI

One way to reduce inventory cost is through lean procurement. But making inventory lean is not purely an operations issue—procurement must set up the right contracts, automations, and supplier collaborations to make it viable.

Three techniques you can use include:

• JIT (Just-in-Time) procurement: Reduce stock by aligning orders with actual customer demand. Buy only the minimum quantities needed to fulfill customer orders, relying on suppliers with predictable lead times.

• Kanban: Automate your purchasing process based on inventory depletion rather than forecasting. This ties replenishment to actual usage levels (e.g., when a virtual bin hits its threshold, the supplier restocks it).

• VMI or consignment: Reduce holding and storage costs with this supply chain management strategy by allowing suppliers to retain ownership of your inventory until usage. Suppliers use your inventory data to decide when and how much to replenish. 

Amazon Business tip: With Amazon Business Restock’s Managed Inventory and Vending services, Amazon Business automatically replenishes frequently used items within customer facilities, upleveling smart business buying. By tracking inventory levels at customer site locations, Amazon Business helps ensure reorders are right-sized for demand. Products are delivered and restocked in one appointment. 

4. Boost accuracy and resilience with supplier performance visibility

Inventory management depends heavily on supplier performance. Procurement is in the best position to demand visibility and improve supplier reliability, ensuring an accurate inventory and resilience.

Here’s how you can stay on top of supplier performance:

• Track supplier KPIs: Watch metrics like on-time delivery rate, lead time variance, fill rate (supplier delivered vs. ordered), defect/reject rate, and number of expedites.

• Take corrective actions: Use this data to take action by creating supplier improvement plans, using conditional sourcing, or activating alternate suppliers.

• Link supplier performance to safety stock levels: Increase safety stock if a supplier's lead time variation rises, or reduce it if performance improves to free up cash. 

• Build supply-chain resilience: Boost resilience by segmenting suppliers according to risk profile (e.g., single source vs. dual, regional vs. offshore) and verify procurement has its own contingency plans.

Amazon Business tip: Many of these metrics are available through Spend Visibility dashboards, meaning you can monitor this data regularly to flag suppliers whose performance is eroding inventory health.

5. Integrate demand forecasting and predictive analytics

Inventory decisions are only as good as your forecasts. While forecasting is often seen as operations or planning territory, procurement plays a key role. By managing the supply side, procurement can shape your sourcing strategy based on demand predictions.

Consider taking the following steps:

• Use historical usage/consumption and sales data to forecast demand for different SKUs.

• Incorporate lead time, supplier performance, seasonality, and market fluctuations into forecasting models.

• Feed forecast outputs into your sourcing strategy: increased demand → early supplier engagement; decreased demand → push back orders and reduce minimum order quantity (MOQ).

• Use a predictive analytics framework. For example, trending upward SKUs may require contract renegotiation with key suppliers or shifting sourcing to faster vendors.

Amazon Business tip: Amazon Business Analytics provides insights into order counts, supplier delivery times, and category spend trends. By combining demand data with supplier performance metrics, procurement teams can build a closed‑loop process—forecast, source, measure, and adjust—to continuously improve purchasing strategies.

6. Advance sustainable and responsible inventory practices

Along with delivering on cost, compliance, and efficiency, procurement is facing increasing expectations to align sourcing with socially responsible purchasing (SRP) practices. This includes sustainability and supplier diversity initiatives. 

Here are some tips to shift toward more responsible purchasing:

• Reduce excess inventory and waste by optimizing stock levels to better manage your ecological and financial footprint.

• Prioritize sourcing from diverse and local suppliers for select SKUs to reduce lead time and transportation emissions.

• Introduce responsible inventory practices such as reviewing aged stock, implementing circularity (return/repurpose), using supplier take-back programs, or leveraging consignment/just-in-time models.

• Manage supplier diversity spend to support your inventory planning incorporates diverse supplier participation, promoting resilience and sustainability.

Amazon Business tip: Spend Visibility dashboards offer supplier diversity insights and sustainability-certified product filters as part of their analytics capabilities. This allows procurement to track sustainability goals tied to policy (e.g., percent of spend with certified sustainable products). You can also use Guided Buying to help steer employees to local or diverse suppliers through preferred vendor lists.

Drive smarter decisions with real-time visibility

At the heart of modern inventory-procurement integration is real-time visibility. Data is no longer simply a retrospective “insight layer”—it’s the engine that powers forecasting, sourcing, supplier performance, order timing, and contract design.

Unify inventory and procurement data for real-time visibility

Procurement teams need consolidated data: SKU-level demand, spend, supplier lead times, delivery performance, stock on hand, departmental usage, and approvals. When data is siloed, you lose the ability to respond quickly and pivot effectively.

Yet the majority of supply chain professionals still use spreadsheets or ad hoc tools to track inventory. As a result, 70% of organizations surveyed about their supply chain challenges ranked a lack of visibility as their top issue.

When choosing an inventory management system, make sure it integrates with your procurement software, ERP, and spend analysis tools. Create dashboards that show key metrics like: 

• Spend per SKU

• Supplier lead time and variability

• Forecast vs. actual spend

• Supplier fill-rate

• Number of orders per supplier

• Budget overshoot

Be sure to look for a system with drill-down capabilities. For example, if a SKU shows high usage, you can see which department is ordering it, which supplier it came from, and whether alternative suppliers exist.

Amazon Business tip: Spend Visibility aggregates purchase order data and supplier spend. Its dashboards can display total spend, number of orders, average order size, and spend by product and category.

Track and act on supplier performance

Data only matters if you act on it, meaning procurement must go beyond reporting to execution. For example, if supplier performance metrics decline, inventory risk increases, signaling the need for intervention.

To identify and address supplier performance lags, consider the following steps:

• Add lead time analytics into your standard operating procedure. Consider monthly or quarterly reviews of on-time rates, lead time variance, and fill rates.

• Link under-performing suppliers to action plans for improvement or alternate sourcing.

• Use performance trends to adjust safety stock. Increase the buffer if a supplier shows increasing variance, and if stability returns, reduce it.

• Build supplier-risk heatmaps. For example, identify “high-risk items” that come from poor-performing suppliers and have a high consumption rate.

Amazon Business tip: Through Amazon Business Analytics and Spend Visibility, you can filter spend by supplier, build dashboards to track supplier trends, and spot unusual spend patterns or non-compliant purchases relative to established policies.

Implement and scale data-driven inventory optimization

Inventory management software and other procurement tools can help you create the most informed, effective, and efficient decisions for inventory control. Here’s a practical four-step roadmap for procurement teams:

1. Assess: Map your current inventory performance, including data on stock-outs, carrying costs, safety-stock levels, supplier lead time variance, and SKU segmentation.

2. Pilot: Select a subset of A items or high-impact SKUs and apply one or two inventory management techniques (e.g., renegotiate lead times, implement supplier scorecards, use Amazon Business Analytics).

3. Automate: Check that your procurement system data feeds integrated dashboards (e.g., Amazon Business Spend Visibility, your ERP, your supplier database). Set triggers for order/reorder, supplier performance alerts, and exception management.

4. Scale: Expand from your pilot to a full barcode set, embed governance in procurement contracts, continuously refine supplier base and safety-stock logic, and align with forecasting and SRP goals.

    

By following this roadmap, you transform inventory management from guesswork into a repeatable, data-driven discipline.

Procurement’s role in balancing inventory

When procurement takes ownership of inventory performance, procurement leaders shift from a reactive strategy of stockout recovery and overstock liquidation to a proactive approach that prioritizes forecast-led sourcing and performance-based supplier segmentation. With the right inventory management process and tools, procurement teams can deliver inventory performance that supports cost efficiency, risk mitigation, and supply resilience.

Amazon Business helps procurement teams turn insights into policy-backed action. With integrations into leading procurement systems and access to a certified supplier network, organizations can manage risk, strengthen compliance, and make smarter sourcing decisions at scale.

Talk with our sales team to discover how your organization can make an effective switch to procurement-led inventory management.