How to Manage Perishable Inventory: 8 Strategies, Challenges, & Top Tools

Key Takeaways

Taming the Inventory Beast: Inventory management can be difficult, but managing perishable inventory is significantly more challenging, akin to taming a three-headed Cerberus, due to factors like spoilage and strict storage requirements.

Spoilage is a Perishable's Arch Nemesis: Perishable inventory management is complicated by the constant threat of spoilage, making it imperative to have efficient tracking and storage methods to minimize waste and loss.

Keep It Cool to Keep It Fresh: Proper storage conditions, especially temperature control, are critical in perishable inventory management to extend shelf life and maintain product quality.

Accurate Forecasting Saves the Day: Demand forecasting is essential in reducing overstock and stockouts in perishable inventory, ensuring products are available when needed but minimizing excess that could lead to waste.

Tech to the Rescue: Leveraging technology such as inventory management software can significantly ease the process of managing perishable goods, improving accuracy, and efficiency while reducing human error.

If inventory management is a beast, then perishable inventory management is the three-headed Cerberus. 

And this is especially true for ecommerce businesses that sell and ship goods online.

But it’s not all scary, though. 

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I did some on-the-ground reporting in my residential area in New Delhi to find out what exactly shop owners do when they have a store full of products with a limited shelf life. 

I’ve also talked with ecommerce business owners around the world who sell perishable goods—from Vietnam to Canada to Melbourne. 

How do they keep their customers happy? How does this affect their bottom line? Do they have good supplier relationships? 

This is your comprehensive guide to perishable inventory management. We’ll cover the basics of perishable stock, talk about its unique challenges, and explore eight actionable strategies for effective inventory control. 

Let’s minimize inventory waste and reduce carrying costs for your business. 

What is Perishable Inventory?

The term perishable inventory or perishable stock refers to items that expire or lose value over time. In addition to temperature, humidity, and exposure to light, perishable inventory is sensitive to time.

The aging process renders them obsolete, as each tick of the clock diminishes their worth. 

This happens in four primary ways, in varying degrees:

1. Gradual depreciation: This is when product quality slowly declines. For example, limited-edition collectibles can lose value quickly after their initial release, or winter clothing that becomes less sought-after as the weather warms.
2. Step-wise obsolescence: This is when the value of a product diminishes abruptly in stages. Consider your once-prized iPhone, which has slipped painfully from “Oh-my-god-I-need-this” to “Well, it still makes calls.”
3. High-degree time-sensitivity: Food and medications, for example, are highly time-sensitive because of their rapid value declines. They require strict management because of their short shelf lives and potential for health hazards.
4. Instant expiration: The value of a product disappears right away. Once the plane departs, for instance, the airline ticket becomes worthless.

Perishable inventory vs perishable stock

While perishable inventory and perishable stock are often used interchangeably, they're more fraternal than identical twins. 

The term perishable stock usually refers to things you can physically store, like yogurt or flowers. They're tangible goods with a limited shelf life. 

The term perishable inventory, however, encompasses more than just physical goods to include intangible assets and services. 

For example, golf rounds or hotel rooms are undoubtedly perishable—once a tee time or check-out date has passed, their value has evaporated—but they can’t be stored in a warehouse. 

What Industries Have Perishable Inventory?

There are several industries that deal with perishable inventory, including:

Industry	Perishable inventory examples
Food and beverage	Fresh produce, dairy products, meat, seafood, bakery items, and beverages follow strict timelines from farm to fork and bottle. All food has a limited shelf life, even the processed or ready-to-eat kind.
Floristry	The beauty of fresh bouquets is fleeting, meaning their supply chain needs to be optimized end-to-end.
Pharmaceuticals	Many, if not all, medications expire or need specific storage conditions. A few examples include vaccines, insulin, and certain antibiotics.
Technology	Advancements lead to obsolescence, making older models less desirable.
Entertainment	These include event tickets (e.g., theater, concerts, sporting events) and even unsold commercial or advertising space in newspapers.
Travel and hospitality	The industry relies on timely room and transportation bookings: hotel rooms and other accommodations; train, flight, and other tickets.
Media	Races against the clock to deliver fresh content. These include newspapers, periodicals, etc.

Challenges in Managing Perishable Inventory

Managing perishable inventory as an ecommerce business is a unique challenge. 

For example, selling a fresh loaf of bread online is a world away from selling it in a bakery. Your customers can't squeeze it to check for freshness or smell its crust. 

Moreover, supply chain disruptions can lead to late, stale product delivery.

According to NRDC 2012 and ReFED 2018, about 40% of food in the U.S. is thrown directly into landfills every year, resulting in an economic loss of $218 billion. 40% of the food waste produced in the US comes from supermarkets and catering services. 

Why does this happen? 

Let’s cover the primary challenges in perishable inventory management:

• Short shelf life. A short shelf life demands rapid and streamlined management of storage, handling, and distribution, to minimize waste and maximize product freshness. 
• Maintaining high-quality products. To avoid crushing, bruising, and other damages, perishable items—especially raw materials—need to be handled carefully.
• Volatility in demand. Perishable goods are notoriously fickle, affected by consumer tastes, seasonal trends, and unforeseen events. Forecasting this volatility accurately is a complex task, which often leads to either excess inventory or shortages. Plus, excess, unsold inventory can result in spoilage and wastage. 
• Inventory tracking. Traceability of perishable goods throughout the supply chain is crucial to maintaining high-quality product control. Keeping track of these products becomes extremely difficult without a real-time inventory management system.
• Adhering to regulatory compliance. There’s a strict regulatory framework in place for perishable goods. The pharmaceutical and food industries, for example, have comprehensive rules governing every aspect of their operations.  A slip-up can result in hefty fines, product recalls, and irreparable damage to a brand's reputation. 

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8 Best Practices for Managing Perishable Inventory

As traceability and transparency improve, consumers expect their products to be delivered quickly. This means on-time replenishments, keeping in-demand SKUs readily available, and optimizing supply chain operations.

Here we have eight killer strategies for perishable inventory management. 

1. Use the first In, first out (FIFO) and the first expired, first out (FEFO) methods

The FIFO—“first in, first out”—method of inventory valuation promotes the sale of the oldest products first. Basically, the earliest acquired items are sent out first to customers.

Of the 15 ecommerce business owners I surveyed, nine recommended FIFO as their primary perishable inventory management strategy to optimize stock levels. 

That’s 60% of the sample. (However small.)

On the other hand, FEFO—“first expired, first out”—prioritizes the sale of old products to avoid spoilage. 

Businesses use the cost of goods sold (COGS) to determine the remaining inventory value, regardless of price fluctuations. 

The FIFO method benefits from inflation by valuing ending inventory higher. Newer, more expensive items are left in stock after older, cheaper products are sold. 

Both methods are common practices in food inventory management, and help minimize wastage by improving inventory tracking.

The result? A boost in profitability and fewer write-offs for your business. 

2.  Adopt dynamic pricing

Dynamic pricing is a strategy in which product prices fluctuate based on factors such as demand, supply, competition, and time. 

By adjusting prices quickly, businesses—both big and small—can maximize their revenue.

Managing Director of Innovate, David Bunn, explains:

By adjusting prices based on the shelf life of perishable items, we can incentivize quicker sales for products nearing their expiration dates.

For instance, we managed to reduce waste by 30% and increase sales by 15% using this method over six months.

This approach minimizes losses and maintains customer satisfaction by offering attractive discounts.

Offering time-sensitive discounts on products approaching their expiration dates can not only improve a business's bottom line, but enhance customer satisfaction as well.

3. Build strong supplier relationships

James Wilkinson is the CEO and co-founder of Balance One Supplements—a global ecommerce store based in Delaware, specializing in the sale of premium dietary supplements. 

He said that strong supplier relationships have allowed for “flexible ordering with extended lead times for perishable products.” 

In combination with the FIFO method, they’ve managed to keep “perishable inventory waste below 25% each year.”

Wilkinson's insights emphasize the importance of collaboration between businesses and suppliers when it comes to handling perishable stock. 

Trust, open communication, and mutual benefit will help businesses optimize their supply chains, reduce waste, and ultimately increase profitability.

Author’s Note

GOING GREEN: By 2030, the EU aims to reduce greenhouse gas emissions by 55%. When it comes to shopping, most Gen Z consumers (75%) prioritize sustainability over brand loyalty.

 

If you ignore these trends, you risk losing customers and talent. Plus, you might face regulatory penalties, dissatisfied investors, and reputational damage.

 

The optimization of perishable inventory, therefore, keeps pace with customer demand, reduces waste, cuts costs, and appeals to eco-conscious consumers—all the while avoiding regulatory risks.

4. Create smart marketing strategies 

You can turn your perishable inventory from a ticking time bomb into a cash cow.

How? 

Well, there’s the usual advice to offer discounted items or seasonal sales. 

And then there’s opaque selling. 

In an opaque selling scheme, a product's brand or exact specification is hidden from customers at the time of sale. Businesses often implement opaque schemes without calling them that. 

For example, a brown bag containing an assortment of food items (such as bagels and donuts) is frequently sold at a discount price at supermarkets. 

Here are three other real-life examples of opaque selling:

• The Apple Japan Lucky Bag contains current-sale merchandise in sealed bags at a discount.
• The "Express Deal" on Priceline offers both anonymous and fully specified hotels. 
• The app "Too Good To Go" also reduces food waste by selling unspecified food (e.g., bakeries, cakes, etc.).

Now, we can’t all go to Shark Tank to clear out our inventories, but the lesson here is that strategic thinking and creative marketing can turn perishable inventory into a profitable asset. 

5. Use demand planning and forecasting

The purpose of demand forecasting is to predict customer demand: what products they’re likely to purchase, in what quantity, and how often. 

The process combines technology, industry research, and sales analytics.

Now, if you’re a larger business with thousands of SKUs, you’ll need greater control over your inventory levels to make sure your demand planning is informed by real-time, up-to-the-second data. 

This leads us to…

6. Make use of technology and automation

You'll need different technology and investments depending on the perishable items. For example, fresh produce has different technology needs than pharmaceuticals.

Key technologies for perishable inventory:

• Barcode and RFID technology: Lets you track products in real time once they enter the supply chain.
• Temperature and humidity sensors: The best way to monitor the condition of perishable items, especially when they are being stored or transported.
• Predictive analytics: Predicts demand, prevents stockouts, and minimizes waste using current and historical data.
• IoT (Internet of Things) devices: Creates virtual networks, allowing data to be collected and analyzed in real time.

There's an upfront cost associated with these technologies, but the long-term benefits in terms of waste reduction, efficiency improvements, and increased customer satisfaction often outweigh it.

The key to optimizing operations and gaining a competitive edge in the perishable goods business is combining advanced technologies with effective inventory management systems.

Can’t decide on an inventory tracking system for your ecommerce business? We’ve got you covered.

Check out our list of the top 10 best inventory management software:

1. 1. WhereFour — Best for demand-driven inventory forecasting
2. 2. Cin7 Core — Best for manufacturers and product sellers
3. 3. MRPeasy — Best for manufacturers
4. 4. SkuVault — Best for its detailed restocking recommendations
5. 5. Settle — Best for CPG businesses
6. 6. Linnworks — Best for multichannel management automation
7. 7. Softengine — Best for handheld device operations
8. 8. KORONA POS — Best for multi-location inventory management
9. 9. Helcim — Best for small business inventory + POS in one
10. 10. Sage X3 — Best enterprise resource tracking (ERP) package

7. Calculate your safety stock and accurate reorder points

You need to set appropriate safety stock and reorder points to manage perishable inventory effectively. 

In addition to preventing stockouts, these metrics help you avoid excess inventory. And therefore, reduce waste. 

Understanding safety stock

The purpose of safety stock is to protect against fluctuations in demand and supply. Your safety stock is affected by things like:

• Demand variability: How much does customer demand fluctuate?
• Lead time variability: Are delivery times inconsistent?
• Stockout costs: How much does it cost to run out of stock?

Calculating reorder points

The reorder point formula is:

For this, the following variables must be calculated:

• Average daily sales: Divide your total monthly sales by 30.
• Safety margin: Determine how many days of safety stock you need.
• Reorder point: Use the formula above to calculate.

Example: If you sell 10 units on average per day, have a lead time of 5 days, and you want a safety stock of 2 days, then your reorder point is:

There are manual ways to manage inventory, yes—but automated systems are much more accurate and efficient for improving cash flow for your ecommerce business.  

8. Conduct regular inventory auditing

“One effective strategy for managing perishable inventory is to conduct regular inventory audits,” says Ashwin Ramesh, CEO of Synup. 

But why is inventory auditing necessary for perishable stock?

It's crucial to regularly audit your inventory to match physical stock with financial records. These audits help identify losses due to spoilage, damage, decay, or theft.

A regular inventory audit contributes to improved inventory accuracy, enhanced financial reporting, loss prevention, and optimized stock levels. 

Final Thoughts

Take a look at your current inventory system. Are there any strategies we've discussed that could have the biggest impact on your business? 

Make a new strategy a priority this quarter, such as investing in creative marketing or adopting dynamic pricing. 

You can gradually transform your perishable inventory management by focusing on one area at a time. 

Keep in mind that inventory management software can provide real-time, actionable insights so you can reduce waste, cut costs, and optimize stock levels. 

Every product you save from the waste bin is a win for your bottom line—and the environment.

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Perishable Inventory FAQs

Have more questions about perishable inventory? We’ve got the answers!

What are examples of perishable inventory?

You’d think that only fresh produce and food items perish—but in truth, perishable inventory is any product that is vulnerable to temperature, humidity, exposure to light, and most importantly—time. 

Some examples include: pharmaceuticals, hotel accommodations, flight tickets, event tickets, newspapers and periodicals, flowers, and dated technology. 

How can technology improve the management of perishable inventory?

By offering real-time visibility, predictive insights, and automation, technology transforms inventory management for perishable items. 

In addition to improving efficiency and customer satisfaction, IoT sensors, predictive analytics, and inventory management software can significantly reduce waste and improve efficiency for ecommerce businesses.