Inventory management software  is one of the core assets of any retailer. Merchants must purchase the right quantity of products and offload them in a way that maximizes value and generates a return on investment. There are numerous ways for this to go wrong, from purchasing too much inventory to having to liquidate slow-moving goods at a loss.

There are numerous ways for retailers to approach inventory management, depending on the goals of the retailer in question and the resources they have available to take measured risks. A recent infographic produced by TradeGeko illustrated some of these options and the pros and cons of each inventory management approach:

1. Order inventory in bulk

Ideally, if merchants had infinite money and space, they would simply order product in bulk. This would get them the biggest discount in terms of purchasing inventory in the first place and if space wasn’t an issue, there would be little downside ordering a broad array of SKUs in bulk. This strategy would result in the highest potential profit, as retailers could achieve a bigger discount ordering inventory and wouldn’t feel time pressures trying to off products to make room for new SKUs.

Obviously, merchants don’t have infinite space and money, but this solution is still valid if retailers have the space and the money to order everything in bulk. Where this becomes an issue is excess stock, which is essentially frozen capital. Merchants will come to a point where they have to get rid of product to free up that capital while also creating room for new stock.

2. Just-in-time inventory management

With this strategy, merchants order product just before they need it. The goal with this approach is to minimize frozen stock that sits in warehouses and loses value over time. In essence, the retailer acts as a middle man between customers and the product manufacturer. Just-in-time inventory management is an effective way to reduce product on hand while maximizing profitability.

At the same time, just-in-time inventory management relies heavily on merchants’ ability to read demand and reliably move product across all parties. Simple disruptions, such as a sudden surge in demand from customers or problems with the product manufacturer, can be major obstacles for retailers relying heavily on just-in-time strategies.

3. Drop shipping

Drop shipping is the least risky of all the different inventory management tactics, simply because it has very little downside. Retailers aren’t on the hook for anything – all inventory is stored with a third-party and they don’t have to buy anything, they simply transfer customer orders to drop shippers and that’s it. Of course, the drawback of drop shipping is that merchants don’t make much from it either.

Retailers have a lot of options for inventory management, depending on how much risk they want to assume and how much money they have to spend. Regardless of which approach they use, effective inventory management software is also incredibly important to the success of retailers.