First off .... keep in mind that there is no one single technique which is 'best' for managing inventory. It depends on the operational environment.
Here are some Best Principles regarding managing inventory which apply across all operational and financial environments:
1. Have only what you need.
2. Ensure that it is in Fit-For-Use condition at all times.
3. Know where it it at all times.
4. Maintain Critical Characteristics within accepted tolerance.
5. Be able to access it when needed.
Not to scare you but Inventory Managementthis question encompasses an entire field of study. It all depends on your business. Large product requires different techniques than small product. Cheap products require different techniques than expensive products. Heavy produc t...... and so on.
The size of your operation is also a factor. Managing inventory is a 1,000 square foot retail back room can use a very light weight technique while a 100,000 sf or more operation usually requires a warehouse management system and some sort of automated pick controls.
I would start with ensuring that your inventory accuracy is at least 95% and preferably above 99% - in fact, the higher the better. You should have a process that keeps it there - it's no good starting the year with a 100% accurate picture of your stock and then allowing it to fall into chaos.
If you don't have accuracy, then pretty much anything else you try to do will falter.
I recommend the following book on the subject:
"Inventory Record Accuracy" by Roger B. Brooks and Larry W. Wilson.
Publisher: John Wiley & Sons, Inc, 605 Third Avenue, New York
ISBN: 0-471-13224-1
Although accuracy is the primary driver, depending on what you have and how you choose to measure accuracy, it's not necessary to strive for perfect inventory if you have extremely low cost product and high pick costs. Focus on the business first and put in place a system that balances inventory costs, labor, and capital costs.
For more ides I suggest reading the article Top 10 Ways To Make Managing Inventory Easier