Inventory space is limited. The official Steam page says each bullet, medicine and upgrade has to be collected, so space is part of every pickup decision.
Inventory upgrade pouches
The sources document nine inventory upgrade pouches. Two of them have text locations.
Pouch 1. After you reach the motel, go upstairs and jump to the shed roof outside room 5. Move left, then drop down to collect it. The sources rate this location as confirmed.
Pouch 2. After you get a gun, return to the arcade outside the motel. Shoot the padlock and the grille, climb up, and look among the beer crates. The sources rate this location as confirmed.
Pouches 3 to 9 are shown as pictures in the source material, and the text does not give their positions. Check them in game, or use a guide that describes each position in words.
Storage
Storage containers are spread around town, and they are linked to one another, a layout one reviewer compares to Resident Evil. You can store items in one area and take them out in another, so a container can be your base for a route.
Space-saving choices
The sources name two ways to free space: inventory pouches, and the Compact Weapon Kit, which shortens the stock and barrel of a woodstock shotgun or rifle. See the weapons page for the rest of the weapon list.
Items that combine
When two items can be combined, the item highlights in blue in your inventory. Watch for blue highlights when you assemble items, since they show which pairs can be combined.
Supplies and vending machines
One player report says a vending machine sells ammunition, shotgun shells and tape. That report is low in support, so confirm the stock in game before you plan around it.
The cost of a full pack
The sources warn that a full pack can make you walk back through a dangerous street to store or swap an item. They also note that a vending machine purchase can use money you meant to keep. Plan your pickups around the next safe storage container.