Effective inventory management can make all the difference between success and failure. This is especially true for small businesses that have limited resources and operate on a tight budget. Reducing overhead costs, optimizing limited storage space, ensuring customer satisfaction, and building a great brand reputation — all of this is possible with an efficient inventory system. In this article, we’ll dive into essential inventory management tips that every small business owner should know about.
Let’s get started.
Why is Inventory Management Important for Small Businesses?
Inventory management has a lot of benefits for small businesses. Some of them are:
- Saves money:
With proper inventory management, you always know how much stock you have and how much more you need. This helps you make informed decisions on what to do with them (ex. not ordering more of Item C which is not selling well or ordering more of Item B which is getting more popular with customers). This means you lessen the risk of product spoilage, obsolescence, or damage. You don’t lose money on unsold goods or on high storage costs just to hold all your unsold items.
- Increases customer satisfaction:
Loyal and happy customers are the key to a thriving business. When your customers receive their items without waiting and without damage, they are more likely to stay loyal to your business and even potentially refer you to their family and friends.
- Gives competitive advantage:
Small businesses that effectively manage their inventory can quickly adjust their product offerings to respond to market changes or customer demands. This gives them an edge over their competitors.
- Improves brand reputation:
Branding is more than just your logo design or brand name. It’s also composed of your reputation — whether your customers find you reliable, credible, and can meet their standards. Proper inventory management can help build your reputation. You can ensure that your products are readily available for your customers avoiding delays and stockouts. Efficient management also means that your product is maintained at the highest quality possible, so your customers will always be satisfied with the product they’ll receive. A great brand reputation leads to high brand loyalty, which means more customers and sales down the line.
9 Inventory Management Tips for Small Businesses
Here are some tips and techniques to manage inventory as a small business:
1. Get to Know Your Inventory
Knowing and understanding your inventory is a crucial part of inventory management. If you don’t know your own stock, how can you effectively manage it?
Ask yourself the following questions first:
- What is my best-selling item?
- What is my worst-selling item?
- Is there a peak season for a specific item?
- Are there specific times when I experience delays in shipping?
- How much of X do I have in stock?
- How much of X have I sold in the past months?
And so on. By knowing your inventory, you know your business. From there you can make informed decisions on how to manage them going forward. For instance, you’ll know if you’ll need to order 2x more than usual for Item Y, finish up the remaining stock of Item Z, or order a month in advance for Item X since it takes longer to arrive.
2. Forecast the Demand
Now that you have a basic knowledge and understanding of your stock, it’s time to analyze it and do demand forecasting. Demand forecasting is the process of predicting or estimating future demand for a product. It’s done by analyzing previous sales data, reviewing current market trends, checking external factors such as seasons or economic situations, surveying customer preferences, and researching other relevant factors to make predictions about the number of items that will be needed in the future.
Also, it aims to strike that delicate balance between having enough stock to meet customer demand and avoiding excess stocks that might lead to revenue loss or increased storage costs. Demand forecasting can help small businesses prevent lost sales due to stockouts, improve customer satisfaction, optimize inventory management, and reduce overhead costs. It can even help in your marketing campaigns, as it ensures you have enough products during your promotion period when demand is higher.
3. Invest in Inventory Tracking Software
You might think that only large businesses or mega-companies need inventory management software. Maybe you’re thinking, “I’m just a small business, surely I can manage my own stock since there’s not a lot!”. But in reality, you couldn’t be more wrong.
An inventory management software can help you accurately track and manage your inventory. These tools can provide updates on order processing, order fulfillment, stock levels, review past sales history, and many more. Cloud-based solutions are great in particular since you can easily access them anytime, anywhere. All of this can greatly help small businesses as you wouldn’t want to waste limited resources and money. It saves you from having tons of excess stock that you won’t be able to sell or experience delays in supplies that can damage your relationship with your customers.
My consider Megaventory?
Megaventory not only upholds the principles of optimizing inventory management mentioned earlier but also functions as a powerful tool for effectively overseeing your r inventory. Our software boasts a diverse set of features that facilitate streamlined inventory management:
- Inventory Tracking and Management: Megaventory simplifies the process of monitoring and managing stock levels, ensuring meticulous record-keeping and providing real-time updates on inventory.
- Stock Updates: Retailers enjoy instant updates on stock levels, enabling them to provide customers with accurate information and fulfill orders promptly and precisely.
- Efficient Barcode Scanning: Our system is equipped with robust barcode scanning capabilities, enhancing the efficiency and accuracy of inventory management. Businesses can swiftly scan products to update stock levels, conduct inventory counts, and optimize various operational processes.
- Seamless Integration with Other Systems: Megaventory seamlessly integrates with a variety of systems, including point-of-sale (POS) systems, e-commerce platforms, and accounting software. This integration provides a comprehensive view of business operations, facilitating improved data insights and informed decision-making.
4. Manually Check and Regularly Audit
Even if you have great inventory management software in place, you still need to periodically and manually check your inventory. While this may be labor-intensive, it offers a lot of benefits to your small business.
First, it ensures that your data is accurate and matches with what you actually have. You might have made an error in inputting the amount of stock or misplaced it in your software. Doing physical checks can help spot these discrepancies. Second, manual checks can help spot theft or loss that might otherwise go unnoticed. By doing these checks, you can see if there are internal or external issues that you need to address before they affect your business.
The third is for quality control. Physically inspecting your stock to see and assess its condition can help ensure that your products will always meet your standards. You’ll be able to easily see if it’s damaged or expired, and take necessary action. All of this will help in enhancing your credibility and reputation, which is essential for attracting and retaining customers. Manual checks and regular audits are the cornerstone of effective inventory management. It saves you time, money, and headaches in the long run.
5. Consider the FIFO Method
FIFO (First In First Out) is described by Investopedia as an “asset-management and valuation method in which assets produced or acquired first are sold, used, or disposed of first.”To put it simply, FIFO means that you prioritize selling your older inventory over your newer stock. This minimizes the risk of products becoming obsolete or the risk of spoiling before you can sell them. This is particularly helpful for industries that deal with perishable items such as food and cosmetics. While the FIFO method is great, you should still consider your industry because the LIFO (Last In First Out) method might work better for you. LIFO is a better match for industries where prices tend to rise over time or for items that have longer shelf life. Some examples of this are pharmaceuticals or apparel.
6. Implement the ABC Analysis
ABC analysis is the process of categorizing your inventory based on its importance. This means that “A” items are the most important and “C” are the least important. This analysis assumes that some of your stock is more valuable than others. This way you can spend more time tracking and monitoring your valuable stock while reducing your time spent on the “weak” stock. This also makes it easier to see which items should be prioritized when it comes to reordering and which items should always have a high or low stock level.
7. Create SOPs
By now you should have a good idea of what kind of methods and processes work for your small business. The next thing you should do is to create a Standard Operating Procedure or SOP. The SOP will serve as a guide for how you deal with different situations in your business. For example, storing your items. Outline how your items should be stored, organized, and labeled in your stockroom. List down special requirements such as temperature. Make sure to also list down what should be done when an issue arises. This could be how to deal with missing stock or with expired items. Having an SOP in place can help streamline your process and make your inventory management more efficient.
8. Make Sure your Stock Room is Organized
A disorganized and messy stockroom is a recipe for disaster. Items can be easily misplaced or damaged due to improper storage. It’ll also take longer to find and count your items. To make your stock room more organized, consider using vertical space and investing in proper storage bins. Label all your items. Keep your stock room clean and well-lit, and at the proper temperature. Make sure to always put your best-sellers in clear sight for easy access.
9. Consider Dropshipping
If you don’t want to deal with storing your items, you might want to consider drop shipping. Dropshipping doesn’t require a physical warehouse or stockroom as items are sent directly from the manufacturer to the customer. This option is great for small businesses that don’t have the budget for it. Dropshipping deals with inventory, warehousing, or order fulfillment processes for you. With that, small business owners can focus on their product selection, marketing, and customer service instead.
Effective inventory management is the backbone of small business success. By following the tips above, you can minimize costs, optimize your processes, and ensure customer satisfaction. Remember, the goal is not just to manage inventory but to master it, creating a solid foundation for your business to thrive and grow.
Pamela is an Outreach Specialist at BrandCrowd – an online creative marketplace that offers logo design services.