Inventory is the lifeblood of your business. That's no secret. The big question, is how well do you manage it?
For many small businesses, inventory management is something left to those rare moments when you're not doing something else. Taking control of your inventory management will unleash your growth and profitability potential.
If you sell any type of product, you already have an inventory management system. It might be a notebook, lost in a pile on your desk. It could be a spreadsheet that you update when you have time. Alternatively, you may be using an online tool or software package, but not getting the most out of it. This post will help you understand how to manage inventory in a way that will move your company to the next level.
Why You Should Upgrade Inventory Management for Your Small Business
For most small businesses, having too much inventory is as big of a problem as not having enough stock on hand. With effective inventory management, it's easier to get it just right. Your customers won't be disappointed by stockouts, and your business won't have as much cash flow sitting on the shelves.
Inventory management tools will help identify your top sellers and your slow sellers. You can target those products that produce the best return on investment and get rid of excess stock that's spoiling the bottom line.
Learning how to keep track of inventory will help you make smarter decisions about how and when to invest in stock. Take volume discounts, for example. Sure, it seems like a good deal to save 15 percent on a large order. However, if that item is a slow seller for you, that good deal will turn into a money loser. You don't want to get stuck with seasonal items and have to sell at a steep discount after the event just to clear your storeroom.
On the other hand, you don't want to disappoint your customers if they're in your store ready to buy. You can lose the sale to a competitor or simply to the customer losing interest.
For small business owners like you, the time to learn how to keep track of inventory is before there's a major problem. With a better small business inventory management system, you can drive revenues, save time, and delight your customers.
How to Start Inventory Management for Small Businesses
The first step in starting inventory management is to understand your current situation and establish your goals. In other words, what problems are you trying to solve?
- Is your business growing so much that's it's not possible to keep up with inventory manually?
- Do you often run out of popular items?
- Is your warehouse so stuffed with unsold products that there's nowhere to store the products that do sell well?
- Does inventory management take up too much of your time?
- Are you experiencing a high rate of shrinkage?
- Do you want to be better able to forecast demand and revenue?
For most businesses, the answer to all of the above is a resounding "Yes!"
An effective inventory management strategy consists of four basic elements: the right amount of product, in the right place, at the right time and at the right price.
- Right product: Conduct an inventory audit and organize your stockroom or warehouse. You have to know what stock you actually have and compare that to what you think you have. If you have multiple sites, manage them from one system, so it's like you have one big warehouse rather than several smaller sites.
- Right place: Have a system for placing things in your warehouse so you know exactly where everything is to reduce time spent searching the shelves. Assign shelf and bin locations in the system so everyone knows where to find what you need.
- Right time: Use inventory alerts to re-order when stocks reach a predetermined level. Determine what the right level is for each product based on sales data. You can estimate restocking needs based on competitor data, seasonality and external forces like rainy weather forecasts for umbrella sales.
- Right price: Sales data will help guide you in identifying products that should be discounted or sold as surplus. You can set prices that improve your margins without negatively impacting sales.
To achieve these four basic elements, it requires the right processes and the right tools:
- Right processes: Establish consistent procedures for your supply chain from receiving inventory through shelving, retrieval and fulfillment. Include early verification steps like checking stock receipts against purchase orders to ensure the inventory data is accurate from the beginning.
- Right tools: Use a cloud-based inventory management solution that integrates with your accounting, payment and other systems. Pick one that can scale as your business grows, and offers the support you need to be successful.
Common Small Business Inventory Management Mistakes
When a business grows quickly, it's hard to keep pace with the changes. Here's a review of some of the common challenges facing small business inventory management.
Using the Wrong Tools
For all but the smallest business, spreadsheets are not an effective management tool. Manually updating and manipulating the data takes too much time. By refusing to use more sophisticated tools, you could be holding your business back.
Not Checking Inventory Regularly
The old days of shutting down a store once a month for inventory are gone, hopefully. However, still, it's vital to ensure that physical inventory matches whatever tracking system you're using. These days most business count products in smaller sections of a store or warehouse on weekly or monthly intervals to ensure the count is accurate. Technology solutions such as RFID can track inventory 24/7 so you don't have to stop work to take a physical count.
A loss of inventory without revenue can be devastating for a small business. The top causes for loss are shoplifting and internal theft. However, shrinkage also occurs through paperwork errors and other internal problems. If you track inventory manually, it can be difficult to understand when and where in the process it's happening. With accurate receiving of orders and POS system integration, it's easier to see where discrepancies may be occurring.
Mismanaging Stock Levels
Too much or too little stock on hand will reduce profitability over the long term. You can also avoid disappointing customers with stockouts and back orders. Use software that helps forecast demand and re-order accordingly.
Not Adjusting Prices
Without data from an integrated inventory management system, it can be challenging to identify fast and slow sellers. You may need to adjust pricing to boost or clear out slow-selling products. You can also offer price-matching services with verified pricing data from competitors.
Not Establishing KPIs
Key Performance Indicators focus your organization on what's important. Robust inventory management systems will help you track operational aspects such as:
- Receiving efficiency
- Picking accuracy
- Carrying cost of inventory
- Inventory turnover
- Rate of return
Your team must understand what's most important for your inventory management strategy and have the ability to track it to be able to measure success.
Small Business Inventory Management Basics
Regardless of which inventory management tools you use, here are some basic tips to help you get started.
1. Use the first in, first out (FIFO) system.
Sell product in the same order they were made or purchased. That means older products are used or sold first, whether in a store or warehouse. It's especially crucial for perishable items of course. Packaged products that linger on the shelves are more likely to be damaged.
2. Identify slow-selling stock.
Look for stock that hasn't sold in the last six to 12 months. Consider using promotions to move it to free up space for better-selling items.
3. Take physical inventory.
Take physical inventory regularly, whether you do it all at once or use a cycle-count strategy to focus on different segments at different times. This step is one where the right tools can make a big difference.
4. Prioritize inventory with ABCs.
Group your inventory by A-B-C categories based on pricing level and annual value. Items in the A category are typically higher cost and have lower sales volume but higher value than B items and C items.
5. Select tools.
Leave paper and spreadsheets behind and select an inventory management tool that fits your business processes. There are free and low-cost cloud-based options that small businesses can connect with their point of sale and accounting systems. There may be a learning curve, but the time invested will pay off.
6. Work with a small business inventory solutions provider.
If your business is growing, it may be time to act like one of the big guys. Outsource some or all of your inventory and logistics management with a provider that understands small business. With the right partner, your inventory management can transform from a cost center into a competitive advantage.
7 Tools for Small Business Inventory Management
If you sell 30 products or fewer, your business can probably survive using manual inventory methods like spreadsheets or handwritten ledgers, according to small business inventory management experts. As a company scales up with additional volume and sales channels, digital tools become a necessity.
Here's a look at seven inventory management systems for your small business:
1. ABC Inventory
ABC Inventory is a free tool for a single user that allows you to manage multiple warehouses, serial numbers, warranties, and other inventory-based data. With the free version, there's no limit on the number of records in the database or the number of workstations on which it can be installed. It may be the right fit for small companies that don't need sophisticated tools. The free version does not include any phone or email support.
TradeGecko manages sales and stock keeping, automates shipping and generates management reports. It integrates with common e-commerce platforms such as Shopify, Magento, and Amazon. You can manage customer data from a single system and control stock across SKUs, warehouses, currencies, taxes, and price lists. It's also compatible with other tools such as Quickbooks, Salesforce and many accounting systems. Monthly plans are available and you can test it during a 14-day free trial.
Cin7 is geared to online sellers who want to integrate with other platforms beyond their own website. It recently added integration with the Walmart Marketplace. It also connects with more than 120 solutions for e-commerce via the App store for online marketplaces, shipping, sales and marketing tools and payments. It provides real-time sales and inventory tracking and integrates with point of sale systems. It also supports customer-facing marketing such as promotions and gift cards. From a pricing standpoint, Cin7 is geared toward larger businesses, but it can also do the work of several tools so you may spend less overall.
4. NCR Counterpoint
NCR Counterpoint is a cloud-based point of sale and inventory solution for retail, wholesale, and e-commerce sellers. It automates purchase orders and payment processing, while also creating detailed merchandise records. This enables inventory management between locations. Sellers can set prices and rules for items, and generate product bundles while tracking variances with physical inventory.
Stockpile is a free online inventory system for small businesses, handling inventory intake, tracking returns and recording sales and damaged goods. The reporting module collects intelligence on inventory turnover. The system supports unlimited users, items and locations without additional fees. As a free solution, telephone support is limited to business hours.
Veeqo is a cloud-based, multi-channel inventory management app that manages orders and shipping, and syncs inventory across multiple sales channels in real-time. With the system, users have an up-to-date picture of inventory without shutting down to count everything. Pricing is based on the number of users and the company's revenue base.
7. Wasp Inventory Control
Wasp Inventory Control is designed for businesses with 5 to 99 employees, with a range of options from inventory software to a complete barcode system. Users can eliminate manual inventory management and streamline inventory audits and cycle counts. Real-time reports enable analysis like transactions by warehouse, itemized inventory levels and individual customer purchase history. Automatic notifications send alerts to avoid stockouts. Items can be re-ordered down to the bin location using preferred vendors.
Warehouse Anywhere Small Business Inventory Management Solutions
For small businesses that require multi-location storage options, merely adopting a new software tool won't solve all your problems. Perhaps your company is aggressively growing to support e-commerce, or you're moving products closer to their end users to reduce shipping times. Maybe you support a field service organization or have other needs for forward-deployed inventory for repair parts or consumables.
If you're moving inventory around the country, you need to minimize loss and maximize efficiency. Unlike other supply chain networks, Warehouse Anywhere offers proprietary software that keeps tabs on every item, every time, with accuracy that can't be achieved manually.
Warehouse Anywhere offers five levels of service to support your business needs now. As your business grows, the solutions scale with you to provide the services you need without paying for those you don't.
The most popular option is the Pro level, a complete solution that includes storage and inventory tracking. Pricing is scaled on a per-location basis so it will always be an exact fit for your warehouse requirements. If you need to scale up for seasonal surges or product launches, add space when you need it and shrink when the rush is over.
The Pro level includes our robust technology package, including a web-based inventory application, a mobile app, an intelligent lock for your storage space, and last-mile delivery. Warehouse Anywhere employs advanced RFID technology and proprietary continuous scanning software to automate inventory tracking. The system fully integrates with internal inventory and ERP systems.
With this package, your inventory and chain of custody are instantly accessible and tracked continuously via our cloud-connected electronics and software.
Ready to learn more about how to take control of your small business inventory and position your company for success? Let's get in touch!