Inventory is about keeping track of items, components, and raw materials a company uses for production or sales. Inventory management helps small businesses find the right balance between costs and customer demands. When businesses manage their inventory well, they can track, order, and reorder materials at the right time. This keeps things running smoothly.
But many businesses lose profits because they use the wrong tools. That’s where tools like Qpe come in. With Qpe, you can easily manage inventory, grow, and scale your business.
By choosing the right tools and approach, you can speed up your growth and focus more on building your business.
Follow this guide to avoid worrying about inventory and focus more on growth.
What is Inventory Management?
Inventory management is the process of ordering, storing, using, and selling a company’s inventory. Efficient management of the inventory will help small businesses avoid issues of stockout, inability to meet customer demands, and also affect the business operations.
The basic steps for almost all the small companies are as follows:
- Maintain a stock of current inventory levels.
- Systematically organize your inventory at hand and also use either the FIFO (First In First out) or LIFO (Last In First Out) method to sell your inventory.
- Keep a bill of materials (BOM) that includes instructions for each item in your inventory.
- Develop standard operating procedures (SOPs) for your inventory management plan. Ensure that all involved employees are trained on the plan.
- Monitoring and tracking inventory levels.
- Restock when required. Regularly review and adjust when to reorder based on consumption rates and lead times to maintain optimal inventory levels.
How is Small Business Inventory Management Different?
Small businesses run differently compared to big corporations. They have fewer products and simpler operations. This means they focus on being flexible and quick to adjust. They don’t use expensive, complicated systems. Instead, they rely on tools like spreadsheets or affordable e-commerce software.
Why? Budget constraints. They keep their stock levels low to reduce costs and keep cash flowing. They also tend to have closer relationships with their suppliers. This helps them negotiate faster and get deliveries quicker when needed.
Manual processes, like counting stock, are still common. These processes give them more control and allow them to stay adaptable. The main difference? Small businesses focus on simple and efficient inventory practices that help them balance costs, demand, and resources to keep things running smoothly. They don’t need the huge systems big corporations rely on.
What Are The Different Types Of Inventory Management?
Good inventory management translates to businesses always having the right products in stock. It helps them avoid spending too much. Plus, it keeps customers happy. There are a few key methods to know:
Barcode Tracking
Barcode inventory management systems are used to allocate a unique number to each product sold by a business. This barcode number includes elements like the name of the supplier, product dimensions, weight, delivery timelines, etc.
JIT
Just-in-time (JIT) inventory management reduces waste by keeping only the inventory needed to produce and sell products. As the name suggests, only that much amount of inventory is stocked that will be sold.
JIT leads to negligible storage and insurance costs while eliminating surplus inventory. It is profitable and suitable for only those businesses whose demand forecasting is almost accurate. Also, a high volume of orders can be catered to through this type of inventory management system. This type of inventory system can be a risk for those businesses where demand unexpectedly increases and stock cannot be quickly sourced.
ABC Analysis
ABC analysis is also called “always better control” inventory management. This type of inventory management divides various items into three categories based on pricing and is separated into groups A, B, or C, ranked by demand, cost, and risk data. This type of system allows businesses to prioritize their customers and accordingly manage their inventory.
Prioritizing the orders will also lead increase in profitability. Based on sales volume or profitability, the stock-keeping units (SKUs) judged most important are “Class A” items. Class B is the next most important, and the least significant is Class C.
Dropshipping
E-Commerce Reselling or Dropshipping is when you set up an E-Commerce store, partner with a supplier, and resell the products. In this arrangement, you do not hold the inventory but just act as a medium to sell products. Pick a domain, upload products, customize themes, and start selling online in minutes. Check out the power of E-Commerce reselling.
Cross-Docking
Cross-docking involves products transferred from inbound vehicles to outbound vehicles almost immediately with little to no storage time in between. This strategy helps to reduce inventory handling costs, shorten lead times, and improve overall efficiency in the supply chain. Ideal for businesses where there is a high demand for products that are already pre-packaged and labeled for delivery, such as retail, grocery, and distribution centers for fast-moving consumer goods.
E-commerce businesses and retailers use this type of inventory the most.
Periodic Inventory System
A periodic inventory system requires physical counts of inventory at regular intervals. This system is suitable for smaller businesses with lower sales volumes or companies with limited products.
This method typically involves taking a physical inventory count at the end of each accounting period and then adjusting the inventory balance in the accounting system. Not an ideal way in today’s dynamic world, however, extremely smaller businesses with lower SKUs’ can use it.
Basis the type of business, you are in, choose the most suitable inventory management system for your business.
Small Business Inventory Management Methods
Let’s break down small business inventory management methods in a way that’s easy to follow.
First off, a business needs to balance meeting customer demand without tying up too much money in inventory. How do they do that? By picking an inventory management system that fits their needs best.
Here are some key points to manage inventory effectively:
- Track Sales: Know how much inventory sells and how often you restock. Make sure cash flow is solid enough to support inventory purchases.
- Review Regularly: Keep an eye on inventory and make accurate demand forecasts. Historical data is helpful, but don’t stop there. Look at market trends, consumer behavior, and outside factors like the economy or competition.
- Adopt Lean Practices: Lean methods like Just-In-Time (JIT) help cut waste. Less excess inventory means better use of storage and smoother operations.
- Supplier Relationships: Strong supplier connections ensure that inventory shows up when you need it. This reduces the need for overstock and cuts holding costs. Keep communication open with suppliers to solve problems quickly.
- Use Inventory Software: Invest in software to track stock levels, handle orders, and run reports. Automation here can help reduce mistakes and keep things running smoothly, like setting reorder points.
These steps make it easy to manage inventory, cut costs, and meet demand without any headaches.
Small Business Inventory Management Software
Small businesses need the right inventory management software to beat the growing competition. The right software keeps everything running smoothly and helps you make better financial decisions. It can also show you where to save or improve. But outdated systems? They’ll only slow you down. Technology moves forward, and your tools should too if you want to grow.
We recommend QPe. Its inventory management systems have transformed businesses across the country. Check out what one of QPe’s customers says about it.
If you’re a small business worried about costs, QPe offers an affordable yet powerful e-commerce platform that gets the job done.
How to Keep Track of Inventory – 10 Tips
Inventory management is most effective when you follow these 10 tips.
- Use an updated inventory management system that is technically strong and follows the latest trends in technology. Use the one that includes all types of integrations possible that ensures a hassle-free experience for both customers and staff, leading to increased satisfaction and faster transactions.
- Monitor trends while maximizing margins, and ensuring that your top-selling products are always stocked, leading you to make decisions backed by data that drives profitability.
- Customize your inventory management system so that your customers’ demands are met where they are and provide convenience that keeps them coming back, increasing customer loyalty and satisfaction.
- No matter your specialty, it’s important to ensure that all your products look great and are working well.
- Monitoring your machinery and its parts is crucial to understanding its life cycle, so you can be prepared before issues arise.
- If you have stock that hasn’t sold at all in the last six to 12 months, it’s probably time to stop stocking that item.
- Maintain a database of suppliers for raw materials and do not restrict it to 1 or 2.
- Insure your inventory against losses, natural calamities etc.
- Hire a stock controller to take care of your inventory.
- Adequate storage space should be allocated for the inventory safekeeping.
Frequently Asked Questions:
How Do Small Businesses Determine Optimal Inventory Levels?
Optimal inventory levels are the exact amount of stock that you need to have in at any given time in order to fulfill regular demand for the products. When you optimize your inventory levels, you’ll be able to reduce common inventory challenges such as:
- Selling out-of-stock items
- Overstocking
- High storage costs
- Dealing with dead inventory
- Locking of excess capital
- Payment cycle maintenance
What Is The Role Of Inventory Forecasting In Small Business?
When you have an almost accurate idea of the quantity of stock you need for different products, you can plan your sales better, and focus on improving your profitability. As a small business owner, the last thing you would want is for your customer to cancel his order due to the non-availability of goods, or face issues in the supply chain cycle. Inventory forecasting helps you get rid of all these bottlenecks and plan your inventory in a more organized way than before.
How Can Small Businesses Reduce Inventory Costs?
The following ways can be used to reduce inventory costs:
- Have a safety stock
- Use a good inventory management system
- Better demand forecasting
- Regular maintenance of the storage space
- Insurance of the inventory location
