Every small business needs to have an inventory management system in place. These systems ensure that you can track your inventory, know when to place orders, answer questions about stock, and more.
Read on to discover how to manage and scale your inventory management system as a small business.
What Is Inventory Management?
Before getting into the advice for inventory management for small businesses, it’s important that you understand what inventory management is. Inventory management describes the processes related to inventory, including storing, using, ordering, and selling your products. Depending on your business, it can include raw materials and finished products.
Various types of inventory management software help make this process much easier for small businesses.
Why Inventory Management Matters
Simply put, your inventory is one of the most valuable assets for your small business. If you don’t have enough inventory when you need it, you will miss out on valuable sales or even hurt your reputation if you are unable to fulfill customers’ orders.
On the other hand, if you have too much inventory, you may run out of storage space or simply spend too much money ordering items you don’t need. Large inventories also increase the risk of theft or damage.
Having proper inventory management software for your small business, along with other management methods, prevents these issues.
Good inventory management can also offer the following benefits:
- Saves money – You can minimize the excess stock in various locations, reducing wastage.
- Prevents theft and damage – With fewer excess products, you limit the potential risk of theft or damage.
- Improves cash flow – You focus your spending on products that sell, letting you boost your cash flow.
- Improves efficiency – Knowing the status of your inventory lets you do operate your business more efficiently. This includes ordering shipments, dealing with market changes, and overall, using resources effectively.
- Improves customer satisfaction – Customers will be happy with the service they receive when they can quickly receive products. This kind of service leads to customer loyalty and positive reviews.
Common Inventory Management Obstacles
Part of understanding inventory management software and solutions is seeing how they can help you overcome the most common obstacles. Inventory management involves a long list of common issues, many of which can be resolved if you set up the proper processes or use the appropriate inventory management software for your business.
The following are some of the more common obstacles in inventory management:
- Using manual or outdated processes
- Inefficient processes
- Insufficient order management
- Inaccurate details about stock
- Incorrectly placed or labeled items
- Not having a centralized inventory hub
- Changes to customer demands
- Expanding the product range
- Making the most of warehouse space
- Overstocking
- Tracking obsolete inventory
- Managing defects and waste
- The complexity of the supply chain
- Poor communication
10 Tips for Managing and Scaling Inventory
As mentioned, the right processes and inventory management software can help you overcome most of those obstacles. To further improve your inventory processes and allow your small business to scale, keep the following inventory management techniques in mind.
Tip 1 – First In, First Out
One of the most basic and important inventory management techniques is the principle of FIFO (first in, first out). The first items that you receive should be the first ones that go out. So, you sell or use the inventory that has been there the longest.
This is especially important for food-related or other perishable products. But it is also useful for other products that are seasonal. No matter the product, FIFO helps you ensure that you don’t end up with lots of out-of-date packaging.
Tip 2 – Using Par Levels
Par levels are another crucial part of any successful inventory management system or software. These refer to set levels of supply for a certain product that your inventory reaches, indicating you to order more. Ideally, efficient inventory management software will automatically order more on your behalf or enable you to set it up to do so.
