Improving Small Business Inventory Management

One of the most important processes for small businesses to get right, and often one of the most profitable areas of potential improvement, is inventory management.

A lot of businesses start by trying to track the products, components or ingredients they have on hand manually — usually with a spreadsheet — only to find this approach can break down quickly. If you’re tracking more than a few items, you’ll need to update your spreadsheet daily, and you’ll find that a simple mistake can cascade through multiple tabs — not to mention that you have better uses of your time.

Instead, developing effective inventory management processes and investing in even basic inventory software can increase efficiency as well as your company’s cash flow.

Effective inventory management is an important tool in maintaining the financial health of your small business. Having enough inventory on hand can be a delicate balancing act as you try to ensure you have inventory to meet customer demand, without tying up valuable capital in “extra” or “safety” inventory that might outpace demand (or will cost money to store while you’re waiting to sell the items).

Developing an effective inventory management system helps improve your company’s cash flow by reducing the odds you’ll over-invest in products or storage space.

Inventory Management Software

Automated inventory systems replace the drudgery of manual tracking to provide insights into what items or products you have on hand, how well given products are selling, and when it’s time to re-order.

Probably the most important benefit of inventory software is providing real-time insights into what you have and where it is. For example, being able to track items through barcode scanning as you unpack an order from a supplier, place items on shelves, and pack customer orders for shipment can help reduce shrinkage from items being lost or stolen from your storeroom or warehouse.

Being able to find items and pack orders more quickly also improves shipment speed, which can enhance customer satisfaction and loyalty. Similarly, generating pick lists automatically as orders come in helps reduce the likelihood of shipping mistakes.

It’s also helpful to scan incoming orders from suppliers to make sure you receive everything on the packing list. Assuming a packing list is correct can be a costly mistake that costs you for items you don’t receive as well as skewing your inventory data.

Inventory software also helps you understand how well specific products are selling so you can maintain stocks of your most-popular items. You can also identify laggards that might benefit from a price promotion or more effective marketing.

If you’re selling products on more than one marketplace – such as an in-person store as well as online marketplaces like Amazon, eBay and Etsy — centralizing your inventory in one location can give you a centralized view of your sales and prevent you from selling something that’s out-of-stock because you sold it in a different marketplace.

Check for Integrations

While the capabilities of specific inventory software packages vary in sophistication, even the smallest of companies can benefit from integrating their inventory programs with other systems they’re likely using.

For instance, linking your inventory system with your POS software provides inventory updates as items are sold and allows you to check sales and inventory levels throughout the day. Similarly, integration with your financial software helps you track revenue and forecast future sales more accurately.