The process of managing inventory for a small business is essential for its success. Inventory management goes far beyond knowing what types of inventory you have and where you should store them to be more efficient. Instead, it’s a process of understanding your inventory and how maintaining it properly can keep your business healthy in the long run.
If you’re going to manage your small business’s inventory well and begin growing your business into a mid-size or large business, you’ll need to develop a robust understanding of inventory management and how it can benefit your business in the future.
What Is Inventory Management?
Inventory management is the step in your supply chain that always aims to have products in the right quantity available for sale. When your inventory is managed properly, you’ll be able to maximize sales by minimizing any times when you might have inventory out of stock. Good inventory management will also ensure that you don’t overstock products that you won’t be able to sell.
If you carry any products that have expiration dates, you’ll also be able to avoid spoilage by ensuring that you order the right amount of stock, based on when it expires and how long it will be good for. At Scout, we believe that robust inventory management systems separate good businesses from great businesses and allow you to take your company to the next level.
Features of Good Inventory Management Software
There are many different ways to track and manage inventory. One of the most common and easiest ways to build out a good inventory management system is through inventory management software. You will have to pay for the software to manage your inventory, which can cause your operating budget to tighten up slightly. Still, you’ll better optimize your inventory in a way that allows your business to boost profitability.
Here are some of the features you’ll want to look for as you begin shopping for inventory management software:
- Real-time inventory tracking.
- Can forecast demand for products based on sales that are being made.
- Will prevent product and production shortages.
- Will prevent excess stock of any kind.
- Accessible through any smart device with an internet connection.
- Accessible through your retail point of sale solution.
- Allows you to optimize your warehouse and employee time.
- Barcode scanning and generating all in one place.
- Allows for upgrade to multiplication warehouse management.
You might not need all of these features right now, but as your warehouse grows over time, you may need more of the software’s features. Find a software that is built for what you need now but allows you to upgrade to more features over time. As an entrepreneur or small business leader, it’s critical that you’re always thinking one step ahead.
How to Save Money on Inventory Management Software
If you’re a start-up or a really small business, you might be looking for ways to save money and get away with not purchasing software that will suck money out of your already tight budget. If you’re willing to put in the extra work to track inventory without barcodes and other automation manually, you can save money by not purchasing an inventory management software.
Using Microsoft Excel to track your inventory is one way to create an inventory management system without software use. But, you’ll need to enter all of the data into Excel every day manually. These data points should include time of sale, the selling platform, customer info, product info, and dates. Ideally, you’ll also track how much inventory you have and keep a spreadsheet with all of the shipping info you have.
It’s not impossible to also incorporate a barcode scanners functions into your Excel formulas, but it is definitely not easy. While it’s great to have incoming and outgoing packages automatically enter into your Excel sheet, the time and understanding of Excel needed to get that set up can be crippling.
Disadvantages of Using Excel
One of the biggest disadvantages of using Excel to track your inventory is that you likely won’t be able to keep up with all of the manual entries you’ll have to do as your business grows. It can also be hard to find errors, and errors can lead to real problems in your business’s future.
Here are some tips for using Excel in your inventory management.
Best Practices for Inventory Management
Now that we have a good understanding of inventory management and some of the different ways you can manage your inventory let’s look into some of the best inventory management software practices.
Track Stock Levels at All Times
Running a successful warehouse and business is all about having the right systems and processes in place. This goes the same for tracking stock levels at all times. Managing inventories comes down to making sure that you know what’s coming in, going out, and staying in your warehouse at all times. Good software will save you lots of time and save you from mistakes in this area. You’ll also want to consider keeping a closer eye on the more expensive inventory items you have.
Audit and Count Your Stock
Unfortunately, software isn’t foolproof, and it’s not going to be 100% accurate at all times. There will be times when your inventory gets off by a few items or when something is scanned into the system incorrectly. To prevent this from happening often and keep your books straight, you should regularly audit and count your inventory.
Consider counting all of your inventory once a year and cycle counting your inventory every quarter. There’s definitely plenty of ways that you can go about counting your inventory so be sure to find the best way for you and your employees to count it all successfully.
Accurately forecasting your sales based on current trends and past sales is a critical part of properly managing inventory. When you’re able to forecast your sales correctly, you’ll be able to keep the right inventory in stock more easily, and you’ll know when to order more inventory. A good inventory management software will help to remove the guessing game that’s often associated with forecasting.
Develop Good Quality Control Practices
Quality control sets businesses and warehouses apart from the rest. You’ll need to focus on quality control so that you can ensure every item that leaves your warehouse will arrive at the customer’s address without any problems. Keeping up on quality control as your business grows will be challenging and may require hiring someone to focus on quality control.
Consider Drop Shipping
As a small business, dropshipping is a great way to make a quick buck and save on space. You’ll be able to sell inventory without having to store it or ship it at any point. A fulfillment company will handle everything. All you have to do is list it on your website and manage the orders. The margins may be low, but dropshipping can be a great way to build up your revenue over time.
Consider Grouping Stock into A, B, and C Groups
Lastly, it can help group your inventory so that you know how to prioritize your resources. Categorizing your inventory using ABC analysis is a great way to manage your stock.
The process can be broken down like this: A is the smallest category and the most profitable, B is the middle ground inventory, and C is the inventory that you sell a lot of, but that doesn’t provide high ROI. When you group your stock in this way, you can better prioritize the SKUs that make you money over the SKUs that don’t.
Here’s an in-depth breakdown of ABC analysis.
What Makes a Successful Inventory Management Plan for Small Businesses
Your small business will need a different inventory management plan than Amazon or Walmart. Big businesses like that won’t be tracking inventory the same way you need to because they have more capital to work with. Small business inventory tracking needs to focus on these three things:
- Cost-effective inventory.
- Knowing when to order and when to hold on purchasing more inventory.
- Organizing and tracking all incoming, outgoing, and current inventory.
Following these three rules will optimize your inventory management for your small business.
Inventory Management Mistakes to Avoid
There’s always something different you could be doing to make sure you get it right, but what should you not be doing? Here are some of the common mistakes that you’ll want to avoid.
Lacking a Good Strategy
Haphazardly growing a business is only going to hold you back. You need to focus on and give attention to how you’ll grow your business. Without a strategy for inventory specifically, you’ll be holding back your business and the speed at which you can grow. You should work to get a process in place wherever you can.
Not Having a Clear and Simple Process
Just like we mentioned, processes are the #1 thing that small businesses miss. Documentation will ensure that all current and future employees will understand why you do things, and that is critical for your business’s success.
Think of these processes as road maps to your business. You have to get a good map in place so that nothing in operation would change if you were ever to take time off or step away from the business for a time. Everything could continue to run as smoothly as before with your employees’ help and the processes that they can follow.
Regularly Over and Under-Ordering Inventory
We’ve talked about this over and over again. Forecasting your need for stock and more inventory is crucial to your business’s development. By following the above steps thoroughly, you can ensure that you won’t be costing your business more money by over or under-ordering inventory.
Not Having Someone Accountable for Inventory
Another common mistake that small warehouses make happens when they decide to spread inventory management responsibilities among multiple employees. When this happens, no-one is responsible or held accountable for lost or misrepresented inventory. This problem is easy to fix if you’ve found that it’s happening at your warehouse. Take the time to put a single person over inventory instead of dispersing the responsibility among multiple employees.
If you’re looking for a state of the art inventory management software that allows you to track inventory, scan barcodes, and integrate with your current software solutions, choose Scout. Our program, topShelf, is one of the best warehouse management tools on the market. You can learn more about topShelf from Scout and get a free demo by visiting our website. Be sure to browse our blog for more inventory and warehouse management content.