How Small Companies Can Effectively Control Inventory

Businesses have to learn how to anticipate and meet the needs of consumers if they want to succeed. It’s not a hard concept to understand: a market won’t support what it can’t reliably get. But while it’s not a difficult idea to grasp, the logistics of making supply match demand is frequently a very hard task to manage in reality, especially for small companies that don’t have as many resources as the “big boys.” Take a look at how your small business can effectively control inventory so that you can make the most of your business potential no matter your size:

But First, What is Inventory Management?

Inventory management is the process by which a company monitors its goods (or inventory of products) so that it can maintain an appropriate amount of the right items to meet market demand. Effective inventory management helps businesses:

  • Avoid Outstocks and Overstocks — Having too little inventory prevents current sales and frustrates consumers, causing you to lose business now, as well as in the future. On the other hand, having too much inventory ties up your available capital and prevents you from using your money more productively elsewhere.
  • Reduce Costs and Improve ROI — Proper inventory control allows you to keep a continuous stream of products moving through your stockroom so that money isn’t being wasted on items that never sell or processes that aren’t effective.
  • Anticipate Market Demand — Review of inventory histories can help you anticipate and plan for market demand.
  • Maximize Operational Procedures — When you accurately forecast demand and stock only what you need, you have cash available to manage other operations.

Suggestions for Better Small Business Inventory Control

Whether you’re a Fortune 500 company or a local retail shop, good inventory management is critical for your success. Here are a few suggestions especially geared for small and/or burgeoning businesses:

  • Use Big Data Big data is ubiquitous these days, so much so that even small companies can utilize and benefit from it. There are many software programs for both inventory and sales management that can easily assemble and manipulate real-time data at each point of the supply chain. By consolidating assets to facts and figures about how much and how fast items are selling, you can anticipate and better respond to supplier, distributor, employee and consumer need.
  • Follow FIFO — We don’t mean “Fee-Fi-Fo-Fum,” but rather “first in-first out.” Make sure you are selling your inventory in the order that you get it, with your oldest products sold first. This is especially important for perishable products (such as food), but all items have the potential to become obsolete and, thus, harder to sell as they age. The longer an item sits on a shelf, the more opportunity it has to become out-of-date, spoiled or damaged in some way. Minimize any losses from these problems by moving oldest products out of your stockroom first.
  • Analyze Your Numbers — Good inventory control is much like a market research guide, with past performance helping you answer questions, track changes and predict future threats and opportunities. Evaluate your sales numbers and label your products according to the ABC inventory analysis model. Group A contains those items that are high in value but don’t sell quickly. Group B contains those items that aren’t as valuable as those in Group A but have an established and predictable pattern of sales. Group C contains those items with the least consumptive value but a high sales volume. According to the model, Group A should account for 20% of your inventory; Group B, 30%; and Group C, 50%.

Of course, these are just three examples of how small businesses can improve their inventory management. Comment with some of your own suggestions below.


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