The Complete Guide to Inventory Management for Small Businesses



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Performing complete and efficient inventory management is one of the foundations of a successful business. With proper control, you can improve customer service and relationship during a sale, as it will be easy to check the items you want. Also, it is essential to improve the management of the industry to minimize the costs with inefficiencies.

After all, only in 2019, the average loss of inventory – valued by cost over net sales – in the national retail reached 1.32%. In the previous year, it was 1.40%. The data are from the Second Retail Survey.

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Another study by the IHL Group points out that, in the world, distortions in the inventory caused losses of approximately US $ 1.1 trillion. These numbers highlight the need to improve the storage of products in a business, especially the small one, in which even lower percentages of losses in storage can jeopardize your profit. Zoe Talent Solutions will be useful for getting more tips about Business Management.

To help you avoid this type of problem and further improve your inventory management, we have prepared a short guide with trends, best practices and other information in the area. Be sure to check it out!

Importance of stock management

To understand why it is important to invest in good inventory management, we separate some of the reasons that make it essential for the small business and different industries within it.

Commercial area

For the commercial, it provides information about product availability, as well as planning and estimating sales for a future period. This is important on commemorative dates when there is greater seasonality in sales.

Financial area

The stock also serves as a tool for financial management, since your input and output items are used for comparisons with sales, purchases, and invoices for goods.

Shopping area

For the purchasing department, monitoring stored items help prevent duplicate or excessive purchases, as well as pointing out when you need to reset items for resale. In times of growth in demand, the analysis of the warehouse helps to design an adequate volume of purchases to supply it, ensuring the supply.

It also helps maintain sales where suppliers are far from the company, have complex purchasing processes or need to produce what they have been asked for – requiring more time to ship products.

For the company in general

Good stock management also lowers costs with storage, maintenance and loss of items due to maturity, breakage or damage. It is even capable of raising the organization’s liquidity by avoiding the over-purchase of commodities, which immobilize capital. Basically, it prevents unnecessary purchases or unsolicited items.

In fact, this care is essential in companies that work with products that become obsolete quickly, such as in stores that work with technological items (electronics, smartphones, notebooks, etc.). After all, the longer you stay in the warehouse, the more likely you are to lose your power of attraction with the public.

When the business happens to have in the warehouse only what it needs, the money that is used for the excess is destined to other areas. It is also possible to increase the profit of the establishment with these actions.

Key mistakes in Inventory management

Mistakes in Inventory Management

There are misunderstandings that hinder the flow of products in stock and cost the storage of materials. Next, let’s list some of the most common ones with tips to solve them. Follow it.

Do not keep track of product entries and exits

Not keeping track of everything that goes into and out of the warehouse is one of the leading management mistakes in a company, especially in stock control. This is because the information will be useful for controlling stored items and for supporting processes in other sectors such as financial and purchasing. For example, with this data, the second department will know what needs to be replenished at each purchasing cycle.

Do not update product status in stock

The information recorded on all movements carried out in the inventory must be continuously updated as there are goods that require time to be obtained. Often, you have to participate in an auction, make long quotations, or negotiate contracts to replenish stock. Therefore, the faster the data power, the better for the business.

Knowing the stock turnover is still able to help with sales strategies since it enables the sales team to understand when more goods are coming out. This way you can better prepare your sales team.

To optimize this control, the tip is to look for a stock management system. We will see more about the importance of technology to follow. Do not standardize the description of goods and neither classify them. It is important to organize the work environment in the inventory so as not to create confusion both for employees in the area and for employees in other sectors. For this, product descriptions need to be standardized. It is also appropriate to classify them into categories to be more easily monitored and found.

Do not use a hierarchy model

In addition to group classification, it is recommended to prioritize products in your inventory. For this, you can use the ” First In, First Out ” (FIFO) approach, or ” first-come, first-out ” approach. As the term mentions, in it, the items that arrive at the stock first must be sold before the others.

This method is useful for businesses that work with perishable products or that become obsolete quickly, as it prioritizes the marketing of old items faster. To facilitate turnover, the newer items should be placed on the bottom of the shelves and carried forward as the old ones are sold.

Challenges for small businesses

We separate some of the logistics challenges, inventory-related, most common small businesses. See what they are and discover the importance of solving them.

Integrate purchases and Inventory

Integrating these departments helps you address challenges in managing the procurement of inputs and products for resale. For example, it improves communication between both sectors, which is essential in situations where there is a sudden increase in demand.

Besides, a good exchange of information avoids the opportunity cost of lost sales when there is not the product that the customer wants because it has not been restocked in time. In this sense, integrating these sectors is essential, but it is not always simple.

To do so, you have to organize the stored items, standardizing their classification so that both teams understand them. A management system that includes a stock and purchasing module is useful in this case because it combines the information and facilitates the work together.

Another problem that integration minimizes or solves is the acquisition of duplicate or unnecessary products. This is because, with good communication and an efficient system, you can centralize item status information in inventory. In this way, any employee from both sectors can access the program and check what goods are left or missing in the warehouse.

Schedule purchases and sales based on Inventory

Stock should not be used only as a repository of products for sale. Your data should also be used for managerial analysis and strategies. For example, for estimates of sales and purchases of inputs, which are based on the history of entry and exit of products from the warehouse at each time of the year.

In this way, the company will be able to better meet the demand of the public for its goods in times of greater seasonality, also avoiding to buy too much in the moments of less need.

Meeting new consumer behaviors

Technology has contributed to the emergence of new behaviors on the part of the consumers so that it is essential to accompany them. For example, the omnichannel, a kind of convergence between online and offline, that is eCommerce, physical store, social networks, etc.

The omnichannel consumer uses all the channels of the company simultaneously, according to their needs, to interact with it. For example, in a company that has omnichannel performance, the consumer can search a product in its application, buy it in the virtual store and receive it in their residence. If you want to change, just go to the physical store for this.

The company that wants to survive in the market has to be attentive to this behavior. In this context, stock plays a fundamental role. In the case above, it is vital to arrange it so that there is the product for the replacement in the physical store.

Another example: the customer goes to an establishment but does not find the item they want, however, there is in the inventory of another unit or warehouse. It is enough that the seller closes the sale and ask that the product is sent to the consumer’s house. For this, it is necessary to have a good integration and an omnichannel approach in the company.

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