What's Planergy?

Modern Spend Management and Accounts Payable software.

Helping organizations spend smarter and more efficiently by automating purchasing and invoice processing.

We saved more than $1 million on our spend in the first year and just recently identified an opportunity to save about $10,000 every month on recurring expenses with Planergy.

King Ocean Logo

Cristian Maradiaga

King Ocean

Download a free copy of "Preparing Your AP Department For The Future", to learn:

  • How to transition from paper and excel to eInvoicing.
  • How AP can improve relationships with your key suppliers.
  • How to capture early payment discounts and avoid late payment penalties.
  • How better management in AP can give you better flexibility for cash flow management.

How To Set Up Inventory Management for A Small Business

How to set up inventory management

Accurate inventory management is one of the most basic cornerstones of financial success, and it can be complicated. Businesses often struggle to balance having the right stock at the right time, without the expense and risk of overstock or running out of popular products.

Strategic inventory management solution means balancing fast-moving goods and supplies with minimal storage needs. The faster you move goods in and out, the more efficient – and profitable – your business.

Whether you are a large organization looking after stock in multiple countries or managing small business inventory, the principles of managing inventory are the same.

What Is Inventory Management?

Inventory management is part of the supply chain, and can be defined with a phrase often used in food service, just-in-time delivery. The ultimate goal is to have the exact amount of inventory needed at any given time.

With proper management, merchandise customers want is always available when they want it, and no slow-moving good are aging in the warehouse.

Poor inventory management can result in a warehouse full of dead stock; costing the business money to store until they can get rid of it, sometimes even at a loss. Worse, the business may earn a reputation for running out of popular items.

With good inventory management techniques, businesses run more efficiently, reducing the expense of carrying dead stock due to spoilage or obsolescence and saving on storage costs while maximizing sales. These tips work whether ordering raw materials or goods destined for sale.

Best Practices for Small Business Inventory Management

The case for implementing an inventory management software is hard to refute. Computer analysis offers valuable insight into current inventory, upcoming need, and sales trends, all without human error.

The most important tip on this list is:

Invest in Inventory Management Software

Modern inventory management software pulls a lot of the weight in supply chain management. With a good inventory system, businesses can:

  • Track inventory in real time throughout the supply chain. Know how much stock you have on hand, how fast it’s selling, and when the next shipment is due to arrive.
  • Analyze sales numbers to accurately forecast demand and plan material requirements.
  • Keep the right amount of stock on hand to meet demand.
  • Empower information from any point. Warehouse workers, sales floor associates, and managers can access the system to see what’s in stock.
  • Maximize inventory control by reducing dead stock and shortages.
  • Optimize warehouse management for easy retrieval.
  • Generate reports for easy inventory analysis.
  • Tracking inventory across different warehouses and outlets.
  • Set workflow alerts. When unexpected inventory changes occur, the purchasing department can quickly restock to avoid shortages or delays in production.
  • Manage cash flow. The amount of cash the business has tied up in inventory costs is critical to money management. A better small business inventory management system equals better cash flow.

When your inventory system works with, or even better, is part of a Purchase Order System For Small Business then you can automate stock updates as items from purchase orders are received.

Use FIFO Method (First In – First Out)

While it is critically important for perishable goods with a short shelf life, efficient stock rotation can impact any type of merchandise or goods.

Manufacturers may repackage or update items at any time, making old stock obsolete, or packaging or items may become damaged, rendering them difficult to sell.

Any business can use the same stock control principle that grocery stores use to stock lettuce – new stock goes at the back, and older stock is pulled to the front.

Analyze Sales Data To Identify Slow-Selling Goods

Items may move slow for a reason. High-ticket inventory items may stay on the shelves longer but be worth it to have in stock, or an item might simply not be as popular as forecast.

To keep holding cost down, use a promotion or sale to get rid of the remaining stock, and stop ordering that product.

Integrate Inventory Management System With Point-of-Sale (POS) System

Provide better, more informed customer service by giving customer-facing employees real-time inventory access to stock levels and goods locations.

Floor associates armed with barcode scanners will know instantly if an item is on the shelf, in the warehouse, or in a nearby store.

Group Goods Based on the ABC Method

The ABC method is a widely used selective inventory control system (SIC) used in every industry. Goods are grouped by economic value and velocity (how fast they move).

  • Group A is slow-selling, high-value products. Group A items do not fly off the shelf and sales can be unpredictable, but they have the highest profit margin.

  • Group B is comprised of staples, the majority of your goods. Items in this category are predictable sellers that are always needed They have a smaller profit margin than group A items, but sales are reliable and easy to predict.

  • Group C has the smallest profit margin. Items in this category are cheap impulse buys, like drinks, candy, and other small items stocked at the check-out line. Profit is slim, but volume is high.

The case for implementing an inventory management software is hard to refute. Computer analysis offers valuable insight into current inventory, upcoming need, and sales trends, all without human error.

Conduct Regular Stock Audits

Even best-in-class inventory software cannot account for all human error. Most businesses either do a full audit once a year to make sure the stock they have on hand matches the digital count, or conduct frequent spot-checks of selected fast-moving goods.

Either way, auditing is a good way to identify costly errors, such as mislabeling, and discover employee fraud or theft, an issue nearly all businesses must contend with. Successful small business inventory management relies on regular stock checks.

Keep a Clean Warehouse

No matter what industry, products and packaging should be clean, dry, and free of rodents and bugs for quality control.

During audits, employees can check for signs of damage, mislabeling, correct placement, and outdated packaging.

Manage Vendor Relationships

Inventory management software stores a wealth of data that can be used to identify the vendors offering the best value in terms of price, service, turnaround time, and product quality.

Nurture relationships with preferred vendors for better deals and identify potential savings through early payment discounts and economic order quantity.

Understand Your Risks

Every supply chain is vulnerable to disruption, which can be related to anything from vendor instability to weather.

Threats are circumstances outside your control and include:

  • Regulation compliance issues
  • Supplier reliability
  • Competition
  • Economic factors (price and availability)
  • Market size and share
  • Consumer trends
  • Financing
  • Weather or other natural disasters

Make a list of possible issues and create strategies to minimize risk. If a hurricane destroys I-10 and supply trucks can’t get through, how will your business respond? A local supplier may be able to provide a quick delivery to avoid slowing production or disappointing customers.

Set Alerts

With a comprehensive inventory management software, alerts can be set to trigger automatic ordering for commonly needed stock when it reaches a set low, for unexpected sales surges, or for other events that require the attention of the inventory manager.

Regular goods can be restocked automatically to maintain optimal inventory levels.

Good Inventory Management Is Key

Businesses who master well managed inventory keep costs low and stock optimized. Benefits include happier customers, more sales, and more bargaining power for lower inventory cost down the line.

The potential for supply chain optimization savings is far greater than many new business owners realize; the type of savings that can make or break a business on a budget.

What’s your goal today?

1. Use Planergy to manage purchasing and accounts payable

We’ve helped save billions of dollars for our clients through better spend management, process automation in purchasing and finance, and reducing financial risks. To discover how we can help grow your business:

2. Download our guide “Preparing Your AP Department For The Future”

Download a free copy of our guide to future proofing your accounts payable department. You’ll also be subscribed to our email newsletter and notified about new articles or if have something interesting to share.

3. Learn best practices for purchasing, finance, and more

Browse hundreds of articles, containing an amazing number of useful tools, techniques, and best practices. Many readers tell us they would have paid consultants for the advice in these articles.

Business is Our Business

Stay up-to-date with news sent straight to your inbox

Sign up with your email to receive updates from our blog

This website uses cookies

We use cookies to personalise content and ads, to provide social media features and to analyse our traffic. We also share information about your use of our site with our social media, advertising and analytics partners who may combine it with other information that you’ve provided to them or that they’ve collected from your use of their services.

Read our privacy statement here.