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Steps to Painless Inventory Management for Small Business Owners

Updated on January 25, 2016

Clerk inventory.

Clerk inventory.JPG
Clerk inventory.JPG | Source

Inventory management

Inventory is usually overlooked by small business owners for other things like capital financing. Inventory is the life’s blood of many establishments and relegating it to the background is counter productive.

Many companies require proper inventory management of their inventories more than others. Some companies inventory is limited to stationeries while other deal in a variety of items

Businesses that deal in large inventory include schools, supermarkets, shopping malls, manufacturers and even grocery stores. Without proper inventory these businesses will rapidly go out of stock lose business and go bankrupt.

When stocks run out and orders are not promptly met then there is a big problem. Things go wrong and popular brands disappear from your shelves.

Here are some after effects of poor inventory management


Customers in a store
Customers in a store | Source

Revenue drops

If the sales continue to go down then the small business is definitely going to lose end of month revenue. A drastic drop in revenue might be pointers that an inventory manager isn’t doing his job. Bad inventory can cause a revenue loss of 3 percent monthly.

The business can lose customers

Losing a paying and dedicated customer is the most painful aspect of poor inventory management. The popular item might even be in the store but nobody bothered to restock the shelves.

Losing a customer reduces your customer base which invariably affects your business.

A drop in sales

Loss in sales is a real threat when dealing with bad inventory management. When popular items are missing on the shelves you sell less and the shopper just goes to another store.

Shoppers are particular about the items they wish to buy. They have brand loyalty and are unlikely to purchase other brands when the items are not in stock.

Such customers buy only what they have pre-planned and move to another store that has the product.

Loss in sales is a big problem when a small business has bad inventory management.

Sales ledger

Sales ledger
Sales ledger | Source


Which one is not a Disadvantage when you using a spreadsheet

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Better inventory management

The blue dot system

The small business owner if unable to hire a professional inventory manager can start with the blue dot system. The blue dot system is simple potting a blue dot against the best selling items.

If you have a large inventory and you have over 1500 best selling items append the blue dot to the items.

The simple system allows the business owner visually identify the top selling items at a glance. What the business owner can do is stock these top sellers for three to four weeks in advance.

Top stores using this system have seen appreciable difference in revenue and patronage. It reduces the frustration of items not on shelf and the frustration of not filling an order.

Although the blue dot method is effective there are other steps required to achieve a seamless shopper’s experience.

Good inventory taking

Electronic data
Poor inventory
Focus on best sellers
Prepare for seasonal shoppers
Expired goods
Check the shelf life of products


Bar-code can help detect items that have expired
Bar-code can help detect items that have expired | Source

Too much inventory

Having lots of inventory is capital intensive and overstocking can be a serious problem. Some small business owners a scared of being caught short thus result to overstocking.

Overstocking depletes the capital and erodes the little profit business owners make.

To long on the shelf

There are some items that seat to long on the shelf without getting sold. Identify those items and reduce the amount you buy drastically.

Unsold items are prone to damage, depreciation, expiration and obsolescence. It is very difficult to get rid of old inventory and some goods have to be discarded.

Some have expiring dates and proper inventory and removal of such items is important. How to fix this problem especially when the items are still durable is to markdown the item.

Another way is coupons, discounts, two for one promotions and even shipping to overseas liquidators.

Make decent projections

Project on the total amount of supplies needed and when they are required. The sales books show clearly the quantity of an item sold within a month.

This guide is effective when choosing the right items to buy in a particular month. Seasonal items are period based and have there own challenges.

You can speculate on the shopper’s preference and spending ability during these special seasons.

Focus on items that matter most

If you have a large inventory you might find it difficult to accurately keep an inventory on all the items. The solution is to focus on the best selling and important items on your shelf.

Top selling items account for 75 percent of your total sales, so reordering and restocking such items should be your priority. Go through your inventory using a sales graph stocking each item according to their sales, demand and popularity.

Screwdriver inventory

Screwdriver inventory
Screwdriver inventory | Source

Inaccurate inventory tracking

Inaccurate inventory tracking is a major problem in large companies. They overstock an item thinking they don’t have enough of the said item.

Buy only what you want to stock, try not to miscount items and check pilferage patterns. If you are into manufacturing your yield and scrap inventory is important.

The solution to inaccurate inventory tracking is electronic data collection. The store owner can use electronic data interchange, bar codes and scanning.

Many pharmacies use bar codes and electronic data collection very effectively. Another way is cycle counting of a few chosen items daily and then later compares your result with inventory records.

Using spreadsheets

Spreadsheets like Lotus 123 and Microsoft excel are good to track your inventory. The problem with using these platforms for inventory taking is the possibility of damage, loss, and wrong data input.

© 2016 femi


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      robbieorange1981 13 months ago

      Nice article...up until you started mentioning Spreadsheets. Why would you track your inventory using Excel? Receipe for disaster if you ask me. There are plenty of good inventory management softwares out there - Trade gecko is the big one, but there are some smaller, cheaper ones like JigoCloud ( or inflowinventory.

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