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All about small business inventory management

By Samantha Garner | May 19, 2012

If you’re planning to open a manufacturing, wholesale or retail business, you’ll be likely be carrying inventory. Even pure service businesses carry some “inventory,” more appropriately called “supplies” – like report covers for client materials, high quality report paper, photographic paper and so on. These items are not inventory in the strictest accounting sense, but you still need to manage on-hand quantities to make sure you can conduct your business activities without having to constantly run out to replenish your stock.

How much inventory should you keep on hand?

To help reduce costs and improve profitability, many small businesses carry the minimum amount of inventory necessary to run their business, instead of carrying large amounts. Purchasing inventory more frequently also helps them to remain competitive. Of course, some inventory must be carried all the time – the trick is to know what items should always be on hand and in what quantities. It’s hard to estimate this until your business has operating history, so keep good records of what you tend to buy most often over the first few weeks. Carrying only the inventory you need, when you need it, is known as “just-in-time inventory.”

Tips for successful small business inventory management

The goal of just-in-time inventory is to eliminate waste. Customer demand determines how much product gets produced, the number of products to be produced determines production capacity, and production capacity determines the amount of raw materials you need to purchase. For just-in-time inventory management to work, there need to be severe penalties for members of the channel who don’t meet their obligations (such as late deliveries), and there must be good communication between members of the channel – customers, retailers, wholesalers, and manufacturers.

Avoiding carrying inventory is a trend in business that’s expected to continue for many years. Proper efficient inventory management is one of the operation process skills that you’ll need to develop quickly in order to stay competitive.

Do you have any inventory management tips to share?

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Topics: Small Business Tips and Advice | 3 Comments »

3 Responses to “All about small business inventory management”

  1. Susan J. Gorges Says:
    May 24th, 2012 at 9:47 am

    Inventory control is not just for the products you sell or the components which are used to manufacture your products. Inventory control applies to office supplies as well.

    Without spending anytime on computer systems to track your pens, pencils, toners and paper, you can assure yourself of never running out of supplies by using the age-old (prior to computers) system called the 2 bin system. It’s very simple.

    Keep one unit (or multiple units if the lead time for replacement is more than 24 to 48 hours) in a separate location — or bin. When you remove that from the bin, simply take the label with the barcode and part number to your purchasing people. There are two tricks to make this system work: (1) all employees must be disciplined to take the label to purchasing, and (2) you have to figure out your rate of usage and lead time so that you have that many units in the separate bin.

  2. Samantha Garner Says:
    May 24th, 2012 at 4:46 pm

    Good ideas, Susan – thanks!

  3. Sabina Cao Says:
    June 13th, 2012 at 7:43 am

    I was involved in a small business that did keep good inventory records and failed in large part because of that. Thanks for the excellent tips — they’re really important!