Entrepreneurs have to face countless competitors in the U.S. market, and standing out from the crowd is critical for survival, not to mention growth.
With an effective inventory management system for your small business, you can lower costs, enhance customer satisfaction and increase revenue. Plus, integrating new technology will eliminate time-consuming tasks.
The basics of inventory management
Inventory management is the process of tracking and directing the flow of inventory at every stage — from purchasing raw materials to managing works in progress to delivering finished goods.
For small businesses, inventory management typically involves tracking stock levels in real time, ensuring popular products remain available to customers, yet minimizing excess inventory that ties up capital unnecessarily.
For instance, a restaurant owner will benefit from knowing the exact quantities of foods needed on a regular weekend versus preparing inventory for the holiday season. Proper inventory management strikes a balance between meeting demand and reducing costs.
Inventory management provides small business owners transparency in managing supply chain operations, such as order management, to make data-driven decisions about inventory levels.
Essentially, inventory management provides the metrics and data aggregation that small businesses require to meet customer demand efficiently at scale.
Business owners using inventory tracking gain data-driven insights to stock proper levels of top-selling products while avoiding wasteful overstock of slow movers. Streamlined inventory management aligns supply with consumer needs.
This prevents backorders from exceeding projections. Robust management software handles the projections and alerting that would take time through traditional spreadsheet tracking.
For a company with multiple storefronts, good inventory management software consolidates transactions from each — the result being centralized reporting. Hence, owners get an enterprise-tier view of sales trends and best-selling items across locations.
Site-specific info is also valuable, whether that’s knowledge of dead stock lingering at a specific store or increased demand at a particular location. An owner aware of these quantified needs will minimize costs by transferring excess stock between locations.
To summarize, inventory management software allows small businesses to strategically meet customer demand, reduce unnecessary expenses and make data-driven decisions.
Before choosing a software solution, understand the three main types of inventory management approaches. The right inventory system for your small business depends on your budget, operation complexity and goals.
Manual inventory management involves physically counting each inventory item and inputting totals. This labor-intensive process works best for smaller operations with minimal products to track. The limited automation keeps costs low but neglects the informative data and insights that perpetual systems provide.
Periodic inventory management schedules inventory counts at set intervals, usually at the end of accounting periods. Counts can be done manually or use barcode scanning for efficiency. Periodic systems balance cost-effective tracking with snapshot visibility of inventory changes.
Perpetual inventory management leverages advanced software to automatically capture every inventory transaction in real time, granting you enough info to make data-backed decisions. While perpetual systems provide the most insights, they require thorough staff training.
Follow along with the next section to weigh the pros and cons of each approach for your small business. Then, select the optimal system fitting your budget, procedures and desired functionality. The goal is to balance labor efficiency with added utility.
1. Start by considering your budget.
2. Define your inventory management goals.
3. Identify problems you want your system to solve.
4. Review how the system integrates with your current processes.
5. Determine who needs inventory management access and training.
6. Implement the system and monitor the results.
When creating an inventory system for a small business, carefully follow these six steps to execute a perfect, personalized plan.
Your inventory management budget affects the type of system you can realistically obtain.
Aim to maximize the value of your investment based on software needs. Note any upfront costs such as software licenses, hardware and setup fees. Then, consider ongoing costs like user licenses, tech support and feature add-ons.
Lower-cost manual options using spreadsheets can adequately serve businesses with few SKUs.
Even with a tight budget, periodic inventory management balances useful visibility with modest upfront software costs.
Supporting perpetual inventory management requires significant investment in scanning tech and enterprise software. However, the perpetual method will generate ROI through optimization and labor savings over time, especially for larger product catalogs.
2. Define your inventory management goals
Clearly defining your inventory management goals will reveal your must-have functionalities. Plus, clearly defined goals allow small business owners to implement only the features that support their top priorities — thus avoiding overspending on unneeded functions.
For instance, visibility into current stock levels may be the primary aim for new eCommerce businesses fulfilling their orders. However, manufacturers may need advanced demand forecasting and integration with enterprise resource planning (ERP) systems.
If reducing stockouts is your main goal, choose software with low-stock alerts and automated purchase orders.
To reduce manual work, choose systems with barcode scanning, mobile access and inventory tracking integrations.
If your main goal is improving order fulfillment, select software with dropshipping and third-party logistics (3PL) capabilities.
Pinpointing the specific inventory management difficulties you want to fix will ensure your system targets the right solutions.
Consider these examples of problems you’d want to solve, along with their solutions:
- Retail stockouts across multiple locations. Solution: Perpetual inventory management with centralized data that allows for real-time updates.
- Perishable ingredients near expiration. Solution: Software tracking items by expiration dates.
- Manufacturing parts misalign with production. Solution: Software that integrates your warehouse management and supply chain management with your ERP.
- Reliance on inaccurate tracking and error-prone spreadsheets. Solution: Purpose-built software with sales velocity reporting.
A small business owner with multiple locations should prioritize a more advanced inventory management process (and software) to solve multiple issues happening in several locations.
Carefully evaluate whether your inventory management system option integrates with your existing software and workflows. The end goal of an inventory management system is to improve your current process, not derail or complicate it.
Likewise, a restaurant relying on Toast point-of-sale software should select an inventory system with bi-directional integration that continuously updates ingredient stocks and menu item availability.
If you currently have to input inventory data into a spreadsheet, consider if you’d like to automate that process by using an SKU system. Or, perhaps you’d like to continue inputting data and just want to streamline data analysis.
Prioritize systems that unify data, save time and export info in a way that helps you understand your business’s back end.
5. Determine who needs inventory management access and training
When implementing a new inventory management system for a small business, determine which employees interact with inventory processes and require training on the new system.
Furthermore, consider personalized training and permissions for each staff role rather than a one-size-fits-all approach.
For example, warehouse staff may require scanning-based user permissions and hands-on mobile device training to receive, pack and check inventory. In contrast, front-line sales associates will simply need access to availability and order statuses for customer service.
Train managers on analytical reporting features to inform their planning and decisions. Accounting staff require access permissions to reconcile physical inventory with financial records.
Optimizing training and system access for each employee’s inventory management responsibilities is critical to smooth adoption across your business.
Once you’ve chosen the right system for your business, integrate it thoughtfully. Here are some steps to take before, during and after you implement software:
- Develop an implementation roadmap and timeline that accounts for setup, data migration, testing, training and going live.
- Allocate resources for employee training and workflow changes. Provide ongoing support materials.
- Set clear expectations internally and emphasize how the new system improves daily inventory processes.
- Develop quantifiable metrics to track the system’s performance and ROI over time.
- Remain flexible — refine the system as you gather feedback and learn what works best for your business.
Taking a deliberate and calculated approach ensures a smooth transition to your newly optimized inventory management practices. With intention and training, the right system will facilitate scaling your small business to new heights.
- Zoho Inventory
- Lightspeed Retail
Before you pick software for an inventory management system, understand which perks are best suited to you.
Intuitive software can help businesses:
- Automate repetitive manual tasks like purchase orders and cycle counts. Zoho Inventory streamlines these workflows.
- Increase operational efficiency by consolidating data across channels for unified management. Lightspeed Retail specializes in integrating inventory data across online and brick-and-mortar sales channels.
- Integrate business systems by synchronizing inventory data between platforms. Cin7 unifies inventory across warehouses, POS systems and accounting.
- Provide accurate reporting by tracking works in process and deliverables. Katana offers tracking and insights for manufacturing parts and finished goods.
- Reduce inventory shrinkage by enhancing count accuracy with barcode scanning. Systems like Lightspeed Retail limit errors.
To leverage the specialized capabilities of inventory system software, small business owners should use purpose-built solutions that deliver valuable process improvements, which spreadsheets lack.
To help you decide with even more confidence, let’s explore the four best software solutions for small businesses.
Zoho Inventory enables omnichannel inventory visibility across online stores, brick-and-mortar shops and warehouses to provide small retailers with a unified view of stock levels.
With its automated purchase order features, you can set reorder rules based on minimum quantities and lead times, easily preventing stockouts of top-selling items.
The software’s barcode scanning and stock auditing capabilities further enable businesses to reduce manual errors.
Plus, when you need invoicing, customer relationship management (CRM) or even human resources help, remember Zoho is a full-scale solution in addition to a fitting inventory system for a small business.
Price: Free to start with limited features, $29 monthly for the standard plan.
Cin7 is an inventory management solution built to help small eCommerce businesses efficiently manage stock across sales channels, warehouses and marketplaces via one unified platform. It provides consolidated inventory data and omnichannel visibility to prevent overselling out-of-stock items.
Cin7 users highlight its advanced purchasing and vendor management tools that simplify reorder points, streamline approvals and integrate supplier data. The software can also track expiration dates on perishable items to optimize turnover rates and minimize spoilage.
The solution seamlessly integrates across all major commerce platforms, ERP systems, accounting software, shipping solutions and more for end-to-end inventory control and synchronization.
It’s worth noting that although Cin7 has a free trial, it lacks a free plan option, which would have been useful for smaller businesses just starting out.
Price: The standard plan starts at $349 monthly.
Katana provides inventory management software designed specifically for manufacturing and eCommerce companies. It handles shop floor operations, your bill of materials (BOMs) and tracking parts/materials through the production process.
The software offers barcode scanning capabilities that facilitate receiving raw material inventory and issuing it to the production line based on build schedules and optimized stock allocation.
This program also tracks and adjusts both raw materials and semi-finished goods throughout the manufacturing process so you can minimize the time between production steps.
Katana even tracks finished goods’ serial numbers and allows adjustments to optimize the sell-through of slow-moving completed products.
Price: A 14-day free trial is available. The basic plan starts at $99 monthly.
Lightspeed Retail brings you inventory tracking across online and physical sales channels to provide insights to small retailers.
Key features include support for an unlimited product catalog (all plans include this) and matrix inventory tracking of product attributes like size and color.
Lightspeed automatically syncs stock count changes between brick-and-mortar locations, eCommerce storefronts and point-of-sale systems in real time, ensuring retailers can fulfill orders accurately.
Users also highlight Lightspeed’s inventory analytics and reporting, which informs purchasing decisions and optimizes inventory turnover. Ideal for multi-location small retailers, Lightspeed provides robust, enterprise-grade inventory management.
Price: Varies based on business sector. Free trials are available.
Having good software is one step forward. Use the following best practices to go above and beyond in benefiting from your new inventory management capabilities.
Ease onboarding and promote staff engagement by providing sufficient software training to employees using the new inventory management system and processes. Hands-on training is ideal to get team members comfortable with new workflows.
Continuously evaluate your inventory management needs as your business evolves, then adjust to support your employees’ responsibilities.
Cycle counts are what keep your digitalized inventory trackers accurate. Essentially, it’s a manual stock audit of your inventory.
Do these periodically so that if a mistake happens, you can correct it and maintain an accurate record going forward. Importantly, remember to freeze inventory management software when doing a cycle count.
Use barcode scanners, mobile devices, system integrations and other technology to streamline inventory data flows, minimize manual work and reduce human error.
Software integrations also provide valuable connectivity between inventory management and other business platforms, such as QuickBooks for accounting.
Set ideal minimum, maximum and reorder points for each inventory item. Base these numbers on historical sales patterns, seasons, promotions and lead times. Configure your software to order automatically when stock levels hit these predefined thresholds.
Additionally, consider forecasting stock levels using your software’s predictive analytics — you’ll see how demand varies across the month and year.
You’re about to unlock efficiency and profitability with an optimized inventory management system for your small business. With the right tool in place, you’ll work smarter, provide better customer support and optimize sales performance.
If your online store’s infrastructure struggles to keep up with the eCommerce features you need, switch to a fast, secure and reliable host. Specifically, check out Bluehost’s online store solutions designed for small business success. The online store and marketplace plan supports unlimited products and inventory syncing across multiple channels.