Inventory management solutions for small businesses

May 22, 2024 | 6 minute read

Smart inventory management can help ensure you have stock and raw materials when you need them, even in the face of supply chain constraints. Being proactive can give you a competitive advantage in today’s business environment, where shortages and shipping delays are common. Bank of America’s 2024 Business Owner Report found that 41% of small business owners are coping with supply chain problems.


What is inventory management?

Inventory management is a process of pinpointing the type and amount of raw materials and stock needed for your business — and when it’s best to order those items. Actively managing your inventory allows you to track goods and supplies from the initial purchase to final sale, letting you monitor demand trends and make sure you have sufficient stock on hand.


Why is inventory management important?

By ensuring you have the right amount of stock, you can consistently meet orders — and build customer loyalty. Plus, by carefully monitoring what you have in stock, you can order inventory more efficiently to prevent waste and avoid disruptions. When done properly, it can also improve cash flow and profitability.


Types of inventory

Inventory falls into a variety of categories, such as:


  • Raw materials. These are unfinished materials or resources used to produce finished goods. Keeping track of them is essential to ensuring there’s no slowdown in production.
  • Unfinished products. During manufacturing, raw materials move through multiple processes. At the end of each step, an unfinished product is produced that is then used as the basis for the next phase.
  • Work-in-progress inventory. This includes raw materials that have entered the production process but not those still in storage.
  • Finished products. These are the final goods produced and ready for the market.
  • Maintenance, repair and operating supply inventory. Maintenance and repair goods are used in manufacturing but aren’t in the finished product. Operating supply inventory includes items needed to operate the company


How can you measure success?

A variety of metrics are available to help you measure the success of your inventory management practices. Most commonly used is inventory turnover, which measures the movement of stock. To calculate inventory turnover, divide the cost of goods sold by the average cost of inventory.


Inventory management techniques to consider


ABC analysis

This technique involves placing products into categories ranked A to C according to their value to the business. Using this approach allows you to determine which products, purchased parts and customers contribute the most to the company’s revenue or add the most to overhead.



With barcodes, each product’s information is encoded into bars and alphanumeric characters, making it easier to track inventory in a warehouse. You can use barcodes to assign a number to the individual products you sell, linking several pieces of information to the code, such as the supplier, the product’s dimensions and weight, and the number of items in stock. You can also use them to record a product’s location in your warehouse. Using a barcode system can help with inventory management by making it easier to ship items quickly, giving you a real-time count of inventory on hand and helping you avoid waste.


Batch tracking

This is a system that allows you to trace materials and products using batch numbers. You can use batch tracking to group together similar inventory in one batch. It can also be used to keep tabs on products that are approaching their expiration date or to determine which units contain batches that have been flagged as defective.


Bulk shipping

Bulk shipping is the transportation of goods in larger units, such as pallets. Because buying and shipping goods in large volume is typically the least expensive choice, bulk shipping is a preferred approach to inventory management, particularly for items in high demand. Typically, with bulk shipping, a large quantity of goods is delivered and stored at ports. Businesses then arrange for the goods to be picked up and transported by truck or train. Bulk shipping ultimately makes it easier for businesses to access a large quantity of products and sell them nationally.


Consignment inventory

Suppliers deliver goods to individual retailers but retain ownership until the products are sold. The retailers have the right to return leftover stock without a financial penalty. Retailers can save money on inventory storage, test products without too much financial risk and simplify their supply chain by relying on consignment inventory. However, if the supplier is not reliable in delivering the stock on time, it can lead to stock outages and dissatisfied customers.



With this technique, incoming trucks or railroad cars unload goods and materials onto outbound vehicles, reducing the need for warehousing and lowering distribution costs. Successful cross-docking requires careful coordination between receiving and delivery activities.



This shipping method works by allowing retailers to transfer their customers’ orders to a wholesaler that, in turn, ships the sold items to their final destinations. The benefit for the retailers is they don’t have to own the inventory. Instead, they focus on marketing and selling. Many e-commerce stores use this method because it saves them from a potentially expensive upfront investment in inventory.


Minimum order quantity

This is the lowest quantity of items you can order from a manufacturer at one time. Manufacturers often set a minimum order quantity so they can produce an item cost-effectively and make a profit.


Safety stock inventory

This is extra inventory meant to provide a cushion in case of situations such as excess demand, supplier delays and inaccurate forecasting. Keeping safety stock can help businesses avoid the added costs of placing rush orders or running out of stock and losing sales.


Point-of-sale solutions for inventory management

Most point-of-sale (POS) systems go beyond just accepting payments. Some even offer inventory management tools that can run reports, show current inventory levels and offer a snapshot of inventory across multiple locations. And as POS solutions have become more sophisticated, so have the tools they offer. Some now offer a complete solution, helping log stock as it comes in, running reports and providing up-to-the-minute data across multiple business locations.


Bottom line

Upgrading and streamlining your approach to inventory management can lead to better insights, better planning and improved profitability. It can also save you stress and give you back one of your most valuable resources: your time.


Inventory management FAQs

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