1. What Is Inventory Management?
Inventory management is the process of ordering, storing, tracking, and selling a business’s stock—whether raw materials, components, or finished products. It ensures you always have the right amount of stock at the right time.
2. Why Is Inventory Management Important?
Good inventory control helps you:
- Reduce waste and overstocking
- Improve cash flow
- Avoid stockouts or late deliveries
- Enhance customer satisfaction
- Make smarter purchasing decisions
3. Types of Inventory to Manage
- Raw materials (for manufacturing)
- Work-in-progress (WIP) items
- Finished goods ready for sale
- Maintenance, repair, and operations (MRO) supplies
Each type requires different management methods.
4. Basic Inventory Management Methods
- First In, First Out (FIFO): Sell oldest stock first—ideal for perishables
- Last In, First Out (LIFO): Sell newest items first (rare in UK accounting)
- Just-in-Time (JIT): Order stock only when needed to reduce storage costs
- Economic Order Quantity (EOQ): Calculate optimal order size to minimize costs
5. Manual vs. Software-Based Tracking
- Manual systems (spreadsheets) are suitable for small or low-volume businesses
- Inventory software automates tracking, reordering, and forecasting
Popular tools include:
- QuickBooks Commerce
- Zoho Inventory
- TradeGecko
- Square for Retail
6. How to Set Up a Simple Inventory Management System
- Categorize items by type or SKU
- Label and barcode all stock for easy tracking
- Choose a tracking method (manual or software)
- Set minimum stock levels (reorder points)
- Schedule regular audits (weekly or monthly counts)
7. Managing Inventory for Online Businesses
- Sync stock with website and marketplaces
- Use integrated POS systems
- Track fulfillment status and shipping lead times
- Automate low stock alerts and backorder notifications
This reduces overselling and improves delivery accuracy.
8. Inventory Forecasting
Predict demand using:
- Past sales data
- Seasonality trends
- Marketing campaign schedules
- Market growth rates
Better forecasting means fewer overstocks and missed sales.
9. Inventory Turnover Ratio
This metric shows how often stock is sold and replaced in a period:
Inventory Turnover = Cost of Goods Sold ÷ Average Inventory
Higher ratios mean efficient sales and inventory movement.
10. Tips to Avoid Inventory Mistakes
- Avoid overbuying new products
- Double-check supplier lead times
- Rotate older stock to front
- Train staff on inventory handling
- Keep stock records up to date
Frequently Asked Questions
What’s the best way to manage small business inventory?
Start with a spreadsheet or basic software, track regularly, and reorder based on usage trends.
How often should I do a stock take?
At least once per month. Weekly or daily counts are better for high-volume items.
What is dead stock?
Inventory that hasn’t sold for a long time. Consider discounts or bundling to clear it.
How can I prevent stockouts?
Use reorder alerts, monitor fast-moving items, and keep safety stock on hand.
Can I manage inventory without a warehouse?
Yes. Home-based and drop shipping businesses often manage inventory virtually.
What are the most common inventory errors?
Overordering, forgetting reorders, miscounts, and ignoring product expiry.
Conclusion
Knowing how to manage inventory is key to running a profitable and customer-focused business. Whether you sell online or in-store, managing stock efficiently helps cut costs, increase reliability, and fuel long-term growth. Start simple, stay consistent, and let your inventory work for you—not against you.