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6 Inventory Management Best Practices


As a small business owner, you naturally have a lot of capital invested in inventory. While your products are the primary source of sales and revenue, they can also tie up a lot of cash if your business isn't using a proper inventory management system.  Inventory takes up warehouse space, requires handling, could spoil or go out of style, and unfortunately could be lost or even stolen. [Tweet "43% of small business owners in the U.S. still use pen-and-paper or spreadsheets to track inventory"] 43% of small business owners in the U.S. still use pen-and-paper or spreadsheets to track inventory or don’t track inventory at all, according to the State of Small Business Report. This manual mishandling of inventory opens up your operations to data entry errors, shipping mistakes, and just a lack of knowledge of what you do or do not have in stock. This combination is a recipe for customer dissatisfaction and potential loss of sales.

Related Article: Changing Your Inventory Habits

Despite that risk, 56% of business owners surveyed still hope to improve customer experience and 57% aim to grow revenue this year. Ironic, isn’t it? If you have not reached these goals this year, then perhaps it’s time to implement inventory management best practices. Here are some guidelines to follow to streamline your business for success.

1. Know What Type Of Inventory Management Fits Your Business

As a business owner, you know your inventory flow the best.  Would a continuous review or periodic review system be best?  If you’re not sure, here are the facts about each:
  • Continuous Review Systems: With a continuous review system, you normally order the same quantity of items with each order placed. You must monitor inventory levels, and whenever the quantity of an item drops below a set level, you would then replenish your stock.
  • Periodic Review:  When using a periodic review system, you order products at the same time each period. At the end of each period, you determine how many items need ordered based on quantity levels at the end of each period. There are also no set reorder levels for this type of system.
Inventory Control Return on Investment

2. Make Your Cycles Count

To be successful with inventory management, you must implement a cycle counting program. Before you do, think about these factors first:
  • Counting frequency: How many counts can your workers do each year? What are the effects of cycle counting on manufacturing, receiving, and the delivery processes?
  • Counting strategy: Once you have a grasp on your counting frequency, you can then plan whether to divide inventory between locations or by category, item, or value.
  • Who’s in charge: Find a trusted employee that will be responsible for running a tight cycle count system. This is critical to reap the benefits of such a program within your business.

3. Manage Your Inventory

Your inventory level would primarily depend on the type and size of business you run. For example, the number of items kept in the warehouse would differ drastically between a fresh food delivery service and a clothing manufacturer. Overall, it’s recommended to keep low stock levels to lower costs of operation. In turn, cash flow increases because you’re not weighed down by the high price of maintaining stock for long periods of time. An inventory management system will help you know what inventory levels would be the most beneficial to the flow of your unique business. You can track important data, including seasonality, sales patterns, and past turnover and make more educated business decisions as you grow.

4. Implement Quality Control

Quality control is of utmost importance in any size business and should be implemented as early as possible. Having a process to ensure quality can be directly linked to customer satisfaction and business growth. Starting quality control procedures can be easy as making a checklist that provides all procedures employees need to follow when checking the goods they receive. For example, you could ask workers to examine products for the following:
  • Signs of damage: Leaks, tears, or broken seals
  • Product colors, styles, and sizes: All must be identical to the description on the purchase order
  • Prices and terms of sale
When all employees are working toward the same goals, quality will increase. If items don’t meet company standards, they know to return them to suppliers. This inventory management best practice prevents unnecessary increase in stock levels, and employees will no longer offer customers inappropriate merchandise.


Once products meet quality requirements, consider the warehouse environment in which they will be stored. Could the following impact your inventory’s quality?
  • Light
  • Humidity
  • Temperature


5. Optimize

The heart of good inventory management is the knowledge of what you have in stock and managing it well. When inventory best practices are put in place, your business can then optimize stock levels to not only boost efficiency, but meet ever-changing customer demands. In today’s marketplace, customers won’t hesitate to socially share their bad experiences if you can’t meet their needs. Or simply find another company with a click of the mouse. It can’t be stressed enough that optimization strategies are crucial to your company’s economic health. Failure to execute inventory best practices could result in loss of customers, cuts in inventory, and eventually employee cutbacks. However, a good number of businesses still shell out a lot of cash to upgrade less important systems and ignore inventory management all together. More attention is focused on putting out fires in day-to-day business. What you might not know is that some of those challenges could have been avoided if inventory management best practices were initiated in the first place. Making inventory control a priority will avoid glaring inefficiencies across your operations and help more accurately plan for the future

6. Prepare Now

As a small business owner, naturally you don’t want your company to become stagnant. You hope to grow. That can’t happen unless you prepare. As you plan, be sure to keep inventory management as an important topic of conversation. Inventory management best practices, or the lack thereof, can make your break your small business. An effective, easy-to-use system virtually eliminates human error that manual data tracking causes. Thus, your workers will spend less time shuffling papers and more time on strategic responsibilities.


Case Study: Inventory Management Makes Jeweler’s Processes Sparkle

Phillipa Roberts, a jeweler specializing in organic jewelry designs, started as a street fair vendor in 1996. As their brand grew, so did their inventory needs. Now the business sells jewelry at its retail boutique shop as well as distributes wholesale pieces to galleries and boutiques around the U.S. Phillipa Roberts’ staff started out using a handwritten method to label all items in stock. However they soon realized it just wasn’t working, with up to 800 new pieces created each month.

“The barcode printer helped the company go from tedious manual processes to a streamlined system that was efficient, accurate, and much easier.

“The time we spent handwriting different labels was very time consuming and inefficient,” Adam Evans, Phillipa Roberts jewelry production manager, said. “Meanwhile, the jewelry products we saw at other trade shows and retailers all had nice, professional looking labels.” A switch in process was a must, and their search kept leading them back to Wasp. Since deploying Wasp’s barcode printer, Phillipa Roberts has seen instant results, including:
  • Cleaner, more professional labels
  • 25% more efficient production and 30% faster shipping.
The barcode printer helped the company go from tedious manual processes to a streamlined system that was efficient, accurate, and much easier, so they could concentrate on customer service and other growth strategies. Just like Phillipa Roberts, the best first step towards inventory management best practices is to find the right inventory control system that will utilize barcodes and offer instant data capture and custom inventory tracking. How would using an inventory management system transform your company?