What is Inventory and Stock Management? Benefits, Techniques Explained for Small Businesses

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Behind every successful business lies a well-managed inventory.

Picture this scenario.

You have a business online and you’ve decided to run a sale to bring in customers and get more visibility for your business website and social media pages. You create your discount or coupon for sales and start talking about your sale on your social media pages, sending emails to your email list and also sending SMSs to your customers with amazing SMS marketing hacks to get them to convert. As a result of your marketing strategies and efforts, customers start placing orders. However, due to poor inventory management, you quickly run out of stock but are still getting orders. Unable to fulfil customer requests, you end up disappointing customers and also having to make refunds. This entire experience resulted in a decline in customer loyalty and sales. Because customers are reduced, you can’t sell out stock quickly, which ends up tying your capital in excess inventory, and because you can’t sell out old items, you can’t restock with new items and even the customers who come around can’t find the new, hot items they want.

And it basically goes on and on. All these issues highlight the very important role that effective inventory and stock management plays in the success of a business. Properly tracking and controlling inventory levels helps businesses meet customer demands, avoid missed sales opportunities, and maintain a competitive edge in the market.

Related: 10 Small Business Ideas you can start with 20,000 in Nigeria

In this article, we’ll break down:

1. The benefits of inventory management

2. Inventory management techniques

3. Best practices for managing inventory and inventory challenges

4. The best inventory management tools

What is Inventory Management?

Inventory management refers to the process of overseeing and controlling a business or company's inventory of goods. Its purpose is to ensure that a business has the right amount of stock, in the right place, at the right time, and at the right cost. Effective inventory management ensures that a business maintains optimal levels of inventory to meet customer demand while minimising costs associated with excess stock or stockouts.

Where does Stock Management Come In?

Stock management typically refers to the specific activities involved in the control and monitoring of the physical stock on hand. It includes tasks like receiving and inspecting incoming stock, organising and storing stock in warehouses or storage facilities, conducting regular stock counts, managing stock rotation, and controlling inventory accuracy.

In simpler terms, inventory management refers to the broader strategic and analytical approach to managing inventory, while stock management deals more with the day-to-day operational and logistical tasks associated with handling physical stock.

Related: Top 5 Online Selling Platforms in Nigeria to Get Your Online Business Booming!

The Benefits of Inventory Management for Small Businesses

1. Improved cash flow

Effective inventory management helps optimise the balance between supply and demand, ensuring you have the right amount of inventory. This prevents excess stock from tying up valuable capital and allows you to manage your business finances more efficiently.

2. Reduced carrying costs

By managing inventory levels accurately, you can minimise carrying costs associated with storing and maintaining excess stock like depreciation and the risk of spoilage, and improve your overall profitability.

3. Increased customer satisfaction

Inventory management helps ensure that you have enough stock to meet customer demands promptly, and over improves customer service. This reduces the risk of stockouts, leading to happier customers who receive their orders in a timely manner.

4. Better decision-making

Comprehensive inventory data and analysis help you understand demand patterns and sales trends - what people are buying the most and more - and enable you to make informed decisions about procurement, pricing strategies, and what to discontinue. This helps increase the profitability of your business.

5. Reduced inventory waste

With proper inventory management, you can monitor stock levels, track product expiration dates, and identify slow-moving or obsolete items. This allows you to take timely actions such as discounting, promotions, or liquidation to minimise losses from obsolete or expired stock.

6. Increased profitability and cost savings

By optimising inventory, reducing carrying costs, minimising stockouts, and streamlining operations, inventory management directly contributes to increased profitability and cost savings. This improves your bottom line by maximising revenue, reducing costs, improving cash flow, and minimising financial risks associated with excess or insufficient inventory.

Best Inventory Techniques for Small Businesses

Thinking of how to handle your inventory in the best ways? While there are a lot of inventory techniques, here are some of the best ones for small businesses:

1. ABC Analysis

This technique involves categorising your inventory into three groups based on their value and importance. Class A items are high-value items that contribute to a majority of your sales, Class B items are moderately important, and Class C items are low-value or slow-moving items. With this analysis, you can prioritise the management of high-value items and optimise stock levels accordingly.

2. Just-in-Time (JIT) Inventory

This technique aims to minimise inventory holding costs by receiving goods from suppliers just in time for production or customer demand. By closely coordinating with suppliers and having effective communication channels, JIT inventory can help reduce excess stock and improve cash flow.

3. Dropshipping

Instead of keeping inventory in-house, dropshipping involves partnering with suppliers who fulfil customer orders directly. With this technique, you can save on inventory storage costs and streamline your operations. However, it requires carefully selecting reliable suppliers and maintaining a strong customer relationship.

4. Consignment Inventory

This technique allows you to stock and display products provided by suppliers in your store without initially purchasing them. You only pay for the items that are sold, reducing your upfront costs and inventory risk. However, clear agreements and effective tracking systems are essential to ensure accurate and fair accounting.

Remember, the suitability of these techniques may vary depending on your specific business needs, industry, and products/services. It's important to thoroughly analyse your inventory management requirements and explore which techniques align best with your goals and constraints.

Best Practices for Managing Inventory for Small Businesses

1. Implement First-In, First-Out (FIFO) Method: Adopt the practice of using the oldest inventory first to minimise the chances of products expiring. This is particularly important for businesses dealing with perishable goods or products with limited shelf life.

2. Embrace Automation and Inventory Management Software: Leverage technology and invest in inventory management software tailored for small businesses. Such tools can help automate processes, streamline order management, generate reports, and provide insights into inventory performance.

3. Monitor Key Performance Indicators (KPIs): Keep an eye on important inventory management KPIs such as inventory turnover ratio, carrying costs, stockout rates, and order fulfilment time. Regularly analyse these metrics to identify areas for improvement and make data-driven decisions.

4. Develop Supplier Relationships: Cultivate strong relationships with reliable suppliers who offer competitive pricing and prompt deliveries. Good communication and trust can lead to better terms, faster order processing, and more efficient inventory management.

5. Continuously Train and Educate Your Team: Provide training to your employees involved in inventory management to ensure they understand the best practices and company-specific processes. This helps maintain consistency and efficiency in inventory-related tasks.

The Best Inventory Management Software and Tools for Small Businesses

There are several inventory management software and tools available for small businesses. Here are some of the best options!

1. Bumpa

2. Zoho

3. Fishbowl

4. Sortly

5. Cin7

In this list, the cheapest at 5,000 per month is Bumpa! This inventory management software makes it easy for you to track all your products in one place, no matter where you sell. You can also record every sale you make through each channel, and have products deducted automatically from your inventory after every record. And if customers shop directly from your Bumpa website, it’s automatically deducted from your inventory as well. And that’s just the tip of the iceberg. Signup to get started, and you can download the app and track your inventory on the go!

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