Your inventory is the bread and butter of your business. You, your staff, and your customers all need to access it in some way for your business to operate properly.

Managing inventory effectively keeps everyone on the same page and avoids confusion. However, that’s often easier said than done. Keeping track of inventory isn’t ever simple; especially if you’re a new business owner, or you’re going through a period of rapid growth.

We put together this post to help you deal with the complexities of inventory management. We’ll give you high-level strategic recommendations and a few quick tips to solve common problems. We’ll even recommend a few inventory management tools for you to try out.

What Is Inventory Management?

At a basic level, inventory management is the practice of putting tools and systems in place to track what items, ingredients, or goods you have in stock, and the quantity you have on hand of each. This will tell you what items you need to reorder, when you need to do it, and the quantity you need to get, preventing out of stock issues.

The exact specifics of this process are going to vary between individual businesses and different industries. Considerations like your target audience’s buying habits and the specifics of your distributor relationships will also lead to differing approaches to inventory management. Despite all of that, there are a few general concepts that are applicable across the board. Answer these questions to start building out a rough inventory management strategy:

  • How much inventory do you currently have on hand?
  • How much inventory are you ordering?
  • How long does this inventory need to last you?
  • Is it too much or too little inventory?
  • Do you have adequate inventory storage?
  • What methodology (first-in, first-out vs. just-in-time inventory management) and tools (inventory tracking software, POS, or spreadsheets) do you want to use to track inventory?

How to Keep Track of Inventory Stocking Shelves

Ordering Your Inventory

First thing’s first, you need to have inventory in order to manage it. Ordering inventory may sound like a daunting process, especially the first time you do it, but it doesn’t have to be. Answering a few basic questions is a great way to get started:

  • What are kinds of items do you want to stock?
  • How much of that product do you expect to sell?
  • How quickly do you expect to sell it?

These questions will dictate the quantity and frequency of your orders. In doing so, they will also help you regulate your cash flow. Knowing the average amount you spend on inventory, and setting a target for that value, makes it more likely that you’ll stay within your cash flow guidelines.

You should also understand your supply chain. This will help you map out the journey your products take from raw materials to finished product, as well as how the products reach your shelves and your customer’s hands. Small changes in market demand, among other factors like the weather, new regulations, and geopolitics, can shake up your supply chain and cause the price of inventory to surge. Unorganized and unreliable suppliers can also raise prices, so be aware of what suppliers you do business with to have better control over your overall inventory costs and stock level.

How Mismanaged Inventory Affects Business

Mismanaging inventory is like throwing money out the window. Administrative errors, which fall under the mismanaging inventory umbrella, can account for more than 20 percent of the inventory loss or retail shrinkage experienced by a business. When you don’t keep track of your inventory you don’t know how much you have, or how much you’re selling within a given time frame. You could be buying more than you need without realizing it or even losing inventory in the clutter of a disorganized stockroom. In terms of a restaurant or food service business, mismanaging inventory usually means having to throw away expired or excess food.

Not keeping proper tabs on your stock also means that it’s easier for people to steal from you. Whether the theft is from your customers or your own employees, things could go missing and you may never notice. Put security measures in place in addition to inventory management tools to help stop this problem.

SEE ALSO: Loss Prevention: Your Key to Stopping Shoplifting

How Do You Know If You Have Too Much or Too Little Inventory?

Knowing how much inventory you should have on hand may take some time to figure out. In the beginning, you’ll need to make some assumptions. But after you’ve been in business for a few months, you’ll have enough data to make better decisions. To do this as scientifically as possible, you will want to review your sales by item performance in your POS system.

In addition to the quantity you’re buying, you’ll also want to calculate just how much you’re spending on inventory. Ensure that this number aligns with industry standards (in addition to meeting your own financial guidelines). For example, food costs in a quick serve restaurant should be around 25-30%. If you’re spending more than 30% on your food alone, you need to scale back the amount of food you buy from distributors and suppliers, or you need to try to renegotiate the prices you’re paying.

Too little inventory means you are constantly running out of items. This could be because you’re ordering too little, preventing you from keeping up with demand. This can be frustrating for customers and cause you to miss out on sales. If it becomes a trend, your customers could even start to shop or eat elsewhere. If the issue is with your suppliers and not you, then an honest conversation is the best place to start. Let them know the consistency with which you need products back on your shelves and work together to come up with a plan that makes sense for both parties.

You can also monitor your inventory levels and inventory trends with reports from your POS. Good POS software will use the information collected from sales to show you your most popular items so you can prioritize keeping them in stock.

How to Keep Track of Inventory

Proper inventory management requires the right tools. The old pen and paper method is very time-consuming and error-prone. It’s basically the same as sitting down and counting all of your stock by hand. Papers can get easily lost or misplaced in all the hustle and bustle of running your business. Using modern inventory software, an inventory management app, or a POS system can save you time, space, and trees. Plus, you won’t have to worry about misreading any sloppy handwriting.

Managing Inventory With Your POS System

The same functionality you’ll find in dedicated inventory management software is built into most modern POS systems. In fact, outside of the analytics and the ability to accept payments, it’s probably the main reason to get a point of sale. A system like ShopKeep lets a small business owner input inventory data directly into it. Then, as different items are scanned and sales are finalized, inventory counts automatically update, giving you access to real-time inventory insights.

To update your inventory more quickly, use a Bluetooth barcode scanner to scan items from an order into your POS system. You can even set up reorder triggers that tell you when your stock runs low for an item so that you can place an order. Features like this help you avoid running out of popular items and disappointing your customers.

Once everything is added into your POS system, you have access to reports that help you understand how your inventory is performing. You can easily answer questions like:

  • What are your best selling items?
  • What items are underperforming sales expectations?
  • How much is your stock worth?
  • Which items have the best profit margin?
  • How has my inventory performance changed over time?

Being able to answer these questions is a big win for your business. You can make smarter decisions, better utilize your capital, and keep your business on a successful path.

SEE ALSO: Basic Inventory Management Techniques for Better Business

How to keep track of inventory inventory storage

Inventory Storage

Storing products is important for all businesses but for different reasons. In retail, proper storage keeps products clean, undamaged, and easy to find. Store clothing in dry places and on hangers to avoid wrinkling. Accessories like handbags, wallets, and socks should be in separate labeled containers. You can even go further with this by putting each accessory in its own plastic wrapping before storing it away. This is a good practice for jewelry bought in bulk or handbags with rough edges and metal hardware. This helps prevent hard surfaces from rubbing together and getting damaged while they’re moved from storage to the sales floor.

Shelving is also important. Shelves can help organize your products while also keeping your storage room or warehouse space neat. Give yourself and your staff some dedicated walking room by going vertical and make sure your shelves are sturdy enough to handle the amount of inventory you have.

Clothing and other fabric products may be damaged by mice or other creatures who find their way to your storage area. This is particularly true if it’s dark and there are boxes that aren’t moved often. The moral of the story? Make sure you have protection against rodents and bugs. On another note, mice can also be a sign that inventory has been sitting around for a while and you need to make some changes to your catalog.

In food service it’s always in good practice to label stored food with the date it was prepared so that you know what’s fresh and can avoid waste. Meats and dairy products need to be stored at specific temperatures to prevent them from spoiling. In the U.S., laws that regulate how food should be stored differ from state to state. Be sure to check with your local authority to find the regulations that apply to your locality.

SEE ALSO: 9 Reasons Why Small Businesses Fail (and How to Avoid It)

Managing Your Inventory Going Forward

Now that you’ve put the proper tools in place it’s important things stay that way. As we’ve hinted at, a POS system with proper inventory management tools will save you from countless hours in the stockroom tracking orders and inventory with your face in a spreadsheet. However, there’s more to inventory tracking than SKUs on a screen.

Being firm about your security policies also makes sure things aren’t being stolen. But it’s up to you as a small business owner to pay attention to what’s going on in your store to prevent any retail shrinkage issues. If you’re looking at reports and see things that don’t make sense be sure to act as quickly as possible.

To get an inside look at how a real retail boutique owner goes about managing their inventory on a day-to-day basis, take a look the video below from vlogger and boutique owner Alli Schultz.


Interested in starting your own boutique? Get $200 off your hardware purchase with a minimum purchase of $1,000 worth of hardware.* Learn more.

The sheer amount of work needed to accurately track your inventory can be a major source of stress for new or busy retailers. But it doesn’t have to be. Keep in mind that all of this is a process and it will take time, as well as some trial and error, before you find systems that work for you. With hard work, perseverance, and the right inventory management tools, your day-to-day operations will fall into place.

Kori Williams ShopKeep Content Writer

Kori Williams

Content writer, Kori Williams, brings a love of grammar and a journalism background to ShopKeep, a leading iPad point of sale system, to create relatable business and POS content.