What Every Business Needs to Know About Inventory Management

If you’re a retailer, proper inventory management is key to your success.

It might also be intimidating. Few business owner get enthusiastic about the idea of tracking inventory. Additionally, they may simply feel they don’t know where to start.

These points will simplify the process. To ensure you’re not losing money, apply the following inventory management methods:

Understand the Importance

As a small business owner, it’s crucial that you understand every facet of your business,  from the best ways to secure funding for your small business to how to operate inventory management. You’ll be more motivated to adhere to inventory management best practices consistently if you know why it’s important.

Essentially, proper inventory management saves you money. It prevents perishable items from spoiling, reduces unnecessary storage costs, guards against dead stock, and ensures items you need are available when customers want them.

Remember, you pay for inventory. However, you earn nothing from an item until you sell it. By prioritizing inventory management, you turn potential earnings into actual revenue.

Set Par Levels

A par level is simply the minimum amount of a certain item you should have in your inventory before ordering more. The goal is to stay above par.

Remember, par levels will vary from one item to another. They’ll also vary seasonally. A department store that carries lawn and garden equipment will need to adjust its par levels based on the time of year. During winter, such items probably won’t sell often. During spring and summer, there will be much greater demand for them. Monitor sales trends to determine how to adjust your par levels throughout the year.

Adopt the FIFO Policy

Perishable items can spoil if they aren’t sold on time. Other items may get damaged if they aren’t sold after several weeks or months. This turns potentially valuable items into worthless inventory.

Prevent this with the First In, First Out (FIFO) principle. It simply involves making an attempt to sell older items first. Getting them off the shelves as soon as possible is key to ensuring they retain their value.

Plan for Emergencies

You need to maintain positive relationships with your suppliers. There may come a time when you need emergency shipments. If you’ve been slow to pay invoices, suppliers will be less inclined to help.

Additionally, you need to prepare for situations you might not anticipate by identifying potential risks ahead of time. Maybe you’ll miscalculate inventory at some point. Maybe you’ll run out of storage space. Perhaps a manufacturer will discontinue a product. An unexpected sales increase could result in overselling. Consider these possibilities, and more importantly, determine how you’ll react if they occur.


Auditing involves several essential steps. One is taking stock of your physical inventory. This usually occurs at the end of the year, when you check all items in your inventory to determine if levels are where they should be.

There will also be instances throughout the year when you have additional time for spot checking. This involves checking the stock of a single item.

If end-of-year physical inventory checking is too overwhelming, you might consider adopting a cycle counting approach. To do this, check specific items every week or month, spreading the physical inventory check throughout the entire year.

Regardless of which approach you implement, it’s important to complete these tasks. You want to make sure the information you’re getting from your warehouse matches your findings.

Use the ABC Method

Some retailers carry many different items. Knowing which to prioritize when conducting inventory management is easier with the ABC method. This separates items into three categories:

  • A.) High-value products with low sales frequency. They need regular attention, as they have a major impact on your finances, but their sales patterns are difficult to predict.
  • B.) Moderate-value products with moderate sales frequency. As the description implies, they require a moderate degree of attention.
  • C.) Low-value products with high sales frequency. Due to their consistent turnover and low financial impact, they deserve minimal attention.


Predicting sales patterns is easier when you assess various factors. Obviously, you want to review historical sales records to determine what times of year certain items are most popular. However, you also need to pay attention to market trends and the state of the overall economy.

Do you have any upcoming promotions? They will very likely impact sales as well. Is your business growing? Do you plan on spending more money on advertising this year than last? Consider these factors, and you’ll be more likely to develop accurate sales forecasts.

It’s also important to keep in mind that every business is different. Again, maybe your business sells items that are popular during particular seasons, while another retailer only sells items that are consistently popular throughout all seasons. Don’t rely solely on the factors listed here. Consider what else might affect your approach to forecasting.

Most importantly, do your best to apply this advice. While inventory management may not be the most thrilling aspect of retail, it’s crucial to your success. These tips will help you perform these tasks efficiently.

  • JohnSmith

    JohnSmith is a writer, website created to provide the latest information in all fields: economics, culture, society, health, technology ... If you see interesting articles please share them. Thank you! Contact: admin@newsdailyarticles.com Admin: newsdailyarticles.com

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