Mastering Inventory Management: 7 Effective Inventory Control Procedures for Your Small Business

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You might not think that Inventory Management is the most exciting aspect of your business but it did wonders for at least one high profile CEO. Tim Cook of Apple reduced the amount of stock on shelves at Apple from months to days. It made his name and saved Apple millions of dollars.

When you run a small business, successfully managing your inventory is critical. These inventory control procedures will drastically improve your efficiency. Read on to learn about 7 ways to get to grips with your inventory.

What Are Inventory Control Procedures?

Inventory control or inventory management for small business can be the difference between success and failure. Many a profitable business has fallen foul of the curse of poor cash flow.

Tying up your working capital in stock you don’t need can mean you can’t pay your bills. If you default on your bills, especially to a bank, you can end up out of business pretty quick. This can even happen when you have happy clients, full order books and are turning a healthy profit.

Inventory control is how you prevent being over-invested in stocks you don’t need. It is also about having the right stock when you need it. This means you can make sales and deliver on your promises to customers.

Organizing inventory in this way helps you keep a track of sales, control ordering of stock, and meet demand. It helps your asset utilization, supports sales and makes you more profitable. What’s there not to like about inventory control procedures.

Follow these top tips for effective inventory control.

1. Set Minimum Stock Levels

How do you or your people decide to re-order stock? Is it gut feel or perhaps you over-estimate to be on the safe side? These are poor strategies that can lead to overstocking or even lost sales.

Set minimum on-hand levels to simplify the re-ordering decision. When the level of inventory falls below the minimum on-hand level you need to order more stock. It’s a simple process that you can easily explain to your staff.

Set the minimum on-hand level by considering the supplier’s minimum order quantity and how quickly they can deliver. Balance this with your rate of sale and you have a safe minimum stock level. Review the minimum stock levels regularly to avoid slow-moving stock or out of stocks.


First in first out rather than last in first out is your goal. There are many good reasons for this way of organizing inventory. You don’t have to be dealing with perishable goods to benefit from them.

The food industry is very familiar with the FIFO principle. When perishable goods such as fruit and vegetables are the products you need to have procedures to manage a shelf life of a few days or even hours. The first strawberries in must be the first strawberries out unless you want to handle rotten fruit.

This approach is good for non-perishable goods too. Any packaging gets worn out if handles and stored for too long. Non-perishable goods can deteriorate over time.

Often packaging information is time relevant. For example, promotional information can be tied to a time window. Advertising or other promotional support could be related to the packaging.

Have a firm, first in first out procedure. Place the new stock behind the old stock. Your pay-off will be less wastage, less damage, and improved profitability.

3. Get Automated

Sometimes, controlling inventory can seem a labor-intensive activity. Capturing and processing information about your inventory is necessary but can it be made easier? As with most data orientated activities, there are ways of automating inventory control.

An inventory system can handle large amounts of data and simplify the number crunching. You can improve your productivity. If that sounds good, you can see more here.

4. Manage Your Supplier’s Performance

Some problems with inventory control arise before the stock arrives at your door. They are caused by your suppliers. Don’t let their ineffectiveness mess up your hard work.

Monitor your supplier’s performance. Check their lead times and whether they keep their promises. Hold them to account if they fail.

Keep a record of the accuracy of their delivery quantities against your order. Is their documentation right? Do invoices match delivery quantities too?

Don’t pay for goods you have not received or have not ordered. Use supplier performance data in your negotiations with suppliers. You might be able to get a better deal or at least improve their performance.

5. Supplier Partnership

Inventory control procedures can give you good information to challenge poor suppliers with but it can also help with the better suppliers. Make sure you work with the good suppliers to improve things further. You know who they are.

Favor the reliable suppliers and help reduce errors in your inventory. Make sure the best suppliers get the best service back from you. Give them preference on delivery times and pay early if you are able.

Let all your suppliers know you recognize and reward good performance. You can work with good suppliers to reduce inventory throughout the supply chain. They are best placed to try just in time deliveries and help improve profits for both of you.

6. Forecast and Re-forecast

One cause of a high inventory level is poor forecasting. In an effort to cover any possible level of demand the temptation is to over stock. Alternatively, caution about over-investment in inventory can lead to low stocks, frequent out of stocks and lost sales.

Forecasting seeks to make the process a little more scientific. A good start is to use previous performance data.

Look at previous trends. If the item is seasonal, consider last year’s performance. Compare with other items that may have a similar pattern of demand.

7. Cyclic Counts

Inventory control depends on accurate data. It’s important to maintain your data by counting your inventory on a regular basis. Doing this will reduce out of stocks, lost sales and ordering errors.

A periodic count of part of your inventory on a cyclic basis will help keep your records accurate. Do a little every week and this won’t seem such a burden. Make sure everything is counted reasonably regularly.

Improving Business Performance

Implementing inventory control procedures can make a significant difference to your business performance. Increase availability of inventory can mean greater sales and profits. Less investment in unnecessary inventory can release cash for other things that make you profit.

Learn about more ways to improve your small business finances

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