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8 Essential Tips for Small Business Inventory Management

17 May 2023 14:50

Running a small business requires efficient inventory management to ensure smooth operations, meet customer demands, and maximise profitability. Effective inventory management practices can also help small businesses reduce costs, optimise their supply chain, and ensure products are in stock. In this article, we will explore some essential tips that can help small businesses improve their inventory management processes.

1. Conduct Regular Inventory Audits

Regular inventory audits are crucial for small businesses to maintain accurate stock levels. By conducting audits, you can:

  • identify discrepancies between your records and actual inventory,
  • address stock inaccuracies, and
  • prevent issues such as overstocking or under-stocking.

By setting a schedule for routine audits, and utilising inventory management software, managing stock will help you to streamline the process.

2. Categorise Your Inventory

Categorising your inventory is an effective way to organise and manage your stock. Consider using the ABC analysis technique, which involves categorising items based on their value and sales frequency. Classify your inventory into three categories:

  • A (high-value items with high sales frequency),
  • B (moderate-value items with moderate sales frequency), and
  • C (low-value items with low sales frequency).

This categorisation helps prioritise stock control efforts and focus on items that have the most significant impact on your business. Having software that also provides reports on product sales in terms of amount and frequency will make this classification simpler. 

Pro tip: Do a pareto analysis on your most ordered/shipped items to find the 20% of your items that constitute 80% of your sales! 

3. Implement a Just-in-Time (JIT) Approach

For small businesses with limited storage space and resources, implementing a just-in-time (JIT) approach can be beneficial.

JIT inventory management focuses on receiving goods as they are needed in the production or sales process. This in turn reduces excess inventory levels and associated carrying costs. By adopting JIT, small businesses can optimise inventory levels, minimise storage expenses, and improve cash flow.

4. Establish Reorder Points (Parameters) and Safety Stock Levels

Setting parameters for reordering and safety stock levels is crucial to avoid running out of stock and keeps your operations running smoothly. Reorder points indicate the inventory level at which you should reorder a product to prevent it going out of stock. You should also ensure that you have a system in place so that these points are flagged so that you can take action.

Safety stock acts as a buffer against unforeseen demand fluctuations, supplier delays, and/or financial constraints. By analysing historical sales data, lead times, and market trends you will be able to determine the appropriate reorder points and safety stock levels for each item. This in turn will help you to meet market demand and ease stress levels.

Pro tip: Configure minimum stock levels, and restock values for each item to quickly identify which products are below their restock level. KhooSeller Inventory module can help you manage this! 

5. Leverage Inventory Management Software

Investing in inventory management software can significantly enhance small businesses processes. These software solutions offer features such as real-time inventory tracking, automated reorder point alerts, sales forecasting, and reporting capabilities. By leveraging such tools, you can streamline inventory control, gain valuable insights, and make data-driven decisions to optimise your stock. This in turn will make your business more efficient and less stressful.

One benefit of having real-time knowledge of your inventory is that you can identify SKU's that are slow moving and put in place marketing strategies to sell the stock. For example email campaigns, price breaks, multi-buys, or special offers can be used to promote slower selling products and prevent stock being left on shelves.

6. Foster Effective Communication and Collaboration

Effective communication and collaboration within your business are crucial for efficient inventory management. Ensure that your purchasing, sales, and warehouse teams are aligned and regularly share information on stock levels, customer demands, and sales forecasts. By implementing a centralised system, or having software that allows seamless communication, you will be able to minimise errors and improve inventory visibility.

Pro tip: Make sure the conversation internally about operations stays positive and constructive. If a team member isn't pulling their weight, work with them to understand how they can improve. 

7. Optimise Supplier Relationships

Developing strong relationships with suppliers is vital for small businesses to ensure a smooth supply chain and timely delivery of goods. With good communication negotiating favourable terms is easier, and you may be able to establish mutually beneficial partnerships. Keeping suppliers in the loop will also help you manage lead times effectively, and address any issues promptly.

Pro tip: Use the KhooSeller Supplier module to quickly reorder and receive goods-in from your suppliers with ease. Combine this with the auto-restock function to master your inventory like a pro! 

8. Monitor and Analyse Key Performance Indicators (KPIs)

Monitoring and analysing key performance indicators (KPIs) related to inventory management can provide you with valuable insights into your business's performance and help you to identify areas for improvement.

Some essential KPIs to track include:

  • inventory turnover rate,
  • fill rate,
  • order accuracy,
  • carrying costs, and
  • out of stock rates. 

Putting time and effort into reviewing these metrics to identify trends will help you to make data-driven decisions, and optimise your inventory management strategy. This is so important when running a small business because understanding these indicators you will be able to streamline your processes more efficiently.


Efficient inventory management is crucial for the success of small businesses. By implementing these essential tips, including conducting regular inventory audits, categorising inventory, adopting a just-in-time approach, setting reorder points, leveraging inventory management software, fostering effective communication, optimising supplier relationships, and monitoring key performance indicators, small businesses can streamline their inventory processes, reduce costs, and enhance customer satisfaction. Prioritising inventory management as a strategic aspect of your business is essential to drive growth and profitability.

At KhooSeller we are experts in inventory management and can help you as a small business. Do get in touch if you would like find out how our software can improve your business's performance online.