How to manage your inventory

Darryl Bachmeier
Mar 19, 2019

If you are in the business of selling products, you most likely will carry some sort of inventory. Inventory management it crucial to cost savings and running an efficient business. One of the worst things that can happen is continually wasting inventory, it is just cash out the door.

Inventory can be one of the biggest expenses for a company. The goal is to use up 100% of inventory.

Inventory is an asset of your business but too high inventory and you are wasting money. Too low and customer has to wait for item to come in and may go somewhere else.

Record keeping

You will need to manage on-hand quantities to ensure you have enough to do business but only keep the minimum you need to do business. This reduces costs and takes up less space. The amount of inventory depends on customer demand for your products.

You should keep good records of all items and once you have built up a history you can get a good idea of how much you will need. Watch for trends throughout the year.

Managing items

You should know your inventory turnover rate. Depending on your industry it could be a few or several times per year. Food items are perishable and must have a higher turnover. Luxury items on the other hand most likely will have a lower turnover.

There are applications that you can use to track your inventory. Some are free. They work by entering in each items information, supplier, categories, units, location, quantity and re-order limit. You can then run a report that lets you know what items you need to re-order.

It is also good practice to on a monthly or quarterly basis to manually count inventory to verify what the system and what you physically have match up. If what your sales say and what your inventory says are different and you cannot account for items, they have been either lost or stolen.

It is important to identify which items are not selling and just taking up space. Than plan to cut the price and get it, them out the door. On the other end, you need to identify your top selling item so you can order more.

Track expiry dates, make sure to sell the old items before the new ones this is called the first in, first out method.


When dealing with suppliers you need to know how long shipments take on average so inventory arrives just in time only when you need it. This gives a good estimate of when you will run out you plus a few days lead-time you know exactly when you should order. Make sure you have accurate supplier information to quickly place orders.

You need to make sure you have good suppliers. As a small company, this can be difficult as it is usually the suppliers that have all the power. To mitigate this is by using multiple suppliers for the same products or alternate versions of the products.

Becoming good at managing inventory will also improve your supplier relationship. If you are consistent in your orders, they can improve their business.

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