Inventory Management Tips for Small Online Businesses

Inventory includes the goods that a company handles for selling in the market. There are different types of inventory and its nature depends on the type of goods you deal in. Inventory might be the raw materials that are bought and then processed into finished products, or a bulk product that is bought and then sold separately by a company. Inventory also includes unfinished goods, safety stock, and MRO (Maintenance, Repair, and Operating) goods.
inventory management

What Is Inventory Management?

Inventory management refers to the entire process of ordering, stocking, and utilizing an enterprise’s stock. The main aim of inventory management is to ensure that you always have access to the needed quantities of the right product at the right time at the right location. It involves tracking as well as controlling your business inventory throughout its buying, manufacturing, and storing process. Inventory management system mostly involves five main stages:
Selling online representation of online store
  • Purchase - purchasing the needed products or raw materials.
  • Production - production of finished goods, provided you buy unfinished goods or develop your product in-house.
  • Storage - storing raw materials before you start production and storing finished products before you sell them in the market.
  • Sales - selling your stock to your customer and receiving payment in exchange
  • Evaluation - evaluating the profits generated after selling stock

Why Should Small and Medium-sized Businesses (SMBs) Ensure Efficient Inventory Management?

Having insufficient inventory prevents you from supplying enough available products. This can drive your customers away to other competitors. Prioritizing your inventory management is necessary to fulfil your customers’ needs on time. It ensures that you have a steady supply of stock that needs to be frequently ordered or manufactured.

On the other hand, overstocking items bleeds away valuable money from your business. Studies show that small businesses can see up to 35% cost increases by carrying extra inventory. It ties up valuable cash flow and incurs unnecessary storage and tracking expenditure. Therefore, efficient inventory management is one of the crucial elements to maintain profitability in your business. It ensures you maintain a balance between these two extremes for sustainable business growth.

Inventory Management Tips for Small Online Businesses:

SMBs should know a few things about managing their inventory. Here are 10 tips for small online businesses to ensure effective inventory management:

1. Categorize Your Inventory

Categorizing your inventory into different groups based on your priority can easily allow you to understand which items should be frequently ordered in large quantities and which ones do not require frequent sourcing. An easy way to categorize your inventory would be to segregate them into three different groups A, B, and C. You can then place high-priced and slow-moving items in group A and low-cost but fast-moving items in group C. The remaining moderately priced items that move out slower than items of group C but faster than that of group A, should be placed in group B.

2. Invest in Digital Tools

Manually managing your inventory using spreadsheets and notebooks while very much doable, is also hectic, time-consuming, and leaves scopes for errors. Thus, you can consider investing in a good inventory management software to complete your tasks easily and accurately.

3. Ensure a Balance between Digitization and Your Traditional Working Model

Inventory management tools like mobile scanners and POS systems can help you to manage stocks more efficiently. However, it is recommended that you do not automate the entire process of your inventory management system and try to incorporate digital tools to support your human workforce instead. In this way, you can reduce inaccurate inventory count as well as boost productivity.

4. Keep a Record of all Product Information

Information like SKUs, barcode data, and details about suppliers for all the items present in your inventory should be well recorded. You can also try to track the price for all of the products in your inventory. This can help you to understand changing trends in their prices during different seasons of the year. Based on this understanding, you can easily stock up the needed products before their usual price-hikes.

5. Regularly Audit your Inventory

Businesses should invest time and effort to do a comprehensive count of all the inventory items once a year. You can also go for a monthly or daily check if needed. Counting your inventory ensures that you actually have the needed products in the right quantity. It is estimated that businesses can lose 2-10% of their stock to loss or theft each year. Thus, it becomes important to take some time out to audit your inventory regularly so that you are not dependent on assumptions.

6. Source a Good Supplier after Careful Analysis

Unreliable suppliers can often disrupt your inventory management. If your supplier habitually delivers late and often misses out delivering the right products, it is better to consider welcoming a change. Try discussing to understand the reasons behind regular delays and errors. If you cannot see visible changes then be prepared to source from a different supplier.

7. Prioritize Replenishing Stocks that Bring Greater Profits

Not every product can bring in the best Return On Investments (“ROI”). If 80% of your net profit flows in from 20% of your products, then prioritize better inventory management of this 20%. To understand which products from your inventory bring in maximum profits, monitor the sales lifecycle of all of your products. Once you are sure about which stocks bring the greatest profits, prioritize replenishing them.

8. Implement a Standard Process to Follow

If all of your staff who receive stocks and manage inventory follow their different way of inventory management, then it is quite likely for numbers to not align with your purchase orders at the end of the year. Thus, standardizing the process will be a smart move. This will eliminate discrepancies and will ensure that all of the products are verified, counted, and received accurately.

9. Regularly Update Inventory after Tracking Sales

Make updating your inventory totals a daily activity. This will allow you to understand your sales total, the best-selling products, trends in demands, and will help you to paint a broader picture of how your items sell.

10. Avoid Outsourcing for Ordering Stocks

Some vendors can manage inventory on your behalf. Though this can save you valuable time, it is not extremely beneficial for you in the longer run as these vendors might not have the same priorities as you do. Thus, it is always a good practice to check inventory and order restocks of all your business items yourself.


Inventory management deeply affects how you run your business, fulfil your targets, and help growth in sales. Efficient inventory management is one of the important tools for every business that wishes to be more customer-centric and sustainable.

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