Inside Logistics

Manage inventory like a big-box store

Effective inventory management is the cornerstone of any successful business operation, big or small. But small businesses have much less room for error


July 6, 2015
by Nancy Harris

Effective inventory management is the cornerstone of any successful business operation, big or small. But with more limited cash flow, storage space, and a smaller customer base, small businesses have much less room for error. And with increased customer expectations, small businesses are expected to have a wider variety of products available at all times—or risk losing a customer to a willing competitor.

When done right, inventory management can curb costs, improve the bottom line and enhance customer service. Big box retailers have mastered inventory management and small businesses can take a page out of their book in an effort to better manage their own inventory and increase efficiency, even if you don’t have a big fancy inventory management system at your fingertips.

Keep detailed accounting records
The first step to effective inventory management is maintaining up-to-date accounting of the inventory you have on hand at any given time. One of the most effective ways to track inventory is using a perpetual inventory system that tracks inventory purchases, allowing your business easy access to up-to-the-minute inventory information.

Many small businesses are inclined to use paper-based systems or spreadsheets to handle their accounting and inventory, in fact, according to the 2015 Sage State of the Start-up Survey, 51 percent of Canadian start-up owners say they do their accounting manually on paper or on spreadsheets on a home grown database system.

As an alternative, they should be considering accounting software instead. Accounting software can help simplify the process by allowing you to easily track inventory, keep tabs on inventory levels, establish a preferred suppliers list that identifies previous pricing for materials or goods purchased, and forecast sales so you can plan ahead and be aware of customer buying patterns.

Take a yearly physical count
No matter how meticulous your inventory management records are, they often don’t account for loss of inventory due to theft, waste or breakage. A yearly physical count of inventory will help ensure your inventory numbers are accurate and also help identify ways to improve your ongoing inventory management tracking.

Ask an accountant
Your dealings with an accountant shouldn’t be limited to tax time. They can help you year-round by interpreting and analyzing your inventory data to help identify ways to improve inventory management to reduce costs, increase customer satisfaction, and identify areas for growth.

So once you have the basics of inventory under control, what are some more advanced inventory management techniques and processes?

Think big data & analysis
Big data isn’t just for big companies. A number of new tools and processes can harness the power of big data to further optimize inventory management. While big box stores have mastered the power of big data and analysis, there are a number of things that small businesses can do as well.

Using big data to help with inventory management can let you predict customer behaviour and be prepared for any sort of influx or change in business as a result of those predictions. This data can also help guide your business decisions, whether it’s offering different products or ramping up customer service.

How can you start using big data and analysis to improve inventory control? First, look at the data you already have and how you can best use that information to improve inventory, reduce costs and meet customer demand.

An advanced accounting solution can help you analyze, diagnose, and identify seasonal shifts in demand for every item on your inventory; patterns for large customer orders; when you are likely to run out of stock or incur an overage; lost sales; items that are moving slowly enough to warrant draw downs; unsellable items; and, patterns of price reductions and volume discounts from suppliers.

Inventory control is both a science and an art. By mastering the basics and beginning to implement some advanced big data and analysis techniques big box stores use, small businesses have the potential to significantly increase their competitiveness and profitability.

Nancy Harris is senior vice-president and general manager, Canada, for Sage North America. Her responsibilities include driving the strategy and day-to-day operations for the small business portfolio.