What is an inventory management system for small business?
An inventory management system for small business is a software that helps businesses track their inventory levels, orders, and sales. It can also help businesses manage their stock levels and reorder products.
Inventory Management System for Small Businesses- How to Zero in on the Right One
What is Inventory Management?
Inventory management refers to the process of placing orders for products, holding supplies, and using and selling stocked items for profit. It entails storing, handling, processing, and shipping products, and in this regard, inventory management is closely related to supply chain management.
The importance of inventory management for a business cannot be overemphasized. Unless you have a clear understanding of what items are in stock, how much has depleted, how much needs to be reordered, which items are most in demand, which items are straining company finances, and the nature and quantum of wastage of resources, you cannot take your business forward.
For a food and beverage organization, it is imperative to know the optimal amount they should purchase so that they don't end up holding unusable stocks, or are caught unawares by a sudden supply shortage and face flak from customers.
This demands that inventory management processes be highly robust so that the business knows exactly what it has and what it needs for consistent order fulfilment. It becomes necessary, therefore, to exercise strict inventory control, which involves close inventory tracking and warehouse management that monitors the passage of goods from the farm to the fork, and their movement in and out of warehouses and restaurant points of sale.
Why is Inventory Management Important?
If a business has to be profitable, there is no way that it can sidestep inventory management, however tedious it may be.
A way to make inventory management more enjoyable is to use automated software solutions. These are easier to handle, less time-consuming, and more accurate than primitive methods like scribbling inventory counts by hand on sheets of paper, or manually keying inventory data into spreadsheets. Inventory management software can be assisted by barcode scanners to make stock-taking an even more efficient process.
When stocks arrive at a restaurant or bar, they are scanned by barcode scanners and their details registered in the inventory software. Once recorded, an item cannot escape the organization's radar, and any unaccounted changes in stock levels (owing to theft, pest attack, and wastage) can be quickly identified.
The most basic objective of inventory management for a food and beverage business is to ensure that it never fails to serve a customer what they want because it has run out of stocks. And when stock-outs impact bestselling items, customer discontent is high.
The organization also wants to make sure it doesn't have shelves overflowing with inventory that lead to food wastage and high food costs.
With meticulous inventory management supported by equally strong demand planning, sales forecasting, and supply chain management, an organization can place orders when there are still supplies left. These can serve as a buffer until new supplies arrive. Good inventory management prevents the organization from ordering mindlessly, when it has sufficient supplies on hand.
Global Supply Chain Market: The worldwide market for supply chain management is predicted to expand to around $31 billion in 2026, from around $16 billion in 2020, Statista reported.
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Challenges Small Businesses Face in Inventory Management
1. Small businesses may not have the resources to afford sophisticated software and rely instead on manual and spreadsheet-based inventory management methods. This exposes them to errors that make inventory tracking difficult. All it takes is a single employee to forget to update inventory changes on a spreadsheet to create wastage and raise order costs.
2. Gathering adequate and worthwhile business intelligence becomes an uphill task for small organizations that operate with manual and spreadsheet systems. Studying spreadsheets and hand-written inventory sheets can help a business owner draw some basis inferences, but even that is a cumbersome process.
3. A small business may not have the resources to avail of a software solution that provides consistent order tracking. Customers may consider this a lack of transparency.
4. Inventory management is not merely about checking stock levels. It entails a broad range of functions like order placement, management of storage space, order fulfillment, and so on. A number of these processes call for real time and regular monitoring. A small business relying on basic inventory management methods, however, may not be able to achieve this.
5. A small business may struggle to effectively handle changing customer preferences and demands. They usually work on tight budgets and have a small staff strength, and make do with simple and often antiquated processes. This tends to weaken inventory management and may lead to several pain points downstream, including the overstocking of poorly performing items that results in loss of money and precious storage space, and the sale of products at throwaway prices to make room for new supplies.
6. With small staff numbers and without efficient inventory management systems in place in a small-sized organization, there is every chance of a mistake occurring when recording stock levels. This may mislead both the business and customers into believing that there are sufficient supplies when there are none, thereby adversely impacting the company's image.
To combat these challenges, small businesses should look for software solution providers that offer a wide range of features at an affordable price. Two small business inventory software solutions that do this are Zip Inventory (available on the Hubworks app store) and Zoho Inventory.
Traditional Inventory Management Systems
A traditional inventory management system works with manual inputs, spreadsheets, or software that is maintained on site.
Managing inventory manually involves interacting with suppliers over text, phone, fax, and/or emails and counting, recording, and updating stocks by hand.
This method made sense when sophisticated inventory software solutions were not around.Small businesses that have limited requirements and low targets can somehow make do with manual stock-taking, but large organizations need to adopt cutting-edge technology to be successful.
Organization that use manual methods like spreadsheets, phone calls, emails, and texts to place purchase orders with vendors find the process increasingly difficult to handle and notice errors creeping in. Consequently, inventory is over- or underestimated and businesses lose track of items ordered, purchased, sold, lost, or wasted.
Moreover, a lot of time and effort is used up in manual stock-taking, tying up more employees than required to a task that can, in fact, automatically be done with the help of modern software. The smallest mistake in counting and recording inventory and predicting future inventory demand may have the biggest negative effect on business operations.
Spreadsheets, on the other hand, make use of some degree of technology, but still, need a lot of time and manual effort to be audited and updated. Nor are they easily scalable.
Software stored on local computers is better than pen-and-paper and spreadsheet methods, but their biggest drawback is that they operate on a closed network and are accessible only on a small range of linked devices. This means that business owners would have to be on site to access data. Any data loss, moreover, becomes difficult to restore.
Modern Inventory Management Methods
A modern system for inventory management relies essentially on a computer program or software that automates stock-taking fully. With the help of a sophisticated system, businesses can quickly and precisely measure current inventory levels and determine which items have to be reordered and in what quantity.
A modern inventory management system becomes indispensable for a large organization operating across multiple sales channels, and multiple locations. Such a system can communicate with multiple vendors, handle a substantial number and variety of products, and monitor a huge customer base.
The work of a cloud-based inventory management software usually begins with product barcodes read by handheld scanners at the POS. Stock counts are updated by the POS system as items are sold online or offline. The POS, working hand-in-hand with the inventory management system, alerts business owners when the quantity of a certain product starts to decrease. It then whirls into action, placing a purchase order and notifying the supplier about the order digitally.
These cloud based solutions come with advanced data entry and inventory tracking templates that allow business owners to quickly compute stock levels and account for every ingredient. Data can be accessed by multiple users at the same time, on the go, and on any handheld device. These features come in handy during management meetings and aid in decision-making. Even if users want to track data independently, they can do so. Stock level updates are always available to them on their phones in real time.
Modern inventory solutions also offer reports and insights that let businesses identify problems like food waste, theft, over-portioning, soaring food costs, and so on, and devise solutions to them.
Top inventory management solutions can also be linked seamlessly with other restaurant management systems to make operations a breeze.
How to Select an Inventory Management System for Small Businesses
Small businesses like startups work with limited capital and can't afford to splurge on the entire range of features offered by inventory management systems. For instance, a small business may deal with only a handful of suppliers and may not operate across multiple sales channels or across multiple locations. The number of products that these businesses handle and the dimensions of their storage space would also be limited. And so their requirements of the software would be minimal.
It is important for small businesses to determine which software features are essential to them. For instance, they may want a batch-tracking feature that can trace products and is a great tool to have during product recalls.
Cost is one of the biggest considerations for small businesses, and they should compare different software solutions for price in relation to features. The software should, moreover, be well-suited to the organization's specific needs.
The choice of inventory software would also depend on the kind of integrations the organization is looking for. A number of cloud based solutions offer integration with other platforms like accounting software, shipping services, logistics services, and so on.
Both large and small businesses today, however, need multiple users/teams monitoring inventory data. This makes a cloud based platform the best inventory management software for the job.
While selecting a software solution, a business may want to make sure the product comes with adequate training and assistance. They may also want to take note of the price these services command.
Apart from Zip Inventory and Zoho Inventory, MarketMan, Lightspeed Retail, and Orderhive are other high-quality inventory management software soutions for small businesses.
Inventory Management FAQs
1. How crucial is the management of inventory in a supply chain?
Inventory management is essential in the supply chain because a firm needs to balance customer demand with storage space requirements and financial restrictions. By providing managers with a complete picture of the supply chain (production, acquisition, fulfillment, etc), inventory management enables them to synchronize production schedules and delivery lead times.
2. How can inventory management be made better?
Inventory management can be strengthened by maintaining accurate accounts and conducting routine physical inventory counts. A solution that gives stakeholders real time visibility on inventory levels can help them make better business decisions. The needs of a product must be clearly understood, especially if the product is perishable.
3. How does inventory management affect working capital?
Items in warehouses tie up working capital until they get sold. Businesses can avoid carrying an excessive amount of inventory if their supply chain is efficient. By eliminating mistakes in product selection, storage, and transportation, inventory management practices help prevent a drop in sales.
4. What do inventory management policies refer to?
These are methods for leveraging inventory to improve customer satisfaction and cut costs. The organization's stock management strategy, for instance, is described in its inventory management policies.
People also ask
What is the best tool for inventory management?
There is no one-size-fits-all answer to this question, as the best tool for inventory management will vary depending on the specific needs of the business. However, some common options for inventory management tools include inventory software, barcode scanners, and RFID tags.
How do small businesses take inventory lists?
There is no one answer to this question as businesses vary in size and type. Some businesses may take inventory lists manually while others may use software or a combination of both. The most important thing is to find a system that works for your business and that you can stick to.
How do small stores keep track of inventory?
There are many ways to keep track of inventory for small stores. Some popular methods include using physical inventory count sheets, barcodes and scanners, and inventory management software.
What are the best practices for small business inventory management?
There is no one-size-fits-all answer to this question, as the best practices for small business inventory management will vary depending on the specific needs of the business. However, some general tips that can help improve inventory management for small businesses include- 1. Keep accurate records of inventory levels. 2. Conduct regular physical inventory counts. 3. Use inventory management software to help track inventory levels and trends. 4. Develop a system for reordering inventory based on sales patterns. 5. Work with suppliers to ensure timely delivery of inventory.