Inventory Management Best Practices for Growing Businesses

Poor inventory management can kill a growing business. Too much inventory ties up cash, while too little leads to stockouts and lost sales. Here's how to find the right balance and keep your inventory running smoothly.

1. Know Your Numbers

You can't manage what you don't measure. Track these key metrics:

• Inventory turnover rate
• Days sales of inventory (DSI)
• Stockout frequency
• Carrying costs
• Order accuracy rate

2. Implement the ABC Method

Categorize inventory based on value and velocity:

• A items: High value, fast-moving (20% of items, 80% of value)
• B items: Moderate value and movement
• C items: Low value, slow-moving

Focus your attention and resources on A items while maintaining appropriate stock levels for B and C items.

3. Set Smart Reorder Points

Calculate reorder points using this formula: (Average daily usage × Lead time) + Safety stock. This ensures you order new stock before running out while minimizing excess inventory.

4. Use Technology

Manual tracking leads to errors. Modern inventory apps provide:

• Real-time stock levels
• Low stock alerts
• Barcode scanning
• Purchase order automation
• Multi-location tracking

5. Regular Audits

Physical counts verify your records are accurate. Implement:

• Cycle counting for A items (monthly)
• Quarterly counts for B items
• Annual counts for C items
• Spot checks when discrepancies arise

6. Optimize Your Warehouse

Efficient organization saves time and reduces errors:

• Keep fast-moving items easily accessible
• Use clear labeling and location codes
• Implement FIFO (First In, First Out) for perishables
• Maintain clean, organized storage areas

Conclusion

Good inventory management balances having enough stock to meet demand without tying up excessive capital. Start with these fundamentals, use technology to automate where possible, and continuously refine your processes based on data. Your cash flow and customers will thank you.