For a small business that is growing, inventory control is vital when trying to keep on top of everything. When carried out properly, it can reduce costs and workload — so implementing a stock management system should be a consideration if you’re expanding.

Managing inventories, harnessing technology, educating staff and aligning partners will reduce costs and workload.

1. Establish the true cost of your inventory

To determine the true cost of your inventory, besides the cost of the stock itself, you must consider the cost of holding, handling, and other factors — whether or not you use a third-party logistics provider. If you use a 3PL, these costs will form part of the fee you pay them.

Holding costs include:

- Building rent and business rates
- Utilities
- Janitorial personnel and supplies (e.g. cleaning fluids)
- Security personnel and equipment (including security patrols and CCTV)

When it comes to handling costs, you may have bought equipment (e.g. a forklift truck), which is operated by staff, who must be paid. When stock is dispatched, vans or lorries are used. These are leased or bought, and have to be maintained.

Packaging can be central to keeping these kind of costs down, and often the simplest solution is just utilising the right kind of packaging. For example, are double wall or triple wall cardboard boxes necessary, or will single wall boxes suffice? Could you use smaller primary packaging for individual items? Pallet optimisation is vital, because the cost of shipping will be affected by how many pallets are dispatched, and how many vehicles are needed to transport them.

Optimising your storage facilities will also increase efficiency and reduce costs. Place your fastest-moving products nearest to the shipping area for quicker dispatch, slower-moving merchandise further back, and excess and obsolete stock at the very back of your warehouse. Often it’s the simplest solutions that are most effective.

Additionally, think about insurance costs, losses through shrinkage and how much time your staff devote to inventory issues — a percentage of their pay will relate to the stock.

2. Harness technology

Keeping track of orders via your website and a spreadsheet may suffice when starting out, but a growing business requires increased sophistication.

You might consider using a warehouse management system (WMS) to manage the receiving, storing and moving of goods, in conjunction with Enterprise Resource Planning (ERP) for the collection, storage, and management of data.

Such systems involve hardware, software, IT support and upgrades — so considerable amounts of money may be spent. However, to enable demand forecasting, which is crucial for growth, additional optimising software is needed. This analyses past usage, accounting for increases in sales due to seasonal variations or promotions, and decreases in sales due to lack of stock. This gives a reliable indication of expected demand, allowing you to plan accordingly.

Such software can be purchased for online use, but cloud-based order management systems also exist, for which businesses pay subscription fees. These systems enable seamless integration of all the elements of a business — warehouse, online shop, and logistics — so business owners can keep track of orders and inventory across multiple sales channels. For example, if you want to add another ecommerce store to your business, a cloud-based system can accommodate it.

Using the right technology in inventory management can increase your revenue, keep your costs down, decrease your workload and facilitate better customer service.

3. Make sure your staff understand your inventory

As your business grows, you may need to take on more staff, and it’s vital that everyone understands your procedures and why inventory control is important — especially your warehouse manager, if you employ one.

Define your procedures as early as possible, and make sure they are documented, so that they are in place to cope with growth. Train your employees, so they know exactly what is expected of them and check on a regular basis that they are complying with procedures and carrying out their tasks to your satisfaction.

Where there is evidence of non-compliance, action should be taken quickly. For example, if a staff member makes a mistake when ordering packaging and your next delivery contains the wrong size of cardboard box, delays could occur, which will increase your costs. Offer additional training to staff who need it and if their performance doesn’t improve, consider redeploying them to a role that doesn’t have so much impact upon your inventory — make inventory control part of the culture of your business.

4. Align your supply chain partners

Your inventory management strategy involves more than just the goods on your premises. Where do these goods come from, and how are they dispatched to your customers?

Your strategy must encompass your supply chain partners. Their practices have an impact on your inventory management, so it’s vital that their activities align with yours.

Your own aims may be well-defined, but what about those of your suppliers? What is their company culture? Can you rely on them to provide you with the correct items in the right quantities? A consignment that is short of several units of one vital item could lead to delays in dispatching orders, and you could lose business. The working practices of your 3PL, if you use one for your warehousing or transportation, must also be considered. Are they performing to your satisfaction? If not, why not?

Your stock management system should provide reliability analysis regarding your supply chain partners. When issues are identified, they can be resolved. You could suggest how a partner might improve their performance, or keep more of their inventory in your warehouse, so as to avoid any future shortages.