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How to ace inventory management

Thursday, June 15, 2023

Whether you’re just starting your small business or you’ve been operational for a while, you’ve probably struggled with inventory control. One day you’re running seamlessly. The next, you’re thrown off balance with missing SKUs, drowning in overstock, or even worse — facing a supply chain fiasco. Keeping up with any amount of inventory can be a huge hassle without inventory management in place. 

In this blog, we’ll break down the benefits of inventory management systems and sprinkle in some tips for small business owners like you. With the right inventory management system, you can:

How does an inventory management system benefit a small business?

No matter what you sell, ecommerce, restaurant and retail businesses alike face similar challenges when it comes to inventory needs and order fulfillment. Good inventory management can help with time-consuming tasks like tracking inventory, but there’s a lot more to it. 

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Reduce waste

One of the biggest reasons to keep a close watch on your inventory with an inventory management system is to reduce the cost of waste. 

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Bloomberg reports an average of 8% of stock perishes or is discarded annually. This equates to a staggering $163 billion worth of inventory wasted each year.

Restaurants particularly struggle with waste since all food has an expiration date. When a significant portion of your budget goes to replenishing inventory, waste is a key culprit in profit loss. 

If you’re dealing with a small amount of perishable goods regularly, the first in, first out (FIFO) method could be the right approach. By tracking which inventory items have been sitting the longest and selling those items first, you’re able to minimize waste. However, if you’re working with larger quantities, the FIFO method may not be suitable. 

Instead, you can rely on a smarter restaurant POS to help you record and report on sales by item so you can see what’s not selling well — as that could indicate you’re stocking ingredients that are more likely to end up in the trash, along with your margins.

When it comes to non-perishable goods, a lot of retailers get stuck with inventory that’s out of season or behind the current trends, essentially unsellable. If that’s the case, avoid the urge to cut inventory or hold off on reordering until old merchandise sells out. It’s a risky move that could reduce cash outflows and possibly create a shortage of popular items in the future. Of course, you can get rid of low-turn stock by offering markdowns or discounts on select inventory, but doing it the right way is key. 

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Improve cash flow and your bottom line

When a small business has limited staff and resources, managing inventory levels can eat into precious work hours. Automated inventory management can help cut the costs associated with time-consuming manual processes. Plus, a smart software solution can provide forecasting and inventory tracking — helping you stock appropriately for customer demand. Having the proper safety stock is also a great way to minimize low stock alerts. 

Another thing to consider when trying to boost your bottom line is your inventory turnover ratio. It’s essentially a calculation that shows how quickly you’re able to sell merchandise by crunching the numbers between your average inventory (meaning beginning inventory + ending inventory) and the cost of goods sold (COGS). A high ratio indicates you’re moving inventory fast, which can improve cash flow and profitability.

Here’s the equation if you’re curious:

A graphic representation of an inventory management formula where the inventory ratio equals the costs of goods sold, divided by the average inventory.

A low ratio could be a sign that you should reevaluate your product(s) quality, price point, or placement in the store or menu.

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Deliver better customer satisfaction

Accurately tracking inventory data can also help a small business understand what their customers want and when they want it. By tapping into those customer order insights, you can make educated decisions about how you display, market or restock your goods. See how these customer engagement ideas can help boost sales across all sales channels.

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Increase flexibility and make life easier for your teams

Your employees already have their hands full with day-to-day tasks. And if the unexpected happens, they need the space and agility to pivot at a moment’s notice. By automating tedious inventory functions and order management, you’ll make it easier for them and safer for your small business.

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Five ways to streamline your workflow

There’s no one-size-fits-all template for successfully handling inventory. The following tips and tricks can help small business owners in any industry simplify the process, from purchase orders to order fulfillment and other business needs.

1. Forecast demand accurately 

It’s crucial for small businesses to take a cue from past sales data, market trends and seasonal fluctuations to meet customer demand without overstocking or understocking. If you’re a restaurateur, you can use this sales-boosting data to secure repeat purchases and make strategic decisions when it comes to things like changing your menu and more.

2. Leave the spreadsheets behind 

Manually tracking the movement of merchandise comes with the risk of costly human errors.

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In fact, several studies have shown that 88% of spreadsheets contain avoidable human errors — errors that can seriously affect your profit margins.

A smart, automated software solution can monitor stock levels accurately with real-time information and save your bottom line.

3. Categorize your small business inventory

Categories make it easier to manage and reorder SKUs in a snap. Organizing types of inventory by product style, size, color or season can help you predict trends and see what types of goods are less desirable. It’s especially helpful if your retail POS offers a solution for calculating your sell-through rate. That data is key when building a vendor scorecard and negotiating terms and pricing for the future.

4. Conduct regular inventory audits

One of the big benefits of having automation built into your solution is that it reduces the frequency and burden of manual counts. Rather than having full inventory counts regularly, you can rely on weekly spot checks, partial counts, and/or full counts only in certain high-risk categories, like pricey seafood or if an item has unexpectedly gone viral on social media.

5. Create a contingency plan

Unfortunately, there’s no sure-fire way to predict everything. It may be a good idea to have a safety net baked into your strategy. A great place to start is by automating your reorder point. This is a calculation your system can use to track when inventory sinks below a safe level and triggers a new order. 

Some small business owners use a just-in-time (JIT) model, only receiving goods from the supplier when needed in an effort to reduce holding costs. This can be tricky with inflation on the rise and supply chain disruptions putting a kink in inventory availability. Having a stronger back-up strategy can help you weather unforeseen circumstances.  

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Let the best inventory management software do the work for you

The right tech with smart inventory management features can free you from your inventory woes. Just remember, good inventory management software should make life easier by integrating with your POS system. Ready to ace inventory management? See how Heartland’s solution can help


Heartland is the point of sale, payments and payroll solution of choice for entrepreneurs that need human-centered technology to sell more, keep customers coming back and spend less time in the back office. Nearly 1,000,000 businesses trust us to guide them through market changes and technology challenges, so they can stay competitive and focus on building remarkable businesses instead of managing the daily grind. Learn more at heartland.us