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Inventory Management Tips for Small Businesses

Supply Chain Management
February 23, 2022

Small businesses have traditionally had a disadvantage in automation and software compared to larger competitors. That's because inventory management systems and software were originally on-premises systems that required a significant investment in licenses, upgrades, server and distribution infrastructure, and IT skills.

Today, small business inventory control can be done cost-effectively and on par with larger competitors' quality of inventory management systems. Cloud-based small business inventory management systems are agile, flexible, and at or near real-time, helping small businesses manage their inventory and avoid tying up valuable cash flow dollars.

What Does a Small Business Inventory System Look Like?

Inventory management solutions for small businesses will depend on the type of inventory strategy a company uses. A strategy should be chosen that best fits the company's business model. It should also be geared towards its financial position and be designed to use the least cash possible while ensuring that orders can be filled. There are three basic inventory strategies:


Pull strategies are based on well-defined demand from customers. If the product manufactured has immediate and accurate demand, companies can tightly control inventory costs. However, spikes in demand can lead to stock outs.


Push strategies reach further into product demand to deploy demand forecasting. This strategy allows companies to reduce operating costs as they can manufacture goods in larger lots. The caveat is that the demand forecast must be accurate.

Just in Time (JIT)

A mature strategy within Lean companies, JIT counts on well-planned raw materials on hand to produce goods quickly as the order comes in. It, too, relies on demand forecasting and is focused on lowering overhead and operational costs.

6 Tips for Inventory Management for Small Businesses

Once an inventory strategy has been determined, several tips can come in handy for inventory management. These tips include:

1. Track Raw Materials

All materials and components should be tracked. From purchase to receipt and warehousing and through production, material costs, lot information, and other data should be tracked. It will impact cost and keep you in compliance with products that are regulated.

2. Audit the Inventory

Small businesses often lose control of what’s in stock. Manual auditing is error-prone and easy to lose track of. Even the most straightforward inventory management software (IMS) will help keep track so delivery dates are not missed. With robust software, even small companies can conduct perpetual inventory auditing that ties directly to cost.

3. Evaluate Vendors

The lowest cost for material is not always best. Vendors should be evaluated for quality, delivery performance, transparency, and other considerations. High performers can become strong partners, while lower-performing vendors may need replacing or backing up due to quality or reliability issues.

4. Standardize Processes

Just because a company is small doesn't mean it shouldn't have standardized processes. If one person receiving a pallet of 40 components counts them as 40 units, and another counts the 40 as one item in a transaction, then on-hand stock can get out of hand quickly.

5. Conduct ABC Analysis

Small businesses should understand which products they should prioritize for maximum profit. Because flexible cloud-based software allows small businesses to get tighter control over their business processes, they can use it to conduct valuable ABC analysis. Here, goods can be ranked by cost, profitability, and demand so a company can prioritize what raw materials to buffer. Analysis of data may reveal insights that eliminate human bias. One example would be low-margin goods with high material costs over better margin performing goods. The software will help small businesses rank their ABC inventory based on error-free data.

6. Use Demand Planning Software

All the available inventory strategies depend on demand and demand forecasting. Demand planning software helps small businesses develop accurate demand forecasts regardless of the inventory strategy used. Robust demand planning software will integrate with IMS, ERP, MRP, and ERP systems to provide a comprehensive system of supply chain management that allows small businesses to maintain an optimized inventory.

Plex DemandCaster offers cost-effective, scalable solutions for small businesses looking to improve their inventory management. Whether it’s best-in-class Inventory Forecasting and Optimization software or the equally robust Demand and Supply Planning software, DemandCaster empowers small businesses with the ability to take control of their inventory and operate efficiently. DemandCaster's platforms help you plan and control your inventory confidently using trusted, real-time data to navigate disruption and high growth periods.

To find out how DemandCaster can help your small business with critical inventory functions, contact us today.

About the Author

Plex DemandCaster Supply Chain Planning

Since joining forces with Plex, by Rockwell Automation, in 2016, we’ve harnessed the power of its Smart Manufacturing Platform and industry knowledge to offer a digitized supply chain planning product. It seamlessly unites your business from the plant floor to the executive suite. To learn more about how we are bringing the Connected Enterprise to life across industrial enterprises, visit

Plex DemandCaster