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Retail | How To

How to Organize Inventory for Small Businesses in 9 Steps

Published August 3, 2023

Published Aug 3, 2023

REVIEWED BY: Meaghan Brophy

WRITTEN BY: Brigitte Korte

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This article is part of a larger series on Retail Management .

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Step 1: Choose an Inventory Management Method

• Step 2: Organize Product & Vendor Information
• Step 3: Create & Submit Accurate Purchase Orders

Step 4: Receive Orders Accurately

• Step 5: Tag & Label Inventory

Step 6: Organize Your Stockroom or Warehouse

Step 7: track inventory in real time, step 8: conduct regular inventory counts, step 9: reconcile discrepancies, bottom line.

Inventory management is the process of having the right products, in the right quantities, at the right time to sell to customers. Accurately managing inventory can increase revenue by preventing stockouts, excess inventory, and unsold products.

While I have seen it done manually, the easier and more reliable solution for managing inventory is to use a software program that automates your inventory management processes. Our recommended solution for inventory management for small businesses is Lightspeed, as it combines both the POS system and inventory management suite to streamline your operations.

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Lightspeed offers the best inventory management system for small businesses.

Before you begin working with your stock, you need to choose an inventory management method. As I mentioned earlier, the methods you choose should be ones that best allow you to maintain the right products, in the right quantities, at the right time to sell to your customers.

In my experience, combining a few different inventory management methods is the best way to successfully manage inventory.

The inventory management method (or methods) that makes sense for your business will depend on a few factors, including:

• Product quantity
• Product value
• Cost of goods sold (COGS)
• Turnover ratio
• Product type (perishable vs non-perishable)
• Product size/weight
• Product quantities
• Product variations
• Turnover rate
• Carrying costs

Once you have chosen your inventory management methods, you can implement them by programming an ordering cadence, automations, and alerts on your inventory management software or point-of-sale (POS) system . Or, if you are managing your inventory manually, you will need to monitor your books and item quantities to ensure implementation.

Below, you can click through a few of my most recommended inventory management methods.

First-in, first-out inventory management , also known as FIFO, is one method to assign costs to ending inventory. FIFO assumes that the first items that are purchased will be sold first to assign a cost to the inventory remaining at the end of the year.

The last-in, first-out inventory method , or LIFO, assumes the most recently purchased inventory (“last in”) as the cost of goods sold (COGS). In other words, recently purchased goods are expected to be expensed first or transferred to the COGS.

This method is popular in the US because it’s allowed for tax purposes, and many proponents believe it most closely matches the replacement cost of inventory.

Average Cost

The average cost method , or AVCO, is another method used to determine the cost of inventory at the end of the year and the COGS during the year. Under AVCO, the cost of inventory is based on the weighted average cost of inventory purchases during the year. Because it uses an average cost of goods in inventory rather than tracking individual units, it is typically simpler to use than FIFO or LIFO.

A perpetual inventory system calculates your COGS after each sale, as opposed to periodically. This is also called live sales tracking in a POS system and simply means that your inventory information will update as transactions happen. You will also want to be sure that this includes all your sales channels, including online and additional locations.

A periodic inventory system calculates your COGS periodically when you perform physical inventory counts. This is a more common practice for businesses managing their inventory manually but is also used less frequently in conjunction with automated perpetual inventory management systems.

Specific Identification

The specific identification inventory method identifies each individual unit of inventory and assigns its actual cost. This inventory management method doesn’t use assumptions like the FIFO, LIFO, or AVCO methods. The COGS and ending inventory are determined by the actual cost assigned to each physical unit of inventory and what is actually sold and unsold.

Step 2: Organize Product & Vendor Information

The first step in organizing your inventory is to set up your stock and supplier information in a reliable and accessible system. Some businesses will use manual tracking methods such as spreadsheets to keep track of their products and vendors.

However, as was the case at my store, the best option for retailers is to use a POS system that will keep searchable vendor and product directories.

There are lots of POS systems to choose from, and they all have unique inventory systems. Read our guide to learn more about the best POS inventory systems for your business.

• Product Information
• Vendor Information

To organize your products, you’ll first need to record information about each item and file it on a product page. Product-specific information should include:

• Product name
• Your internal product stock-keeping unit (SKU) number
• Manufacturer’s Universal Product Code (UPC)/European Article Number (EAN) or other unique identifiers
• Short description
• Product category, class, or family
• Wholesale cost
• Regular retail price/MSRP
• Your selling price
• Colors or sizes
• Vendor, supplier, or manufacturer name
• Reorder quantities
• Shipping details: size, weight, box pack, cost, dispatch time, etc.
• Picture or product image

Keep track of your product information so you can reference it over time and reorder easily. (Source: Lightspeed)

In addition to creating a log of your products and their information, you will need to file your vendors’ information into your inventory system. That information should include:

• Vendor name
• Vendor contact name
• Vendor billing information
• Vendor phone
• Vendor email
• Vendor website
• Order volume
• Payment terms
• Line rep or showroom contact
• Fulfillment and shipping times
• Top products from vendor

Not ready to invest in a POS system with inventory management capabilities? No worries. There are also several free inventory management software available.

Expert Tip: Build Relationships With Product Suppliers

Even with the best inventory management plan, issues can still arise where you need products ASAP to fulfill an order. When this happens, retailers are at the mercy of their suppliers. If there is a quality control issue or a discrepancy with a purchase order, having a good relationship with your supplier can help resolve these issues quickly.

I was able to build strong relationships with product suppliers by sticking with the same suppliers when I could, meeting suppliers in person at trade shows, and, perhaps most importantly, paying invoices on time.

As sustainability is becoming more critical to consumers and they demand greater environmental efforts from businesses, 53% of businesses are increasing their focus on sustainable sourcing .

Step 3: Create & Submit Accurate Purchase Orders

A purchase order (PO) is a buyer-created record of an order that is submitted to the vendor and serves as a legal contract for the sale of goods. You use POs to cross-reference actual goods and invoices received to those ordered and paid for. If there is a discrepancy between your PO and the goods received, you can use your PO to return to the vendor and settle up.

Purchase orders record what you ordered from your vendors and act as a receipt that you can compare to the goods you actually receive.

I submitted my POs to vendors electronically through email or the vendor’s online ordering portal, as is preferred over any paper system. While I didn’t use one at my store, some POS systems, like Lightspeed, have PO features that let you create and manage POs right from your POS system. Some systems even include vendor directories to manage vendor contact information, automated PO creation at set stock points, and receiving tools with POS data built in.

In the news:

As the economy continues to dip and consumer habits become more conservative, the inventory-to-sales ratio is rising, hitting 1.29 in April 2023 , with an upward trajectory. This means that for every sale, retailers have an average of 1.29 pieces of inventory. To account for this new economic environment, retailers should slow their purchasing rates to match slowing sales rates.

Once you have submitted your purchase orders and your suppliers have fulfilled them, you want to be sure that you receive your stock accurately. Supplier error is fairly common, and if you aren’t being systematic about receiving your inventory, you might get shorted, overcount, or underestimate your inventory levels—which can lead to shrinkage (having less product than your records show) and a decrease in your margins.

To ensure the accuracy of my orders, I followed these steps:

• Unpack the shipment and organize items by product.
• Count/scan products.
• Compare the count to your PO.
• If the counts and products match, file as received.
• If you find errors like wrong, shorted, or missing items, note these on your PO and contact your supplier immediately to resolve them.
• Shelve or store all correctly received stock (tag or label first if needed for your system).
• Enter your invoice into your accounting system.

The inventory management system that I used had an accompanying app that turned my phone into a barcode scanner. I could then select “receiving” as the task and scan products, and the app would count and log my shipments for me. This made my life so much easier, so I would suggest looking for a barcode scanning app as a POS feature.

Accurately counting and receiving stock is important for preventing shrinkage and ensuring the accuracy of your orders. (Source: Pinterest)

Did you know?

According to a widely reported stat, only 6% of companies report full visibility into their supply chain.

Step 5: Tag & Label Inventory

Once your products are physically on hand and accounted for, you will need to tag and label them so they are ready for the sales floor and organized internally.

To ensure your tags are ready for both the sales floor and the stockroom, they should include these main things:

• Price: The selling price of your item. All your inventory will need this before it can go out on the floor and be customer-facing.
• Product Labels: You should have some sort of labeling system for your inventory so you can easily organize and track it internally. We recommend using both a barcode label —so you can easily scan items in your inventory system and at checkout—and a descriptive written label, like “red shirt” or “child’s leggings,” that corresponds with where the item goes in your store and in storage.

Learn about the different types of labels you can use for your products to keep them identifiable and organized with our guide to UPCs and SKU numbers .

Regardless of the type of labels you use, a good time to tag and label inventory is during the stock receipt process. This ensures the task isn’t overlooked and prevents the unlabeled stock from being shelved or displayed for sale.

Once printed, labels should be fixed directly to the product. Some inventory might even arrive prelabeled with the manufacturer’s barcodes, description, and price. If you aren’t using an internal labeling system, this makes your job easy. You can just start organizing.

Use our guide on how to create barcodes (plus a barcode generator) and check out our picks for the best barcode label printers to get started labeling your products.

Having an organized stockroom will not only make things easier to find but will allow you to fit more merchandise and keep better tabs on your inventory. I remember taking the first week at my store to completely reorganize the stockroom to improve its functionality and make my life 10 times easier.

In retail stores, tall storage shelves or double-tier hanging racks can maximize your wall space while allowing movement and easy access. Additionally, storage bins can be stacked and labeled on the ground to use floor space efficiently.

In larger warehouse settings, there is typically more room to store goods within aisles that have built-in shelving and hanging storage. The biggest thing you will want to ensure is that you choose storage devices that make sense for your merchandise and can change over time.

For example, my store had a very small storage room, so we used lots of hanging racks and stacked bins to maximize the little space we had. The racks were easy to roll, and we could label them any way we needed with rack tags. Similarly, the bins were great for our heavier/knitted items that took up too much hanging space or couldn’t be hung, and were easy to label, depending on the inventory we had on hand.

Whatever your method, your stored inventory needs to be well-organized, clearly labeled, and accessible for pulling and inventory counts. This can be done using the boxes goods come in, stacking bins, or even hanging separators for hung apparel.

Utilize your wall space to fit as much product as possible in limited space. (Source: Pinterest)

Do you use a warehouse to store your products? Learn how to keep your warehouse operation efficient with our guide to warehouse layout design planning .

Tracking your inventory levels in real time is key for keeping the right items on the shelves in the right quantities—i.e., good inventory management. Whether by hand or through your POS system, a sound inventory management system records every sale in detail and adjusts inventory levels as each item is sold.

There are some great inventory management software that you can use to get real-time updates and stay on top of your inventory. Learn more about the top products on the market with our guide to the best inventory management software .

While you can use a spreadsheet for inventory tracking, I used a POS system with integrated inventory management. My POS system tracked inventory levels in real time and adjusted quantities with every sale. Then, as my inventory numbers would dip below my designated safety stock level , I would get automatic low-stock alerts and PO generation for the low-stock items.

A POS system will make tracking inventory levels and reordering your supplies quick and easy and, most importantly, will base your inventory levels on actual sales, not on your best guess.

I used to believe that inventory counts were unnecessary if you had a POS system keeping tabs on your inventory levels. Physical inventory counts can be mundane and tedious, so why not defer to technology?

The answer: Technology isn’t always 100% accurate, and it can’t account for products lost to shrinkage. Getting into your stock room and actually counting your products is the only way to know exactly what you have, allowing you to settle disparities between actual levels and those on your POS and manage your stock accurately.

Most small businesses do a full inventory count once each year for tax purposes but will also perform smaller partial inventory counts, or cycle counts, throughout the year.

Here are the types of counts you should perform to ensure you have an accurate eye on your inventory:

Quantity on Hand

The basis of both annual and cycle inventory counts is your current Quantity on Hand (QOH) or the amount of inventory you should have in stock for every item you carry. The formula for QOH is as follows:

QOH = (Previous QOH + Received Inventory)-Sold Inventory

Your QOH is the number you will measure your annual and cycle counts against. So, for example, if I thought I should have 272 packs of gum based on my QOH calculation, I would be looking for 272 packs of gum in my cycle or annual count. If I found a discrepancy, say only 250 packs of gum, that would indicate an error or theft that I could then look into further.

Annual Inventory Counts

Annual inventory counts are a complete inventory count, typically done at the close of each fiscal year for income tax purposes. These counts give you an overall picture of how much inventory you have on hand at the close of your year. They can also help businesses uncover inventory shortages due to miscounts, shrinkage issues, misplaced stock, and/or receiving errors.

While most retailers perform more frequent counts, some small businesses with limited staff or small inventories will only perform this type of inventory count each year. While annual inventory counts are a good practice regardless, by year’s end, it’s too late to fix most of the problems they reveal. To catch inventory issues before they become costly, you’ll also want to conduct periodic counts, called cycle counts.

Regular counts will also help you understand what stock is not moving and might need to go on sale to avoid incurring greater carrying costs (the expenses a small business must pay to hold and store unsold merchandise).

Cycle Counts

Cycle counts are periodic spot counts that take inventory of specific categories or subsets of products. For example, at my boutique, we would do a couple of cycle counts each week for different types of clothing—basics T-shirts one day, jeans another, earrings the next. Cycle counts helped us see how specific products were performing and determine whether it was time for a restock.

Typically, you perform cycle counts on a regular basis. So, you might decide to count shirts every other Wednesday and jeans every two months. As a best practice, you would cycle count all of your products daily to keep a good grasp on their levels. Without the right tech and staff, however, this is next to impossible. Schedule your cycle counts based on the speed with which you move through your inventory, with items that sell faster getting more frequent counts.

Manual vs Automated Counting

When it comes to how you count your inventory, you have two options. You can either do it manually or use a POS system to automate your processes. Here, we will look at both:

• Manual Counting
• Automated POS Counting

While we would suggest using a POS system to count your inventory for you, if you do decide to go the manual route, your first step will be tallying your QOH based on your POs, last year’s inventory, and a sales tally of each item sold. From there, you’ll need to create inventory count sheets to record your physical counts and begin counting.

Manual counts are less accurate and more time-consuming than your automated POS option.

While a POS system can’t count all the physical items in your inventory, it can place live QOH counts and inventory lists at the tips of your fingers to help accelerate and streamline your inventory counts. We suggest a POS system to help eliminate errors in your inventory management and make your business more efficient.

If you do decide to go with a POS system to count and track your inventory, we recommend Lightspeed. It keeps live QOH counts as you receive and sell items, continuously tracks your inventory levels, alerts you to low-stock items, and provides reports and data to help you better understand and manage your inventory.

Ideally, your physical inventory counts will match your projected quantities on hand (QOH). However, in my experience, this is seldom the case, and there are frequently differences you have to reconcile. If you count more or less of a product than you anticipated, you will need to investigate the discrepancy to figure out where things went wrong.

There are two primary reasons for inventory shrinkage. Either there has been a clerical error, or theft has occurred. Sometimes, clerical errors are not actual losses—an item could have been misplaced or a key mistyped. Other times, shrinkage indicates actual loss, and you should investigate where it happened so you can work on preventing shrinkage in the future .

As retail theft increased (and continues to do so), retail shrink was worth $100 billion  in 2022. Learn how to prevent theft with our guide to retail theft prevention strategies .

If you determine that your missing merchandise is truly gone, you should adjust your QOH in your records or inventory management system/POS. After that, you need to record the dollar value lost due to the shrinkage in your inventory.

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Inventory Management Frequently Asked Questions (FAQs)

Expand the questions below to get answers to some of your most asked questions about inventory management.

What is inventory management?

Inventory management is the process (or all the processes) involved in keeping the right products, in the right quantity, in stock at the right times. In other words, inventory management is anything you do to avoid stockouts and to have in-demand products in stock for your customers to buy when they want them.

What is the best inventory management system for small businesses?

Overall, our top pick for inventory management systems for small businesses is Zoho Inventory. For retailers specifically, however, we recommend Lightspeed.

How do you do inventory management?

To do inventory management, you first need to organize your existing products and vendor info, place purchase orders, receive your orders, tag and label new inventory, organize it into your storage area, and then continually track and count inventory over time so you can monitor when it is time to place new orders or put items on sale.

How do small companies manage inventory?

Small business inventory management involves using a spreadsheet and tracking by hand or with an inventory management software solution to automate the process—and it isn’t very different for larger companies. We suggest Square as a free option that is perfect for small companies. Learn how to use Square to manage your business.

A good inventory management system means that you always have an accurate picture of your stock so that you can avoid waste and provide the merchandise and experience that your customers expect. Whether you’re looking to learn the basics of how to organize inventory for small businesses or reinvigorate an existing system that has become disorganized, these steps will help you set up and streamline your operations.

About the Author

Find Brigitte On LinkedIn

Brigitte Korte

Brigitte is a retail specialist and staff writer with brick-and-mortar management experience. Before joining FSB, she managed a storefront for several years, working in everything from merchandising, to buying, to sales analysis. Brigitte also has a background in writing, research, and publishing, with an undergraduate degree in writing.

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• Corporate Finance

Inventory Management Defined, Plus Methods and Techniques

Adam Hayes, Ph.D., CFA, is a financial writer with 15+ years Wall Street experience as a derivatives trader. Besides his extensive derivative trading expertise, Adam is an expert in economics and behavioral finance. Adam received his master's in economics from The New School for Social Research and his Ph.D. from the University of Wisconsin-Madison in sociology. He is a CFA charterholder as well as holding FINRA Series 7, 55 & 63 licenses. He currently researches and teaches economic sociology and the social studies of finance at the Hebrew University in Jerusalem.

What Is Inventory Management?

Inventory management refers to the process of ordering, storing, using, and selling a company's inventory. This includes the management of raw materials, components, and finished products, as well as warehousing and processing of such items. There are different types of inventory management, each with its pros and cons, depending on a company’s needs.

Key Takeaways

• Inventory management is the entire process of managing inventories from raw materials to finished products.
• Inventory management tries to efficiently streamline inventories to avoid both gluts and shortages.
• Four major inventory management methods include just-in-time management (JIT), materials requirement planning (MRP), economic order quantity (EOQ) , and days sales of inventory (DSI).
• There are pros and cons to each of the methods, reviewed below.

Investopedia / Alex Dos Diaz

The Benefits of Inventory Management

A company's inventory is one of its most valuable assets. In retail, manufacturing, food services, and other inventory-intensive sectors, a company's inputs and finished products are the core of its business. A shortage of inventory when and where it's needed can be extremely detrimental.

At the same time, inventory can be thought of as a liability (if not in an accounting sense). A large inventory carries the risk of spoilage, theft, damage, or shifts in demand. Inventory must be insured, and if it is not sold in time it may have to be disposed of at clearance prices—or simply destroyed.

For these reasons, inventory management is important for businesses of any size. Knowing when to restock inventory, what amounts to purchase or produce, what price to pay—as well as when to sell and at what price—can easily become complex decisions. Small businesses will often keep track of stock manually and determine the reorder points and quantities using spreadsheet (Excel) formulas. Larger businesses will use specialized enterprise resource planning (ERP) software. The largest corporations use highly customized software as a service (SaaS) applications.

Appropriate inventory management strategies vary depending on the industry. An oil depot is able to store large amounts of inventory for extended periods of time, allowing it to wait for demand to pick up. While storing oil is expensive and risky—a fire in the U.K. in 2005 led to millions of pounds in damage and fines—there is no risk that the inventory will spoil or go out of style. For businesses dealing in perishable goods or products for which demand is extremely time-sensitive—2021 calendars or fast-fashion items, for example—sitting on inventory is not an option, and misjudging the timing or quantities of orders can be costly.

For companies with complex supply chains and manufacturing processes, balancing the risks of inventory glut and shortages is especially difficult. To achieve these balances, firms have developed several methods for inventory management, including just-in-time (JIT) and materials requirement planning (MRP) .

Some companies, such as financial services firms, do not have physical inventory and so must rely on service process management.

Accounting for Inventory

Inventory represents a  current asset  since a company typically intends to sell its finished goods within a short amount of time, typically a year. Inventory has to be physically counted or measured before it can be put on a balance sheet. Companies typically maintain sophisticated inventory management systems capable of tracking real-time inventory levels.

Inventory is accounted for using one of three methods: first-in-first-out (FIFO) costing; last-in-first-out (LIFO) costing; or weighted-average costing . An inventory account typically consists of four separate categories: 

• Raw materials — represent various materials a company purchases for its production process. These materials must undergo significant work before a company can transform them into a finished good ready for sale.
• Work in process (also known as goods-in-process ) — represents raw materials in the process of being transformed into a finished product.
• Finished goods — are completed products readily available for sale to a company's customers.
• Merchandise — represents finished goods a company buys from a supplier for future resale.

Inventory Management Methods

Depending on the type of business or product being analyzed, a company will use various inventory management methods . Some of these management methods include just-in-time (JIT) manufacturing, materials requirement planning (MRP), economic order quantity (EOQ) , and days sales of inventory (DSI) . There are others, but these are the four most common methods used to analyze inventory.

1. Just-in-Time Management (JIT)

This manufacturing model originated in Japan in the 1960s and 1970s. Toyota Motor ( TM ) contributed the most to its development. The method allows companies to save significant amounts of money and reduce waste by keeping only the inventory they need to produce and sell products. This approach reduces storage and insurance costs, as well as the cost of liquidating or discarding excess inventory.

JIT inventory management can be risky. If demand unexpectedly spikes, the manufacturer may not be able to source the inventory it needs to meet that demand, damaging its reputation with customers and driving business toward competitors. Even the smallest delays can be problematic; if a key input does not arrive "just in time," a bottleneck can result.

2. Materials Requirement Planning (MRP)

This inventory management method is sales-forecast dependent, meaning that manufacturers must have accurate sales records to enable accurate planning of inventory needs and to communicate those needs with materials suppliers in a timely manner. For example, a ski manufacturer using an MRP inventory system might ensure that materials such as plastic, fiberglass, wood, and aluminum are in stock based on forecasted orders. Inability to accurately forecast sales and plan inventory acquisitions results in a manufacturer's inability to fulfill orders.

3. Economic Order Quantity (EOQ)

This model is used in inventory management by calculating the number of units a company should add to its inventory with each batch order to reduce the total costs of its inventory while assuming constant consumer demand. The costs of inventory in the model include holding and setup costs.

The EOQ model seeks to ensure that the right amount of inventory is ordered per batch so a company does not have to make orders too frequently and there is not an excess of inventory sitting on hand. It assumes that there is a trade-off between inventory holding costs and inventory setup costs, and total inventory costs are minimized when both setup costs and holding costs are minimized.

4. Days Sales of Inventory (DSI)

This financial ratio indicates the average time in days that a company takes to turn its inventory, including goods that are a work in progress, into sales. DSI is also known as the average age of inventory, days inventory outstanding (DIO), days in inventory (DII), days sales  in  inventory or days inventory and is interpreted in multiple ways.

Indicating the liquidity of the inventory, the figure represents how many days a company’s current stock of inventory will last. Generally, a lower DSI is preferred as it indicates a shorter duration to clear off the inventory, though the average DSI varies from one industry to another.

Inventory Management Red Flags

If a company frequently switches its method of inventory accounting without reasonable justification, it is likely its management is trying to paint a brighter picture of its business than what is true. The SEC requires public companies to disclose  LIFO reserve  that can make inventories under LIFO costing comparable to FIFO costing.

Frequent inventory write-offs can indicate a company's issues with selling its finished goods or inventory obsolescence. This can also raise red flags with a company's ability to stay competitive and manufacture products that appeal to consumers going forward.

What Are the Four Main Types of Inventory Management?

The four types of inventory management are just-in-time management (JIT), materials requirement planning (MRP), economic order quantity (EOQ) , and days sales of inventory (DSI). Each inventory management style works better for different businesses, and there are pros and cons to each type.

How Did Tim Cook Use Inventory Management at Apple?

Tim Cook is known as an inventory genius. “Inventory is like dairy products,” Cook is quoted saying. “No one wants to buy spoiled milk.” For this reason, inventory management can save a company millions.

What Is an Example of Inventory Management?

Let's look at an example of a just-in-time (JIT) inventory system. With this method, a company receives goods as close as possible to when they are actually needed. So, if a car manufacturer needs to install airbags into a car, it receives airbags as those cars come onto the assembly line instead of having a stock on supply at all times.

The Bottom Line

Inventory management is a crucial part of business operations. Proper inventory management depends on the type of business and what type of product it sells. There may not be one perfect type of inventory management, because there are pros and cons to each. But taking advantage of the most fitting type of inventory management style can go a long way.

Competent Authority. “ Buncefield: Why Did it Happen? ,” Page 34.

Toyota. “ Toyota Production System ,” Pages 1-2.

Chartered Institute of Procurement and Supply. “ How to Do Effective Material Requirements Planning .”

Kumar, Rakesh. “ Economic Order Quantity (EQQ) Model .” Global Journal of Finance and Economic Management , vol. 5, no 1, 2016, pp. 1-2.

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Inventory Management System—Overview

What is inventory management?

Inventory management: financial implications, what are the types of inventory management systems, radio-frequency identification (rfid) system and inventory management systems, inventory management vs. cycle counting, inventory management examples—industry use cases, inventory management software, cloud inventory management—where are you in your journey.

Inventory management is the process of orchestrating the flow of goods through a company in a continuous cycle of ordering, storing, producing, selling, and restocking goods. Inventory management is generally performed at two levels: aggregate inventory management and stocking location and item-level inventory management. In determining their, inventory strategy, companies make tradeoffs between minimizing the amount of cash tied up in inventory or holding more inventory to maximize customer service or production efficiency.

Inventory strategy involves inventory management at the item level through policies, such as safety stock (described later), and to inventory controls through polices, such as ABC classification to prioritize replenishment rates, which take item level attributes, such as consumption value, lot sizes and order lead times, into account.

Inventory can be broadly classified into three categories: raw materials/components, work in progress, and finished goods. Manufacturing companies purchase raw materials or components, store them until ready for production, and transform them into finished goods. Nonmanufacturing companies, such as wholesale distributors and retailers, stock finished goods for sale to final consumers.

All companies must strike a balance between inventory levels and demand because inventory consumes a company’s cash and incurs carrying costs. Regardless of the type of business, companies must maintain tight control over inventory to conserve cash while ensuring they have enough stock to meet production schedules or forecasted customer demand and actual orders.

Benefits of inventory management

Inventory management is complex and varies depending on your industry, your function within the company, and the type of item being managed. Deciding how to plan and manage inventory is a collaborative effort full of trade-offs, risks, and rewards.

No two companies are alike. Depending on their business model, companies use a number of different methods to manage inventory. Inventory costs the company money, but it may be necessary to hold more safety stock to maintain superior service levels to avoid stockouts and to maximize operational efficiency. Manufacturers with expensive machine and people operations will sometimes carry excess inventory to avoid shutting down these operations due to a lack of inventory—which would cost the company more money.

Almost all companies maintain safety stock inventory to protect against unexpected changes in supply and demand. In this way, inventory functions as a protection against the unexpected, and as a buffer against production shutdowns. Safety stock represents a balance between service or fill rates (the percentage of customer orders that a company can ship immediately from stock) and the additional cost of ordering and holding more inventory. The consequence of not having enough inventory are stock-outs, which can be detrimental to a business especially if customers have alternatives, such as ecommerce-based businesses where rapid fulfillment is expected. Stock-outs represent lost revenue and can adversely affect customer loyalty.

Manufacturers typically establish inventory controls, such as minimum and maximum stocking levels and reorder points, within their ERP systems. Distributors establish reorder points in a decentralized manner, allowing each distribution center to determine their inventory levels based on local factors or demand-driven methods. Local factors can include SKU-level demand, lead times, or seasonal patterns. Demand-driven methods can include point-of-sale data from their retail customers. Many procurement organizations take pricing discounts into consideration in their purchasing strategy and may buy more supply than required to obtain favorable price points.

Inventory management involves making trade-offs between revenue, cost, and risk. Classified on the balance sheet as a current asset, inventory consumes company cash. Careful attention must be paid to the length of the cash conversion cycle—the time between purchasing raw materials (for a manufacturer) or merchandise (wholesaler or retailer) to the final sale of finished products and receipt of payments from customers.

During that time, cash remains tied up, and companies must ensure their inventory is sold in a timely manner (called inventory turns) to return the cash to the business. Slow-moving inventory incurs holding costs, risks, and adversely affects a company’s cash flow. Accordingly, companies require a disciplined process to ensure that the level of inventory investment is in line with the expected level of customer demand.

Inventory management also requires rigorous costing to support both internal management reporting and statutory financial reporting. Inventory costs used in production must comply with absorption costing methods for allocating both direct and indirect labor and overhead to products as they take shape on the production line. And the finished goods, also referred to as merchandise inventory, require allocating any costs associated with preparing it for sale.

These costs can include transportation, labor, and other handling expenditures. An aggregate, the sum of all inventory across the company is used to determine the inventory line item on the balance sheet and the cost of goods sold on the income statement.

Businesses employ a variety of inventory management systems, depending on their operations, complexities, or needs. Examples of the three primary inventory management systems are manual, periodic, and perpetual. Perpetual systems are the most advanced and accurate inventory management systems, whereas the manual method is the least sophisticated way to oversee inventory operations.

Manual inventory system : This method of managing inventory depends on the physical counting of items and recording the details on paper or in a spreadsheet. This process is widely used by small businesses that have not moved to inventory management software solutions.

Periodic inventory system : This is an inventory management system where the inventory count is performed at the end of an accounting period rather than after every sale and purchase. It’s a relatively simple system that’s better suited for smaller businesses with fewer goods.

Perpetual inventory system : The system is the most sophisticated, leveraging automated software solutions to deliver real-time insights. As soon as any stock enters a facility, is moved, sold, used, or discarded, the inventory system will update balances immediately aided by scans from hand held devices that scan item barcodes or RFID tags.

RFID is a technology tracking system that supports inventory management systems. RFID systems use specialized tags attached to every item to track its whereabouts. RFID simplifies inventory management by scanning newly arrived shipments into the system or outbound shipments using mobile scanners. RFID tags can be active, continually broadcasting a signal, or passive, requiring physical readers to track items. RFID tags are the best for providing real-time data and insights on where inventory at all times.

Cycle counting is a method of checks and balances to confirm that physical inventory counts match a company’s inventory records. The periodic counting of individual items throughout the year ensures the accuracy of inventory quantities and values.

Having an accurate system of tracking on-hand inventory quantities is essential for managing supply and demand, maintaining high customer service levels, and planning production.

Instead of leveraging inventory management systems, you can perform cycle counting to take complete physical inventories. Or businesses can use both techniques side-by-side to verify inventory quantities and values. Inventory management supports serialized cycle counting.

While inventory management is common across most industries, there are particular industries with unique requirements that warrant specialized systems. Notable examples are food service (restaurants) and retail.

Retail inventory management

Today, retailers must offer very flexible customer buying options for goods that are offered through different channels. Intense competition from large ecommerce vendors and demanding customers have forced retailers to operate a mixed business model, combining brick-and-mortar stores and online buying experiences, referred to as omnichannel retail.

Omnichannel provides buyers with flexible options, such as order in store, ship to home, buy online, return in store, or ship from a distributor to a store for pickup. The goal is delivering an excellent end-to-end customer experience which could mean the difference between success and going out of business.

In order provide the best customer experience through omnichannel, retailers need to have real-time visibility into their stock on hand to ensure that the customer shopping experience results in orders. Stockouts not only prevent specific orders from being filled, but frustrated customers are also very likely to look for similar items on a competitor’s store or website. Loyalty is fleeting and brand switching is common. Lost customers may never return affecting potential future sales.

As a result, retailers need to manage inventory very carefully to finesse the fine line between having enough inventory to fill the highest percentage of their customer orders and not having too much which strains their cash flow and risks having left over stock at the end of a buying season that cannot be sold. Retail inventory management software (combined with order management systems) allow retailers to swiftly react to changes in buying behavior and adjust their channel strategies and inventory levels.

Restaurant inventory management

Managing restaurant inventory is unique in that it must provide real-time ingredients monitoring because many are fresh, have short shelf lives and carefully tracked through to consumption. The system must also carefully monitor stock levels, trigger restocking orders, record new inventory receipts, and help manage menu costs.

Managing fresh ingredients has inherent challenges by helping managers to closely monitor their shelf lives to prevent spoilage. At best, spoilage results in wasted money, while worst case, it can cause food poisoning and trigger actions from health authorities.

Inventory management software can help restaurants manage their unique challenges. By automatically connecting sales with inventory levels, restaurants can have a complete view of orders, consumption, insight into ingredients stocks, avoid spoilage and manage their margins. Inventory management software also reduces time spent on administrative tasks by sending alerts to managers about potential shelf life expirations, automate reordering when items exceed their spoilage dates or fall below set replenishment levels.

Modern, cloud-based inventory management systems provide comprehensive materials management capabilities that effectively manage the flow of goods across your company and its global supply network. In conjunction with warehouse management systems , they provide accurate and timely visibility into inventory levels, restocking plans and order fill rates, all effect customer satisfaction. Combined with supply chain planning systems, they take the guesswork out of inventory management by matching demand with supply through optimizing stocking levels, increasing order fill rates, ensuring on-schedule production runs, and improving working capital utilization.

Inventory management and supply chain management

Inventory management is a critical component of supply chain management in that a supply chain’s reason for being is the movement of goods, either delivering raw materials and subcomponents to manufacturers or fulfilling orders for finished goods to consumers. Both help companies reduce costs, improve cash flow, and increase profit margins.

Inventory visibility

A key benefit of modern cloud inventory management solutions is their ability to provide real-time visibility into inventory across multiple nodes of the supply chain, such as production facilities, suppliers, goods in transit, and distribution centers. This gives decision-makers the insights they need to maintain customer satisfaction. This is particularly critical for companies with extended supply networks, variable demand and intense competition.

A real-time view of stocking levels and their location helps them better manage production schedules and customer order processing. For example, if a delivery is held up due to transportation problems, managers can cover the temporary shortfall by shifting stock from one distribution center to another where higher demand levels warrant having more inventory.

Combined with supply chain planning software , having real-time data on order volumes helps planners determine how much of a particular item they need, where it should be located, and how frequently they need to restock in order to meet actual and forecasted demand and production levels.

Integrated supply chain planning

Complex supply chains challenge companies to align supply with demand and determine inventory levels with greater precision. Sophisticated demand planning solutions can help utilizing sophisticated algorithms that incorporate multiple scenarios including item and location combinations as well as inventory policies to generate the optimal demand plan. What-if scenarios play a vital role in ensuring planned inventory levels will be sufficient to meet customer demand, avoid stock-outs, and ensure resiliency.

Managing suppliers to optimize inventory management

Choosing the right suppliers is the responsibility of the Procurement organization. Suppliers can have a significant impact on inventory. For example, achieving just-in-time availability depends on having reliable, qualified suppliers that can meet specific delivery timelines. If they miss scheduled shipping dates, production and customer orders may be delayed, resulting in decreased customer satisfaction.

The net requirements plan incorporated through supply planning into the demand plan must be able to support the complexity of global supply chains to determine raw materials and component inventory requirements for production. Finally, planning systems help determine inventory policies for setting safety stock levels (excess inventory used as a buffer against supply and demand uncertainty) basically taking the guesswork out of inventory decisions and their potential negative impact on cash flow.

Integrated business planning combines statistical forecasts with actual demand signals to provide up to date forecasts and inventory levels that meet your desired or target customer service levels. It helps you manage uncertainty in demand and supplier lead times. Replenishment orders are generated whenever an inventory position falls below a minimum threshold. These orders incorporate estimated lead times to ensure adequate stocking levels. Based on the specified inventory policy, the replenishment order may be a fixed order quantity or computed quantity, calculated as a difference between the maximum threshold and inventory position, and can be adjusted for minimum order quantities.

If you’re ready to learn more about modern inventory management, a good place to start is by asking yourself the following questions:

• Are we optimizing our inventory by aligning it with demand and supply planning?
• Are we using the right inventory policies to minimize inventory cost and maximize customer service?
• Is fragmentation of inventory hindering our ability to execute?
• How are we managing our safety stocks?
• How much of our working capital is tied up in inventory?
• How can we improve our inventory turns?
• How is inventory availability supporting our customer satisfaction goals?

Many companies are still using spreadsheets or inflexible legacy systems for some or all aspects of inventory management. While that approach might seem adequate, older technologies can lead to suboptimal business outcomes. To compete in a today’s complex supply chains and respond adequately to inevitable disruptions, you need modern cloud solutions that share information in real time to achieve better alignment between planning, production and an integrated view of your inventory.

Cloud-based integrated supply chain management (SCM) suites help companies develop synergies across their planning and inventory management, as well as other crucial supply chain functions, such as procurement, manufacturing, logistics, and order management. The result: greater efficiency, customer service, and higher profit margins.

Where are you in your journey to integrated inventory management? How can we help?

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Inventory Management: Definition, Types, and Examples

Effective inventory management is the unsung hero of successful business operations, whether in the bustling retail world or in systematic manufacturing processes. 

It’s a critical component that can dictate a company’s ability to meet customer demand, manage cash flow, and maintain a competitive edge. 

According to a report by the National Retail Federation , the retail industry loses nearly $50 billion annually due to inventory shrinkage, a problem that effective inventory management can mitigate

By leveraging data and modern inventory management systems, businesses can ensure that inventory levels are optimized, excess inventory is minimized, and inventory costs are controlled. 

This foundational aspect of supply chain management affects the balance sheets and impacts customer satisfaction and business agility.

In this article, we will share inventory management definitions, explain inventory management meaning, give an inventory example, and discuss how inventory management relates to both inbound and outbound logistics.

Inventory Management Defined

Inventory management refers to ordering, storing, using, and selling a company’s inventory. This includes managing raw materials, components, finished goods, and warehousing and processing of such items. 

Automotive and healthcare industries rely on effective inventory management to streamline production processes and reduce hold-ups. Historically, inventory management was a manual process. 

Still, today it has evolved into a sophisticated inventory management system integrated with supply chain logistics, thanks to advancements in technology like Enterprise Resource Planning (ERP) systems and inventory management software. These tools provide real-time data that businesses use to efficiently forecast, plan, and execute their inventory management processes.

Advantages of Inventory Management and Supply Chain

The advantages of sound inventory management are manifold. Primarily, it allows businesses to have the right products available at the right time, which is crucial for meeting customer orders and maintaining solid sales channels. This is particularly crucial for the inbound logistics process.

Good inventory management can lead to better inventory turnover, ensuring fresh and relevant products, which is especially important in industries with rapid product lifecycles, such as fashion or technology. 

Also, effective inventory management reduces costs by decreasing the need for excess inventory and storing inventory, which can drain resources and capital if not appropriately managed.

Inventory vs. Stock Explained

While often used interchangeably, inventory and stock have subtle distinctions. 

Inventory encompasses more than just the products available for sale (stock); it includes raw materials, work-in-progress items, and all components involved in the production process. 

Understanding this nuance is vital, as it affects how businesses plan their inbound logistics, procurement and manage inventory levels across the supply chain.

Counting Inventory

Counting inventory , or taking a physical list, is a crucial task that validates the quantity and condition of items on hand. It’s a fundamental process that informs financial reporting, inventory forecasting, and supply chain planning. 

Accurate counts are essential for maintaining inventory data integrity, which impacts everything from order management to customer satisfaction. This process is critical at the end of accounting periods to ensure that reported inventory levels reflect the actual value of assets held by the company.

Types of Inventory Management Methods

Several methods help businesses optimize their handling of goods and materials.

Just-in-Time Management (JIT)

Just-in-Time Management (JIT) is a strategy where inventory is delivered only as it is needed in the production process, reducing the cost of storing inventory. Significant for industries like automotive manufacturing , JIT can lead to reduced inventory levels and associated costs, promoting an efficient supply chain.

Materials Requirement Planning (MRP)

Materials Requirement Planning (MRP) systems calculate the materials and components required to manufacture a product. This method is vital for manufacturing industries, ensuring that materials are available for production without the excess that can tie up capital.

Economic Order Quantity (EOQ)

Economic Order Quantity (EOQ) is a formula used to determine the optimal order quantity that minimizes inventory costs involving holding and ordering costs. This is significant across various industries for maintaining balance in inventory management.

Days Sales of Inventory (DSI)

Days Sales of Inventory (DSI) measures how quickly a company can turn its inventory into sales. A lower DSI indicates that a company is more efficient at selling off its stock. This metric is critical for retailers to gauge their inventory management efficiency.

Common Problems within Inventory Management

Though crucial, inventory management is fraught with challenges that can ripple through the supply chain and impact logistics operations. 

One common issue is overstocking, which ties up cash flow and can lead to excess inventory that may become obsolete or expire. Conversely, understocking risks stockouts, leading to delays in the production process and dissatisfied customers. 

Prominent Examples of Inventory Management

Inventory management plays a crucial role in industries where products have a limited shelf life, such as food and beverage or pharmaceuticals . Here, it’s pivotal to prevent spoilage and ensure compliance with safety regulations. 

In fashion retail, inventory management must be dynamic to keep up with changing trends and seasonal demand, making it essential for maintaining inventory freshness and reducing instances of dead stock.

Disadvantages of Inventory Management

Despite its many benefits, inventory management can have downsides. Holding inventory inherently involves storage costs, and stock that sits in a warehouse too long can lead to increased expenses without generating revenue. 

Moreover, complex inventory management systems can be costly to implement and maintain, requiring significant technological and training investments. These systems can sometimes lead to a dependency that may cripple operations if the system goes down or is attacked by cyber threats .

Inventory Management and Software

Inventory management software has revolutionized how companies approach their inventory processes. This technology allows for real-time tracking of goods, inventory forecasting, and more accurate demand planning. 

Inventory Management vs. Supply Chain Management

While inventory management focuses on overseeing and controlling goods within a company, supply chain management encompasses a broader scope, managing the entire flow of goods and materials from suppliers to the end customer. 

Tracking Inventory and Internal SKU Systems

Tracking inventory through internal Stock Keeping Units (SKUs) is an intricate part of inventory management. SKUs help businesses quickly categorize and locate inventory, facilitating faster inventory turnover and more precise inventory data. 

Forecasting and Controlling Inventory with Software

Modern inventory management software often includes sophisticated forecasting tools that utilize historical sales data, seasonal trends, and other variables to predict future demand. This predictive capability helps businesses maintain optimal inventory levels, reducing the risk of overstocking or stockouts. 

Types of Successful Inventory Management Techniques

A variety of inventory management techniques are employed by businesses to maintain efficiency and cost-effectiveness in managing stock levels.

These methods are tailored to match the needs of the company and the nature of the inventory it holds.

Economic and Minimum Order Quantity

Economic Order Quantity (EOQ) and Minimum Order Quantity (MOQ) are foundational concepts in inventory management. 

EOQ calculates the ideal order quantity to minimize total inventory costs, while MOQ determines the minuscule amount a supplier is willing to sell. Both are vital for optimizing inventory levels and reducing costs.

ABC Analysis

ABC Analysis categorizes inventory into three categories (A, B, and C) based on importance and volume. 

‘A’ items are high-priority with stringent control, ‘B’ are moderate, and ‘C’ have the most negligible financial impact. This prioritization is essential for efficient inventory control.

Just-In-Time Inventory

Just-In-Time (JIT) inventory management is a strategy that aligns raw-material orders with production schedules to minimize inventory costs. 

It’s crucial for businesses looking to reduce waste and increase efficiency in the production process.

Safety Stock

Safety Stock is additional inventory held to prevent stockouts caused by inaccuracies in demand forecasting or supply chain disruptions. 

It’s a critical buffer that ensures customer demand is met without delay.

First In-First Out (FIFO) vs. Last In-First Out (LIFO) Explained

FIFO and LIFO are methods to manage the flow of inventory costs. FIFO assumes the first items stocked are the first sold, reducing the chance of obsolete inventory. 

LIFO, less common, takes the last things in are the first sold, which can benefit in specific tax situations.

Reorder Triggers

Reorder triggers are pre-determined inventory levels that prompt a new purchase order. 

They are vital for maintaining stock levels and ensuring consistent supply without overstocking, playing a significant role in inventory management systems.

Batch Tracking

Batch tracking monitors the production and expiration dates of batches of inventory items. 

It’s crucial for traceability in case of recalls and managing stock with expiration dates, maintaining the integrity of the supply chain.

Consignment Inventory

Consignment inventory allows retailers to stock goods without purchasing them upfront; payment is made only after the sale. 

This method is vital for inventory management as it reduces the retailer’s capital in inventory and transfers the risk of unsold stock to the supplier.

Perpetual Inventory

A perpetual inventory system continuously tracks inventory levels, updating in real-time with every sale and restock. 

It’s essential for accurate inventory data, allowing for timely ordering and reduction of excess stock.

Dropshipping

Dropshipping is a retail fulfillment method where a store doesn’t keep products in stock but instead transfers customer orders and shipment details to the manufacturer or a wholesaler, who then ships the goods directly to the customer. 

This method is vital as it eliminates the need for managing physical inventory, significantly reducing handling and storage costs.

Lean Manufacturing

Lean manufacturing emphasizes waste reduction within the manufacturing system without sacrificing productivity. 

It’s vital for inventory management as it promotes a just-in-time approach, minimizing stock levels and reducing holding costs.

Six Sigma and Lean Six Sigma Techniques

Six Sigma and Lean Six Sigma focus on quality improvement and process efficiency. 

They are vital to inventory management by identifying and eliminating process defects, resulting in lower inventory costs and improved customer satisfaction.

Demand Inventory Forecasting

Demand inventory forecasting uses historical sales data to predict customer demand and manage inventory accordingly. 

It’s essential for preventing stockouts and overstock, making inventory management more responsive and cost-effective.

Cross-Docking

Cross-docking is a logistics procedure where products from a supplier or manufacturing plant are distributed directly to a customer or retail chain with marginal to no handling or storage time. 

It’s vital as it reduces the need for warehousing while increasing inventory turnover rates.

Bulk Shipments

Bulk shipments involve transporting large quantities of a single product, which can significantly reduce transportation costs. 

It’s vital for inventory management as it can lead to economies of scale, making larger shipments more cost-effective.

Cycle Counts

Cycle counting is an inventory auditing procedure where a small subset of inventory in a specific location is counted on a particular day. It contrasts with traditional physical inventory counting, where operations are halted to count all inventory. 

Cycle counts are less disruptive and more accurate, allowing for regular verification of inventory accuracy and providing ongoing insights into inventory levels without the operational shutdown.

The Significance of Inventory Management, Control and Optimization

Effective inventory management, control, and optimization methods are crucial for maintaining the delicate balance between too much and too little inventory. 

They ensure that capital is not unnecessarily tied up in stock, preventing stockouts that can lead to lost sales. These methods can result in improved cash flow, better customer service levels, and the ability to quickly respond to market changes.

How Inventory Affects Logistics

Inventory levels directly impact logistics operations; having the right stock in the right place at the right time is essential for effective logistics. 

High inventory levels can cause bottlenecks and increase storage costs, while lower inventory levels can result in inefficient transportation and higher shipping costs for urgent replenishment.

ERP Inventory Management Style

ERP inventory management incorporates all facets of a company’s inventory system into a unified system, including tracking, management, and forecasting. 

This method offers comprehensive insights into inventory, streamlines processes, and can improve overall efficiency.

Retail and Manufacturing Inventory Management

Inventory management in retail focuses on having the right products available to meet consumer demand while manufacturing inventory management ensures that production materials are at hand without overstocking. 

Both require strategies that optimize stock levels, though retail is more directly driven by consumer trends, and production schedules and supplier lead times influence manufacturing.

Unveil the essentials of inventory management with these succinctly answered frequently asked questions.

What does inventory management do?

Inventory management oversees stock levels, manages orders, and forecasts demand to optimize business operations.

What are the 4 types of inventory?

The four types are raw materials, work-in-progress, finished goods, and maintenance, repair, and operations (MRO) inventories.

What are the 3 major inventory management techniques?

The three main techniques are Just-In-Time, ABC Analysis, and Economic Order Quantity (EOQ).

Inventory Management Techniques Summary

Effective inventory management is a cornerstone of successful business operations, ensuring that inventory levels are balanced, customer demand is met, and inventory costs are minimized. 

Businesses can enhance their supply chain management and maintain a competitive edge in today’s market by employing strategic inventory management techniques, such as Just-In-Time and Economic Order Quantity. 

Additionally, advancements in inventory management software have made it easier for companies to track and manage their inventory more efficiently, further optimizing their inventory management processes.

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Inventory management, a critical element of the supply chain, is tracking inventory from manufacturers to warehouses and from these facilities to the point of sale. Inventory management aims to have the right products in the right place at the right time. 

Inventory management requires inventory visibility, knowing when to order, how much to order and where to store stock. Multichannel order fulfillment operations typically have inventory spread across many places throughout the supply chain. Businesses need an accurate view of inventory to guarantee fulfillment of customer orders, reduce shipment turnaround times and minimize stockouts, oversells and markdowns.

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The basic steps of inventory management include:

• Purchasing inventory: Ready-to-sell goods are purchased and delivered to the warehouse or directly to the point of sale.
• Storing inventory: Inventory is stored until needed. Goods or materials are transferred across your fulfillment network until ready for shipment.
• Profiting from inventory: The amount of product for sale is controlled. Finished goods are pulled to fulfill orders. Products are shipped to customers.

Inventory can be a company’s most important asset. Inventory management is where all the elements of the supply chain converge. Too little inventory when and where it's needed can create unhappy customers. But a large inventory has its own liabilities, the cost to store and insure it, and the risk of spoilage, theft and damage. Companies with complex supply chains and manufacturing processes must find the right balance between having too much inventory on hand or not enough.

Periodic inventory management The periodic inventory system is a method of inventory valuation for financial reporting purposes in which a physical inventory count is performed at specific intervals. This accounting method takes inventory at the beginning of a period, adds new inventory purchases during the period and deducts ending inventory to derive the cost of goods sold (COGS).

Bar code inventory management Businesses use bar code inventory management systems to assign a number to each product they sell. They can associate several data points to the number, including the supplier, product dimensions, weight and even variable data, such as how many are in stock.

RFID inventory management RFID, or radio frequency identification, is a system that wirelessly transmits the identity of a product in the form of a unique serial number. It tracks items and provides detailed product information. The warehouse management system based on RFID can improve efficiency, increase inventory visibility and ensure the rapid self-recording of receiving and delivery.

Know exactly where inventory is across the supply chain.

Customize pricing, send quotes, track orders and manage returns.

Move the product to where it's most valuable.

Evaluate patterns in processes to forecast future demand and sales.

Create and manage purchase orders.

Automate shipping to reduce errors such as late deliveries or delivering incorrect packages.

Spreadsheets, hand-counted stock levels and manual order placement have largely been replaced by advanced inventory tracking software. An inventory management system can simplify the process of ordering, storing and using inventory by automating end-to-end production, business management, demand forecasting and accounting.

Globalization, technology and empowered consumers are changing the way businesses manage inventory. Supply chain operators will use technologies that provide significant insights into how supply chain performance can be improved. They’ll anticipate anomalies in logistics costs and performance before they occur and have insights into where automation can deliver significant scale advantages.

In the future, these technologies will continue to transform inventory management:

Intelligent, self-correcting AI will make inventory monitoring more accurate and reduce material waste.

Data from IoT sensors will provide insight into inventory location and status.

Disparate parties will be connected through a unified and immutable record of all transactions.

Supply chains will master inventory visibility with improved demand forecasting and automation.

Unprecedented computational power will solve previously unsolvable problems.

Optimize your business operations to enhance customer shopping experiences and prevent inventory stockout and overselling. Gain the real-time inventory visibility you need to manage profitable and scalable omnichannel experiences.

Enhance shopper experiences from discovery to delivery. Preserve brand trust by providing shoppers with greater certainty, choice and transparency across their buying journey.

Accelerate transformation by simplifying technology integrations to deliver omnichannel order fulfillment processes such as real-time inventory and warehouse management, curbside pickup, buy online pickup in store (BOPIS) and ship from store (SFS).

Apply the power of AI to digital supply chain transformation. Improve supply network resiliency and sustainability, increase agility and accelerate time-to-value through actionable insights, smarter workflows and intelligent automation.

Uncover a clearer, more accurate view of your inventory and make informed decisions that help improve margins, increase service levels and minimize unplanned downtime.

The modern digital consumer is increasingly demanding and will abandon retailers that do not meet their expectations.

Today’s customers expect retailers to provide early, accurate and reliable order and delivery promises to shoppers. What happens if retailers don’t meet these promises?

A resilient supply chain must be able to see what is happening (visibility), quickly analyze those events/data (intelligence) and respond appropriately (agility).

IBM Sterling Order Management helps you deliver the perfect order with a complete omnichannel order fulfillment solution built for sustainability. Merge all your sales channels onto one fulfillment platform that helps you accurately track inventory levels, coordinate third-party logistics, organize customer orders, shipping options and returns management, all while reducing shipping costs.

Inventory Management Plan Template

Define inventory objectives, identify inventory items.

• 1 Raw materials
• 2 Finished products
• 3 Spare parts
• 4 Consumables
• 5 Packaging materials
• 1 ABC Analysis
• 2 XYZ Analysis
• 5 Just-in-time (JIT)

Classify inventory items

• 1 High-value items
• 2 Low-value items
• 3 Fast-moving items
• 4 Slow-moving items
• 5 Perishable items

Determine the quantity of each item needed

• 2 Kilograms

Calculate the cost of holding each item

Establish a purchase plan for each item, approval: purchase plan.

• Establish a purchase plan for each item Will be submitted

Determine reorder points for each item

Set up an inventory tracking system.

• 3 Combination

Train staff on inventory management procedures

Initiate initial inventory purchase order, receive and check the accuracy of the inventory purchase order, approval: purchase order accuracy.

• Initiate initial inventory purchase order Will be submitted
• Receive and check the accuracy of the inventory purchase order Will be submitted

Store inventory items properly

Regularly update the inventory tracking system, conduct physical inventory count regularly, compare physical count with system records, investigate and resolve any discrepancies, approval: inventory discrepancies resolution.

• Conduct physical inventory count regularly Will be submitted
• Compare physical count with system records Will be submitted
• Investigate and resolve any discrepancies Will be submitted

Adjust reorder points based on trends and demand changes

Take control of your workflows today., more templates like this.

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What is Inventory Planning? Challenges & Best Practices

Resources / What is Inventory Planning? Challenges & Best Practices

Table of contents +

• Inventory Management: Process, Examples, Tips & Techniques -->
• Accounting for Inventory: Periodic Inventory Management vs Perpetual Inventory Management -->
• Effective Inventory Management in Retail -->
• Multichannel Inventory Management -->
• Inventory Forecasting Best Practices -->
• What is Inventory Tracking? Top Tips for Tracking Inventory -->
• What is Inventory Planning? Challenges & Best Practices -->
• What is lead time and how do you shorten it? -->
• Pipeline Inventory -->
• What is Inventory Control? -->
• Dead Stock: Causes and How to Get Rid of it -->
• Perpetual Inventory System -->
• Inventory management in warehouses -->
• What is Store Inventory Control? -->
• Automated Inventory Management -->
• What is Inventory Turnover? -->

For medium to large e-commerce brands and wholesalers, inventory planning comes with additional complexity. You may be operating across multiple online sales channels as well as physical stores in various locations. You may have a large database of customers or be looking to scale up operations in the near future. Plus, sudden market shifts can add an extra layer of complexity to your inventory planning. 

Whatever your growing business looks like right now, pinning down a successful inventory plan and management strategy is essential for your future security and success. 

Efficient inventory planning and assortment planning offers a fast route to reduced costs tied up in dead inventory, optimized product mix, happier customers, and increased revenue and profit. 

But despite the business-critical importance of proper inventory planning, all too many businesses today are not doing everything in their power to plan appropriately.

We want that to stop. 

This article will cover everything a fast growing e-commerce retailer needs to know about inventory planning. From what it actually is, to the best technology for the job. What questions should you be asking yourself? What planning method is right for your business? 

Need to improve your inventory forecasting?

Data-driven forecasting for smart replenishment with Inventory Planner

By the end of this article you’ll be able to answer all of these questions and then some. 

It’s time to end shoddy inventory planning and ensure that our businesses are streamlined for the future. 

So, let’s get started. 

What is Inventory Planning?

Inventory represents often the biggest part of a retail business’s assets – up to 80% of cash is usually tied up in inventory. Holding inventory is unavoidable as it allows organizations to operate continuously. However, having too much inventory is damaging to a healthy cash flow and holds business growth as the money tied up in excessive inventory can’t be invested in other areas of the business.  

Inventory management planning is an integral part of a company’s supply chain management strategy, alongside order management, accounting, warehouse operations, and customer management. 

Inventory planning involves forecasting demand and deciding exactly how much inventory and when to order. When done successfully, this helps companies meet demand whilst reducing expenditure. 

In other words, by having just the right amount of inventory at the right time, in the right location, businesses reduce the overall cost of storing merchandise, optimize inventory allocation routes, and ensures that there is always the right amount of stock to meet customer demand (whilst avoiding surplus stock in obsolescence or overstocking).

Image: Shopify

As a result inventory planning improves customer satisfaction rates by preventing overselling. Consistent service levels also breed loyal customers.

In order to establish a reliable inventory planning, businesses and organizations must do three things. These are:

• Demand forecast: using historical sales data, KPIs and variables like seasonality, promotions and market predicts to make data-driven forecasts. 
• Control costs: considering things like choosing the right suppliers, automating purchase order process, reducing cash tied up in slow-moving products etc.  –
• Store efficiently: storing the right amount of products in the right place to optimize your order fulfillment routes if you have multiple inventory locations 

When these three workflows exist in tandem, inventory flows continuously, seamlessly, and efficiently. But, of course, maintaining such a complex operation comes with some challenges.

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Differences Between Inventory Planning and Assortment Planning

Inventory planning is all about optimizing your inventory levels so that you minimize costs but always have enough stock to meet demand. It involves making strategic decisions on when to reorder and in what quantity.

Effective planning requires you to make accurate forecasts by analyzing sales history and emerging trends. You also have to ensure adequate storage for the goods, and understand how factors like supplier lead times and availability of raw materials affect the supply chain.

There is some crossover between inventory planning and assortment planning. Both are reliant on data regarding customer behavior, trends, and product performance. And the aim in both cases is to maximize profit and deliver a great customer experience.

However, assortment planning is more specific. It’s about choosing the range (or “assortment”) of products you want to sell at particular times, and deciding which ones will be sold via which sales channels. This is based on seasonality and demand for each channel or location.

Assortment planning helps you rationalize your SKUs and focus your investments on items likely to bring in the most revenue while avoiding those for which demand is low. You can also plan your inventory around warehouse capacity.

4 Challenges of Inventory Planning

Inventory planning involves bringing together lots of different factors and variables. Planning inventory accurately can be challenging even for businesses operating on one sales channel.

When a business or organization relies on multiple channels, with multiple warehouses, and possibly even multiple 3PL providers, things get even more complex. Especially when demand fluctuation and seasonality are also added into the mix.

Dealing with so many separate operations and variables at once poses some unique challenges. Even small hiccups can spell disaster. Typical challenges include: 

• Disparate data

Effective inventory planning requires a lot of data from a lot of places. And bringing all this data together is a complex task. Inventory planners will need to collate historical data and retail reports that may be dispersed across many different legacy systems.

Planners will need to collate sales orders , accounting, fulfillment, suppliers and point-of-sale (POS) data.

This is not only time consuming but, if done poorly, may result in biased demand forecasting leading to over-stocking, under-stocking, or missed opportunities.

Making predictions is never easy. If you don’t have the right KPIs in place to guide your inventory planning, guesswork will always be there, even if you have analytics tools. Plus, unpredictable market variations can make the forecasting even more complex. 

2020 was a testament to that very fact. 

• Multiple locations

Allocating inventory that is stored across multiple locations is challenging. Without a suitable inventory tracking system, it’s difficult to know exactly where to allocate your merchandise all the time. 

Plus, storing merchandise in the wrong place could result in added shipping costs and longer wait times for customer order fulfillment. A poor picking process will not only reduce productivity, but increase travel times across the whole supply chain. 

• The human component

Technology is not the whole solution. Inventory management planning is ultimately controlled by an inventory planner. When the role is taken over by somebody else, there is a lot of historical knowledge that needs to be transmitted to the new person in charge. 

The new planner will initially lack the brand awareness of the outgoing planner and may struggle to understand the historical reasoning behind the current inventory management system . 

And the human component doesn’t just apply to senior staff. Even with the best inventory software in tow, if staff aren’t sufficiently trained to use it, your business won’t see the best results possible. 

Poor training impacts management and breeds miscalculation. Likewise, poor communication between procurement, production, and quality control departments will ultimately impede efficiency. 

Why Inventory Planning is Essential for E-Commerce

Inventory planning and control is the pillar of successful e-commerce. That’s because a business without a solid inventory plan or inventory planning solution to support it is significantly more vulnerable to overselling, understocking, and delayed order fulfillment. At the end of the day, this all comes crashing down on customer experience.

1. Avoid overselling

Overselling is harmful to customer experience and is often a cause of bad reviews. Customers are less likely to return for repeat purchases and will take their custom to your competitors.

2. Release cash

When too many slow-moving products accumulate in the warehouse, e-commerce retailers are often forced to discount or liquidate in order to release this excess of cash held in stagnating merchandise, in order to invest in more profitable products

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3. E-Commerce is booming

78% of people are set to increase their online purchases over the next year. To meet this increased demand, e-commerce retailers will need to scale their inventories with effective and flexible planning.

4. Meet customer expectations

Customers’ expectations are always high on e-commerce brands, even during the pandemic. Since the COVID-19 crisis, up to 36% of customers have reported being let down by online orders. More and more customers are turning to online reviews before buying, and more than three-quarters admit to leaving negative reviews following a bad shopping experience. 

Dealing with negative reviews costs serious money. Money that could be easily saved by avoiding these problems in the first place with robust inventory planning.  

Effective inventory planning can meet customer expectations by offering the right products, speeding up the order processing time, eliminating avoidable mistakes that cost a business time, money, and brand reputation.

By investing in appropriate e-commerce inventory planning software and experienced planners, retailers can avoid these money-draining situations and boost their customers’ experiences. Effective, data-oriented, planning helps retailers reduce time, scale, and optimize product allocations and pricing. 

Considering the unexpected nature of the Pandemic, it is possible to understand why retailers were taken by surprise. But the crisis has taught us all some valuable lessons as well. 

Retailers with flexible, scalable, inventory management plans already in place were able to meet accelerating customer demand head-on. Now there’s no longer any excuse. 

Ask yourself, is my business post-pandemic proof ? 

The Pandemic has shown us, first-hand, the importance of maintaining an inventory plan that is robust enough to succeed through unforeseen events. 

In fact, according to a 2020 survey by Statista , roughly one-fifth of businesses plan to have more inventory in the aftermath of the pandemic, whilst 27% state that they will be making adjustments to their supply chain networks. 

To sum up, inventory planning will help you:

• Reduce stockouts 
• Reduce overstocks 
• Optimize inventory locations
• Rotate stock faster
• Increase cash flow
• Increase profitability
• Easily retrieve items
• Reduce guesswork
• Prevent order processing delays
• Anticipate lead times  

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Key Considerations When it Comes to Inventory Planning

Given that proper inventory planning is so business-critical – now more than ever- what can we actually do to ensure that our inventory plans are robust and ready to go? 

To actualize and carry out a successful inventory plan, you’ll want to follow some best practices and procedures. In order to do this it’s imperative that e-commerce businesses familiarize themselves with the important steps involved when it comes to planning inventory.

The important steps involved

There are many important steps involved in planning and executing a successful inventory plan. In general, these roles can be thought of in three parts: context; analytics; the planning. 

Context refers to your business’ data history. From micro details to macro level planning. Everything from sales orders, customer knowledge to the competitor landscape and current socio political events should go into informing your inventory planning process. 

Analytics refers to inferring information from the data itself. Ensuring that the inventory plan is based on the correct data, sufficient data, and (extremely important) complete data. What does this data mean, and how will it inform a flexible, scalable inventory plan? 

Finally, the planning stage is absolutely critical in and of itself. 

The planning stage involves: 

• Gathering a comprehensive database of historical sales data 
• Understanding how stock keeping units (SKUs) have performed
• Using SKU performance to set expectations for upcoming seasons
• Analyzing the competition’s data  (pricing, promotions, & trends) 
• Setting tentative or strict receipt budgets by product category 
• Weekly performance recaps to assess product and category performance
• Setting markdowns and promotions based on weekly performance recaps 
• Reforecasting periodically based on weekly updates, trends, and current events
• Managing evergreen inventory with monthly sales forecasts and receipt projections
• Post-season hindsighting of financial and product performance to determine if targets were met and make necessary changes to next season’s strategy 

Setting up best practices and procedures

Another key consideration when it comes to inventory planning is maintaining best practices and procedures at all times. Getting inventory planning right is a balance between human expertise (people), intelligent strategizing (process) and the right tools for the job (technology). 

When starting to develop an inventory plan, it’s a good idea to ask yourself some rudimentary questions that will inform your strategy going forward.

1. What is your product volume likely to be? 

To answer this, dedicate some time to look into your historical data to understand the seasonality, coupling with trends data from tools like your own inventory planning software or Google Trends.  Do this before scheduling any orders. 

You’ll be able to calculate your regular off-peak sales stock requirements as well as factoring in any anticipated demand spikes. By determining your economic order quantity you’ll identify the optimum quantity of stock to hold at one time and minimize total ordering and holding costs accordingly.  

2. What might impact my inventory?

It’s important to anticipate any internal or external factors that might impact consumer demand in the future. Consider retail inventory planning variables such as upcoming advertising campaigns, sales promotions, target market, seasonal demand spikes, and current consumer trends. 

3. Am I prioritizing efficiency?

Efficiency is the lifeblood of inventory planning and control. Ask yourself if your warehouse and order process is streamlined for optimal performance. If not, what can you do to make sure that it is? 

Think well-organized storage spaces for easy picking and retrieval, sufficient space for extra stock (but not so much that you’re hemorrhaging money), optimal warehouse locations for faster delivery fulfillment , and streamlined communications between inventory and order management teams. 

4. Am I using the right KPIs? 

Consider whether you’ve been using metrics and key performance indicators (KPIs) to your full advantage. These critical datasets help organizations gauge the success of their inventory planning to date. Make sure that your inventory plan takes the following factors and variables into account – and use KPIs to inform your future strategy. 

• Orders delayed by stockouts 
• Storage capacity usage 
• Forecast accuracy 
• System accuracy 
• Daily sales 
• Movement of inventory 
• Customer satisfaction 
• Inventory turnover 
• Carrying cost of sales  

7 Inventory Planning Methods

Inventory planning and control systems won’t look the same for every business. As such, there are various different inventory planning models. In fact, there are three main examples of inventory planning methods. 

The models meet the needs of different types of companies. Primarily those dealing in: 

• Raw materials
• Partially completed goods
• Finished goods

The Deterministic Inventory Model

The deterministic inventory model is most typically used by merchants dealing in raw materials. The deterministic model uses a precautionary method to avoid stockouts. One example is the Economic Order Quantity (EOQ) model. 

With food inventory planning software, for example, the EOQ model can be used to calculate an optimal order quantity to reduce inventory costs and maximize value. This is an effective model as long as demand stays relatively steady. But it does not account for seasonal change or external fluctuations. The deterministic model, therefore, requires constant monitoring to be successful. 

The Work in Progress (WIP) Model

This model is best suited to merchants dealing in partially completed goods, finished goods, or goods-in-transit (GIT). This inventory model focuses on the holding of inventory and there are three motives for doing so. 

The transaction motive posits that buying raw materials in bulk is cheaper and brings down the per unit cost. The precautionary motive uses inventory as a protection against demand uncertainties to prevent stockouts. The speculative model promotes holding inventory to mitigate increases in the price of materials and/or labor. 

The Perpetual Inventory Model 

The perpetual (or continuous) inventory model is also often used by companies dealing with partial or finished goods. Continuous systems constantly track quantities, and replenishment orders are made as soon as stock reaches below a set cutoff point (the reorder point). 

This is the only system that cannot be maintained manually. The perpetual model relies on specialized technology. But this model allows merchants to keep track of current stock levels and avoid stockouts. 

The Just in Time (JIT) Inventory Model 

The just in time (or JIT) inventory model works by aligning orders of raw materials or items from suppliers with production schedules directly. In other words, the company will hold sufficient inventory to cover maximum market demand. 

The idea is to increase efficiency and decrease waste by ordering and receiving goods as and when needed, and never in surplus. To achieve success with this model, therefore, retailers must make sure to forecast demand as accurately as possible.

The FIFO & LIFO Model

FIFO and LIFO are both common techniques in inventory control and planning. FIFO (first in, first out) means that you fulfill orders using the oldest products first. This is ideal for perishable goods with expiration dates, but it also guards against obsolete stock that’s gone out of season or fashion.

LIFO (last in, first out) is the opposite. It’s mainly used by companies who want to use current prices to calculate the cost of goods sold as this offers tax advantages when prices of goods are rising.

The Minimum Order Quantity Model

Minimum order quantity (MOQ) is basically the lowest number of units that a supplier will sell to a buyer. Many suppliers choose to set an MOQ because it’s not cost-effective for them to sell you just a handful of items—it’s only worth their while to sell in larger quantities.

Cheaper items generally have a higher minimum order quantity, enabling wholesalers to sell items at a cheaper rate. However, buying in bulk can mean the buyer risks overstocking.

E-commerce retailers may use MOQ to set a minimum spend threshold for customers in order to offset the costs of offering free shipping.

The Reorder Point Model

This is the point at which you need to replenish stocks of a given item to prevent a stockout. This will be different for each product line because it’s based on supplier lead time, warehouse receiving time, and safety stock protocol. You can use demand forecasting to predict how quickly an item will sell.

Here’s the calculation: Reorder point (ROP) = demand during lead time + safety stock

Inventory planning software typically lets you set a reorder point per item and sends you a notification when stock levels are approaching it. Some systems will even order new stock automatically, based on your rules.

Data-driven forecasting for smarter replenishment

Forecast demand based on historical sales data and market fluctuations to ensure you always stay on top of your inventory levels.

5 Best Inventory Planning Software Options

Brightpearl.

Brightpearl is a cloud-based retail operating system that combines inventory management, demand planning, order fulfillment, warehouse management, purchasing, accounting, CRM, and POS in a single platform.

Advanced reporting helps you make data-driven forecasts based on sales history, product performance, and customer behavior. Data is synced across all channels and locations for a real-time overview of inventory levels—and you also receive replenishment reports and low-stock alerts.

Aside from planning, Brightpearl’s automation engine lets you automate your workflows (and reduces human error by 65%). It covers everything from complex order fulfillment to auto-generated pick lists and POs, plus barcode scanning.

The platform integrates with top marketplaces, platforms, shipping carriers, and 3PL providers, with the core integrations all built, developed, and supported in-house.

Brightpearl is made especially for retail, so it has all the features you need without charging for those you’ll never use. It’s also designed to scale as you grow—add as many new sales channels and users as you need, at no extra cost.

Pricing is tailored to your order volume, . Full advanced support is provided in your standard Brightpearl subscription, with business consultants and training included.

Oracle NetSuite is a modular ERP with plenty of features, including inventory tracking for multiple locations, forecasting, cycle counting, reorder points, and lot and serial tracing. You can automate core processes and get real-time insights into operational and financial performance.

One major downside is that those features come with a steep learning curve. And because NetSuite isn’t retail-specific, it’ll need modifications to tailor it for a retail business. The one-size-fits-all model means you’ll be paying for features you don’t need. There aren’t many integrations, either.

Users pay an annual license fee for the core platform, the number of users, and optional modules—plus an implementation fee. (The setup takes 420 days on average, compared to Brightpearl’s 90.) You can add more modules and users for an extra charge.

That’s probably why reviewers say NetSuite is expensive, especially since you have to pay extra for full support. Users also mention the learning curve and difficulties with customization.

Infor offers a huge array of products, which can make it tricky to select the right one. For example, there are various ERPs for different industries. If inventory planning is your main concern, you’ll probably need the Infor Supply Chain Planning suite.

This includes modules for demand planning, supply planning, production planning and scheduling, inventory optimization, and integrated business planning. It’s designed to allow companies to create, manage, collaborate, and coordinate plans across their supply chain.

Infor helps with safety stock strategies, assortment management, and inventory optimization, and lets you synchronize production with demand. You can follow real-time changes to adjust forecasts. The system learns as new data becomes available and shows you how to respond to market shifts.

There are no plans or pricing displayed on the website, but some users mention that implementation can be costly. Reviews also cite a learning curve with lots of training needed.

SAP also has a wide product range, with at least two possibilities for inventory planning. There’s SAP Integrated Business Planning or SAP Cloud ERP (also referred to as SAP S/4HANA Cloud, available in public or private editions).

The IBP software encompasses supply chain-related financial forecasting and scenario planning, alongside statistical modeling, advanced demand sensing, and response management. Various plans are available within the product—inventory is listed separately from demand, and all are “price on request”.

SAP Cloud ERP offers live inventory management, warehouse management, transportation management, and personalized business insights. It helps you adapt to changes based on real-time usage and customer experience data​, and it allows you to integrate barcode and RFID technology.

No pricing information is shown, but reviews mention it’s expensive as well as complex to implement. Some users say it’s not very user-friendly, requires modification 4 , and that integration is tricky.

Blue Yonder

Blue Yonder’s product is called Luminate, which is divided into several categories. Luminate Planning describes itself as an end-to-end supply chain solution. This provides machine learning-based recommendations and predictive analytics, enabling you to see potential disruptions and opportunities, and to pivot your plans if needed.

The software also includes real-time order, shipment, and inventory status to inform your planning decisions. You can run scenarios, optimize your inventory, and coordinate order-to-delivery operations.

Seemingly a separate product, Luminate Commerce also has inventory planning and management capabilities alongside order fulfillment. And Luminate Logistics includes warehouse and transport management.

With no plans or pricing shown, it’s hard to know exactly what you’re getting, or if it’s possible to combine these solutions. Reviews mention a confusing interface and that the product takes a while to set up.

How to choose the right inventory planning tools

The features you want from an inventory planning solution will vary from business to business, so think carefully about current and future requirements. An all-in-one platform provides value for money, but be wary of non-specific ERPs that require customization and charge for elements you don’t need.

That brings us to ease of use—look for software that’s simple to set up and use, with fast implementation. It should also be easy to integrate popular platforms and favorite tools.

It’s important to have robust support, preferably included as standard. Discuss your requirements with the vendor before signing up, and ensure you know exactly what you’re getting. Brightpearl gives you retail-specific features, fair pricing, and a user-friendly interface.

Improving Inventory Planning With Technology

Inventory planning can be improved, aided, and enhanced with the right technology. ERP inventory control systems offer users versatile inventory planning control over various parts of the product lifecycle. From production in the factory, to storage in the warehouse and transit. However, implementing an ERP system is often a complex project that can take up years, and usually requires customized e-commerce integrations at extra cost. So it may not be the ideal option for e-commerce businesses that look to expand quickly. 

Though small businesses might be perfectly fine using Excel to manage their inventory, but can easily get overwhelmed by increasing order volumes and product SKUs when their businesses start to grow. 

Luckily, there are many inventory planning control software options on the market today that can be scaled for different business needs. In fact, many of these software companies offer fully customizable enterprise-level software solutions, things like:

• Location management
• Sales tracking 
• Barcode & POS capability
• Barriers to oversell 
• Multi-channel management
• Data-driven demand forecasting 
• Fulfillment planning 
• Inventory, sales channel, supplier and customer reporting
• Retail business intelligence

Mobilizing technology and real-time data insights will remain key to managing customer expectations in the years to come, coping with demand fluctuations and surviving through any future supply-chain disruptions. 

Digitizing our supply chains will help us future-proof our e-commerce platforms by speeding up business-critical processes and eliminating time-consuming manual tasks and decision making.

Introducing Brightpearl

Brightpearl offers a retail-tailored Operating System that is specifically built for omnichannel merchants and assists with retail inventory planning. Integrated POS syncs all your online and offline channels in real time for the ultimate in flexible and streamlined inventory management. 

In other words, for medium to large retailers managing multiple online sales channels, Brightpearl’s inventory management software is designed to enhance operational agility, boost sales, and meet (or rather, exceed) customer expectations with data-driven inventory planning and workflow automation . 

With this intuitive inventory planning tool, you’ll be able to manage your inventory across marketplaces like Amazon, your web stores like Shopify, BigCommerce, Magento , your physical stores and other major e-commerce platforms – all from one place.

Product performance analysis allows you to analyze products based on order volume, margins, revenue, and customer lifetime value to make intelligent data-backed business decisions.

In our fast-changing e-commerce ecosystem, you need to be armed with a system that can boost your operational agility to adjust quickly to any sudden market shifts, remain competitive and hold on to our customers throughout turbulent, fast-changing markets. 

Inventory Management for Small Business: A Simple Guide

Nick Zaryzcki

Reviewed by

February 14, 2020

This article is Tax Professional approved

You’ve signed the lease, renovated the space, and installed fancy new lighting. You have a $10,000 espresso machine. You imported $50,000 in designer bookshelves from Copenhagen.

I am the text that will be copied.

You’re almost ready to open your combination café-bookstore, but there’s something missing: you don’t have any stuff to sell! You need to order some inventory .

How much inventory should you order? How should you keep track of it? And when should you order more?

Welcome to the world of inventory management.

What is inventory?

Inventory is what your business builds up whenever it buys stuff that it doesn’t immediately sell. For example, when:

• a pet store buys a pallet of dog food from a wholesaler
• a restaurant orders ingredients in the morning for that evening’s dinner service
• a craft brewery buys barley and hops for making beer

Why do businesses hold inventory?

In a perfect world, businesses wouldn’t have to hold more than the minimum amount of inventory they need to get through the day, and we wouldn’t need inventory management. But most business owners buy and hold more than the minimum amount, because it protects them from unexpected events.

Holding more materials and goods than you need is like a shock absorber for your business. It lets you do things like:

• Meet sudden surges in demand
• Build a buffer against late shipments from suppliers
• Continue doing business when your customers are buying goods faster than your suppliers can supply them
• Purchase in bulk (which can save you money)
• Buy products that are rare or going out of production

What is inventory management?

Inventory management is about knowing how much inventory you have, when to order more, and at what price .

Inventory takes up storage space, requires security and protection against spoilage, jacks up your insurance costs, and ties up cash you could be spending elsewhere. Inventory is expensive, which means you need to be careful about how much of it you order.

Carry too much of it, and you’ll have less cash to spend on other parts of your business.

Carry too little , and you’ll lose sales and customers when products go out of stock (customers generally don’t like it when products are out of stock when they need them).

Order just the right amount , and you’ll reduce costs, improve cash flow, avoid lost sales, and make sure you always have the products you need on hand.

What does effective inventory management for small business look like?

Good inventory management will look different depending on your industry—a Michelin-starred restaurant will manage its inventory differently than a hair salon or a car dealership, for example. But there are a few principles that work across industry lines.

There are basically three steps to inventory control:

Step 1: Organize and track how much inventory you have.

Step 2: Decide when to order more, and how much more.

Step 3: Minimize costs and prepare for the future.

Step 1: Organize and track inventory

You can’t manage your inventory if you can’t track it. Here’s how to make sure your inventory data is accurate and up to date:

Set up an inventory ledger

The most barebones method of tracking inventory is to set up a manual inventory or sales ledger. You can do this with most accounting software, a spreadsheet, or even a physical notebook.

Any time you make a sale or a purchase, record it in the ledger. At the end of the day, use the numbers in your ledger to update your total inventory numbers. If you have a high-volume business, you won’t be able to do this manually, but inventory management software can help you with this (more on that below).

A good sales or inventory ledger should record information like:

• Date of sale or purchase
• Product name
• Transaction description
• Total price paid
• Total amount paid

As an example, your ledger might look like this:

Set up a point-of-sale (POS) system

Many small businesses still use pen and paper to track inventory, but popular POS systems like Square , Vend or Lightspeed offer inventory systems let you do a whole lot more.

A good POS system can plug into a barcode scanner (see below), process debit/credit card payments, print receipts, and make the entire checkout process easier for high-volume sellers.

A good POS system can also track all of the following information in real-time:

• Name, price and quantity of product sold
• Product description (i.e. category, size, color, etc.)
• The time and date of sale
• Customer information
• Product code (UPC barcode number, SKU number, etc.)
• Suggested retail price/MSRP
• Contact information for the supplier
• Minimum stock levels
• Shipping details (if applicable)

Most POS systems also come with a card scanner that lets you accept card payments , send invoices and purchase orders, and offer advanced sales analytics tools.

Keep in mind that the inventory management systems that come with POS systems are often tailored to different industries. For example, Square has good all-purpose tools for different sales channels, Toast ’s are good for restaurants, and Shopify ’s are good for ecommerce businesses.

Get barcode labels

Manually entering sales into a ledger or POS system can get tedious, especially if you run a retail business with lots of daily sales. Scanning your products into your sales and inventory ledgers automatically using a barcode scanner can speed up the checkout process, cut down on errors, and make inventory tracking automatic.

If your products don’t already come with barcode labels pre-attached, not to worry: most POS systems also have built-in tools that let you automatically generate and print your own barcode labels, and most are compatible with popular Bluetooth barcode scanners like Socket Mobile’s SocketScan series and Zebra’s Symbol CS4070 . (If you’re going to print lots of labels, Wirecutter has a great consumer guide to label makers that you should check out.)

Periodically audit your stock

Even if you use software and label scanners to track your inventory, you should still occasionally count it manually to see if it matches what your inventory tracking software says.

You can do this in three different ways:

A full year-end inventory

This involves going through your entire inventory manually, item by item, and making sure the numbers in your inventory records match the numbers in your warehouse/on your shelves.

You’ll want to schedule a full inventory well ahead of time, preferably for a period when there are no sales or deliveries, and ideally at the end of the year when your accountant needs an accurate inventory valuation.

Cycle counting

Instead of doing the audit all in one go, you can spread it throughout the year and do it one product type at a time. For example, a boutique might audit all of their shoes one month, then all of their shirts the next, and so on.

Spot checks

If you do a year-end inventory or cycle count and notice that there’s a lot of stock missing, you should start doing spot checks. These involve picking a product at random and making sure the reported stock matches the actual stock. Ideally, you should focus your spot checks on your fastest-moving and your most expensive products.

Implement the first in, first out (FIFO) method

If you’ve ever stocked shelves at a grocery store, you’re probably already familiar with FIFO. The FIFO method assumes that you will sell all of the oldest stock in your inventory first, before your new stock.

For example: let’s say you run a small café that gets fresh coffee bean shipments every Monday and Thursday. You get 100 bags of coffee on Monday, and another 60 bags on Thursday. You want to get rid of the Monday bags first, so you don’t even put the Thursday bags out until the older stuff is gone.

FIFO is most effective for businesses that sell perishable goods, because it cuts down on spoilage costs and is the most accurate way of measuring the value of your inventory. But it also applies to businesses that sell non-perishable goods. Boxes wear out, packaging designs change, and trends shift. Turning over old stock is a good idea no matter what line of business you’re in.

Having trouble getting rid of slower-moving stock? Try giving your customers a discount, holding a promotion, bundling it with new stock, selling it to a liquidator, or even giving it away.

Step 2: Deciding when to order more

It’s been a few days since you officially opened your store, and business is booming. You’ve got an accurate inventory tracking system up and running, so you’re keeping a close eye on your inventory levels. Good thing, too: you’ve just realized that one of your most popular items is selling faster than you thought it would.

Should you order more? If you do, how much more should you order?

Here are a few techniques that can help make inventory purchasing easier:

Look at historical sales to get a sense of demand

After you’ve been in business for a few months, you should start to notice patterns in your sales data. You might find that certain products sell better on a certain time of week, month or year. Analyzing these patterns and trying to predict future changes in demand is one of the simplest ways to avoid mistakes in inventory purchasing.

Looking at the data in your inventory software (or on your inventory ledger) can help you answer questions like:

• What’s the busiest week of the year?
• What day of the week do you generally run out of your top three products?
• What seasonal highs and lows are coming up next quarter?

More advanced: Set Periodic Automatic Replenishment (PAR) levels

A PAR level is the minimum or maximum amount of stock you’ve determined you need for a certain product. For example, in the restaurant industry PAR levels refer to how much of a certain food or beverage item you need to get through an average day of sales.

How you set your PAR levels should depend on how quickly you turn over stock, how long it takes to reorder and replenish stock, seasonal shifts in demand, and any other information you have about sales.

Some businesses use the following equation to set PAR levels:

PAR level = (Weekly inventory turnover + Safety margin) / Deliveries per week

For example, let’s say you run a café and want to figure out the PAR level for your dark roast espresso.

You go through about 30 bags of it every week, and you’ve found that a safety margin of four bags is enough to deal with unexpected surges in demand. You also get two deliveries of it every week.

According to the PAR level formula:

PAR Level for dark roast espresso = (30 + 4) / 2 = 17

This means that if the number of bags of dark roast espresso drops below 17, your café should reorder to keep up with demand.

Although it requires a bit of up-front work, setting PAR levels can save you a lot of time and work in the long run and speed up the entire purchasing process for your business.

Prioritize your stock

If you have lots of different products, spot-checking and setting PAR levels can seem like a daunting task. But they become a whole lot easier when you separate low-priority stock from high-priority stock and decide which products need your attention the most.

Most retailers can usually sort their products into at least two categories:

• High margin products with unpredictable sales
• Low margin products with high frequency sales

(There are also low margin products with low frequency sales, but hopefully you don’t have too many of those!)

Products in the first category need more of your attention than the the latter, because getting inventory wrong for them has a bigger impact on your business. If you don’t have time to do a full inventory or set PAR levels for every product, focus on high-priority products first.

Adopt just-in-time purchasing

Sometimes the best way to handle inventory purchasing is to automate it completely. That’s where just-in-time purchasing comes in.

In a just-in-time system, your supplier is only allowed to produce exactly the amount of stock needed to fill your customer’s orders, and no more.

Provided that you’re able to set one up in the first place, a just-in-time system eliminates the need for holding inventory or performing any kind of inventory management system in the first place, potentially saving you a lot of time and money. Car companies like Toyota, computer manufacturers like Dell and ecommerce retailers that use dropshipping (see below) love just-in-time purchasing because it decreases inventory, along with all the complications of having too much of it.

But suppliers tend to dislike just-in-time systems. They’re unpredictable, expensive, and time consuming systems to set up, and a single delay in your supply chain can shut the whole thing down.

Use purchase orders

Most small businesses purchase inventory by simply calling up their supplier, sending them a payment, and waiting for their inventory to arrive. But as your business grows in size and complexity, you’ll need an organized system that makes sure purchases are ordered, budgeted for, and fulfilled properly. You’ll need to start sending purchase orders .

A purchase order (or “PO”) is a document sent from a purchaser to a vendor to confirm a specific purchase of goods or services. Purchase orders look like this:

POs are a great way to make sure that you and your supplier are always on the same page. For example, If your supplier sends you a shipment that contains fewer items than you paid for, a purchase order gives you grounds to resolve the problem quickly. (Remember: once your supplier approves and signs a purchase order, it becomes legally binding.)

Purchase orders include important information like:

• Purchase order number
• Purchase order date
• Vendor name and address
• Buyer name and address
• Delivery date
• Shipping method
• Item description and technical information
• Item quantity
• Item unit cost
• Total price
• Payment information

These days, most companies issue purchase orders electronically using their accounting software or POS system. If your accounting or POS solution doesn’t have that option, Shopify has an excellent purchase order template you can use.

Step 3: Minimize costs and prepare for the future

Good inventory management doesn’t just ensure that your products are always in stock. It can help you cut down on supply chain costs, get a better price from your suppliers, and even eliminate the need for inventory management entirely.

Once you’ve got the hang of steps one and two, here are a few advanced inventory moves you can do to save your business time and money in the long run:

Develop good relationships with your suppliers

Get on good terms with your supplier now, and they’ll be more willing to help you in the future—when you order the wrong number of units, have a sudden shortage, or have to order stock on credit.

How exactly do you build good supplier relationships? Here’s where to start:

Maintain a steady stream of communication

The more information you share with your suppliers, the more they can plan ahead, reduce safety stocks, and save on their own inventory costs. Suppliers are trying to cut down on uncertainty and prepare for unexpected events just like you are. The more you can tell them about your needs ahead of time, the better.

Include them in your decision making

The more you include your suppliers in your own decision making—for example, when you’re designing a new product or brainstorming a new product promotion—the more they’ll be able to tell you when something could go wrong.

Your supplier can tell you if certain materials or parts might be hard to find (and could drive up costs), warn you about seasonal differences in the availability of materials, and help you save costs even before you’ve started designing a product.

Earn their trust

Relationships are based on trust, and the buyer-supplier relationship is no exception! Working with a supplier who trusts you (and vice versa) might mean that you can eliminate certain approvals for routine purchases, make large orders on credit, and even get a lower price than the supplier’s other customers.

How do you earn the trust of your suppliers? Pay them promptly, avoid rush orders if you can, and treat them with respect. Keep in mind that it’s also a lot easier to develop trust when you’re dealing with someone face-to-face, so try working with local suppliers as often as you can.

Consider a dropshipping system

Dropshipping means your suppliers ship their goods directly to your customers, bypassing the need for any inventory management in the first place.

Let’s say you run on online store that sells graphic tees. Under a dropshipping arrangement, instead of delivering graphic tees to your warehouse and leaving the task of shipping tees to customers up to you, your supplier might ship them directly to your customer’s doorstep for you.

Dropshipping has become popular among ecommerce sellers over the past few years, and it’s easy to see why. It’s convenient, it gets rid of the risks associated with inventory and supply chain management and forecasting, and it means you don’t have to carry any extra stock, which could save you money.

But dropshipping isn’t for everyone. It reduces the amount of control you have over your supply chain and the quality of the product. Letting your customers deal directly with your suppliers can also make the purchasing process feel less personal, and many dropshipping suppliers forego customer service entirely.

Consider using Amazon fulfillment services

This is basically an Amazon-operated dropshipping service. Businesses who use Fulfillment by Amazon (FBA) automatically qualify for selling through Amazon Prime, are allowed to sell and ship products through FBA even if the sale doesn’t occur on Amazon, and get to benefit from Amazon’s speed, scale and efficiency.

But there are drawbacks too. Many sellers who use the service report an increase in returns, due to Amazon’s liberal return policy. The company uses Amazon-branded boxes for FBA shipments, which means you lose control over product branding. Amazon also charges for any inventory they store for you, which can get cut into your bottom line, and you need to transport your inventory to Amazon’s warehouses, which can be a hassle.

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Home > Finance > Inventory

Why Is Inventory Management Important?

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Effective inventory management affects every aspect of your business—from your warehousing costs to your ability to fulfill orders accurately and on time. You want to be on top of everything from raw materials to finished goods. Unfortunately, inventory management is a difficult business process to do by hand. It takes time, and if you make a mistake, it could have ripple effects that negatively impact your business for months or years.

Good inventory management software is designed to help business owners by automating their inventory tracking, inventory planning , and manufacturing. So let’s break down the benefits.

Why use inventory management software?

Inventory management software increases your profit, inventory management software improves customer satisfaction, inventory management software makes it easier to run your business.

Inventory management is an overarching term that refers to your tracking system for every phase in the product life cycle. It can include your sales forecasting, product ordering, supply chain management, warehouse management, and customer fulfillment solutions. To find out more, check out our article, “What Is Inventory Management?”

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Inventory is a bit like the stock market—it’s a risk. If you invest in risky ventures (like new product lines or niche items) and don’t diversify your portfolio (e.g., pour all your working capital into manufacturing a single item), you run the risk of losing everything.

Fortunately, inventory management software can help you minimize risk and streamline your costs, which ultimately means a healthier bottom line for your business.

Minimize storage costs

Any inventory management software worth its salt should include basic economic order quantity (EOQ) calculations. EOQ helps you identify the most cost-efficient method for ordering new products by weighing the costs of storing your products versus the cost of ordering your products —it compares product stock level with cash flow.

Inventory management software can do this for you automatically so you can minimize your warehousing fees and save money .

Minimize losses

Products that don’t sell are essentially losses to your business—you’ve already spent the money to make the items, but you can’t recoup that capital by selling the product. Inventory management software helps minimize this risk because many solutions include forecasting. This inventory management process checks your inventory level and ensures proper inventory management for your business.

Forecasting involves tracking the number of units you’ve sold and estimating the number of units you’ll sell in the future —basically it conducts a process called inventory control . Even with an automated, computerized tool, forecasting isn’t 100% accurate.

But using inventory management software to do the math for you is still a heck of a lot more accurate than trying to crunch the numbers yourself.

Inventory management software can also integrate with your point-of-sale (POS) system to update your stock numbers in real time. That gives you more accurate projections, which lowers your risk of investing too heavily into products that won’t sell. Plus, your software can calculate the exact number of units you need to order and recommend the ideal time to place your order (so you don’t overspend on warehouse storage for your items, but you still have enough stock on hand to meet customer demand).

Sell more items

Imagine, for a moment, that you’re trying to buy a brown leather wallet as a birthday gift. You go to a store you expect will carry that item—only to find out they don’t have any brown leather wallets in stock. Depending on the situation, you may stick around and simply choose another item at the store. But if you’re really set on getting your friend a brown leather wallet, you’re probably going to leave and shop around elsewhere until you find the product you’re looking for.

Chances are, your customers are the same. If you don’t have enough product in stock to meet demand, your customers probably won’t just come back later—they’re just going to shop somewhere else. And if that happens repeatedly, they may stop coming back to your store altogether. Even a single lost sale may represent thousands of dollars’ worth of lost potential sales, so it’s important to have enough stock to meet customer demand.

With inventory management software, you’re more likely to have the right products on hand at the right time to meet customer demand. This helps you sell more in the here and now, but it also helps you secure customer loyalty so you can sell more items in the future.

Have you ever tried to buy something only to find that the product you want is out of stock? Or waited for weeks for a product to arrive? Or opened a package only to discover that the item was damaged or the wrong item altogether?

None of these experiences paint your business in the best light, and they can all negatively impact customer loyalty (making your customers less likely to choose your product in the future).

But again, inventory management software can help minimize these mistakes and deliver the best possible experience for your customers.

Boost product availability

As we’ve mentioned already, many inventory management tools include forecasting and automated reorder protocols. This improves the likelihood that you’ll have enough product on your shelf when your customers want it, which in turn improves the chances that your customers will find the exact items they need (in their size, color, or other preferences).

Improve order accuracy

Some inventory management solutions also integrate warehouse management. This feature helps you maintain an organized warehouse, which reduces the risk that you’ll simply shove new inventory into a random spot, forget it’s there, and lose track of your merchandise. It also helps warehouse employees pull items for customer orders with greater accuracy, so your customer actually gets what they ordered.

Inventory management software may also include logistics features that help you track order fulfillment time. That way, you can give your customers an accurate delivery estimate (and avoid falling short of those promises).

Balance multiple sales channels

If your business runs a brick-and-mortar location, an online store, a pop-up location, and an Etsy store, it can be difficult to make sure every customer order gets processed accurately while also ensuring your physical store locations have enough inventory on hand.

Inventory management software makes this process a lot easier. It can integrate with your POS system to track sales and stock across multiple channels—all in one place. That way, you can manage your business’s inventory as a whole instead of on a case-by-case basis.

Promote brand loyalty

Reducing your order processing time helps you keep the products your customers want on the shelf. Combine that with improved order accuracy and product quality, and you get customer loyalty.

If your customers have a positive experience with your brand—where they’re able to buy what they need and get it quickly without jumping through hoops—they’re more likely to choose your business next time. They’re also more likely to recommend your business to other potential customers.

Inventory management software may also include other tools to make your business run even more efficiently. Here are a few examples.

Improve warehouse management

We already mentioned that inventory management software often includes warehouse management features, which can help you improve order accuracy. But it may also help you streamline efficiency within your warehouse.

Some inventory management tools help you map your warehouse space, factoring in pallet sizes and the cost per square foot of storage space to help you find the most cost-efficient, easy-to-use system. You may also be able to integrate radio frequency ID (RFID) or barcode scanning so your inventory management system gets real-time updates on stock levels and inventory movement.

All that helps you minimize guesswork and get a more accurate picture of your inventory situation when you need it.

Manage multiple locations

As we mentioned above, inventory management software can help you juggle your inventory when you’re overseeing multiple sales channels. But some software can also help you manage inventory storage and stock levels between multiple warehouses or brick-and-mortar locations.

These solutions usually integrate supply chain logistics features, allowing you to order product for all your locations in bulk (thereby saving on manufacturing costs) while moving products between locations based on need—never losing track of where any item is at any given moment.

Integrate with other tools

Finally, inventory management software can integrate with any number of other business processes:

• Point-of-sale (POS) systems : To track sales and stock levels in real time and assist with product forecasting
• Bookkeeping systems : To analyze working capital your business has available and plan inventory orders
• Accounting systems : To gain more accurate forecasting metrics and find the most economic order quantities for product stocking
• Customer relationship management (CRM) systems: To link order fulfillment with service requests and customer interactions (so your customer service rep can accurately tell customers the status of their order, for example)

And if your solution doesn’t include warehouse management, supply chain logistics, forecasting, RFID or barcode scanning, or any of the other features we’ve mentioned already, you should be able to find a third-party service that can integrate with your inventory management software.

The takeaway

There’s a lot that goes into your inventory management, and it has a big impact on your business’s bottom line. Using an inventory management software solution reduces errors in your inventory management, which makes your business more efficient, more profitable, and better equipped to serve your customers.

Want to ramp up your business’s success? Check out our top picks for inventory management solutions to get started.

Related reading

• The 14 Best Inventory Management Software for Small Businesses of 2023
• The Ultimate Guide to Small-Business Inventory Management
• Types of Inventory Management
• The Best Inventory Apps of 2023

Inventory management FAQ

Good inventory management practices increase your profit , improve customer satisfaction , and overall, make it easier to run your business . If you want to build brand loyalty while also increasing your sales, using inventory management software will be highly beneficial.

If you don't take inventory using inventory management software, it is possible to become disorganized and make inaccurate projections when it comes to ordering new stock. Luckily, most inventory management software includes forecasting to help you estimate how many items will sell in the future.

Taking inventory helps to manage the supply chain properly, and automating processes with inventory management software helps to ensure order accuracy and improve your business operations.

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Inventory Control Software Business Plan

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Royal's Software

Executive summary executive summary is a brief introduction to your business plan. it describes your business, the problem that it solves, your target market, and financial highlights.">.

Royal’s Software has embarked on an ambitious plan to create a new software product, Royal’s Inventory Basic–a scalable inventory software product. The new product is scheduled to be released in May and will be sold by Pursuit Solutions.

Pursuit Solutions, a $50 million company hardware integration reseller, will distribute Royal’s Inventory Basic to over 1,100 Valued Added Resellers (VARs). The product will sell for $2,499. Royal’s Software will receive $1,250 on each unit sold. It is projected that Pursuit Solutions will sell 250 units by month six. It is projected that Royal’s Software will gross $313,000 from sales the first year.

A critical component of software sales will be tech support and product modifications. Royal’s Software projects $63,200 in product modification by the end of six months.

In addition, Royal’s Software has entered into a business agreement with Pursuit Solutions and Johnson and Roe (CPA firm) to create a MAS 90 portable data collection interface that will be sold to accounting firms. The software product has been in development over the past ten months.

John Royal and Dan Whiteaker have been an integral part of the product development. MAS 90 is not a packaged product, rather it is bundled with software customization services ($2,000-$3,000) that will be performed by Royal’s Software. This software product will sell for $2,500.

Royal’s Software will receive 1/3 of gross sales ($833). It is projected that Royal’s Software will gross $500,500 by May of next year from product sales and customization services.

The two co-owners of Royal’s Software, John Royal and Dan Whiteaker, will each invest $50,000. In addition, the company will obtain a $100,000 short-term loan.

1.1 Objectives

The objectives of Royal’s Software are as follows:

• Establish the company as a leader in inventory software products.
• Increase sales by 20% each year.
• Develop one new inventory product per year.

1.2 Mission

The mission of Royal’s Software is to create inexpensive inventory software that will be scalable, so customer modification can be easily added.

1.3 Keys to Success

The ability to produce products on time and on budget, that meet the user’s needs and specifications.

Company Summary company overview ) is an overview of the most important points about your company—your history, management team, location, mission statement and legal structure.">

Royal’s Software creates scalable inventory software products that can be customized to meet customer’s needs. Royal’s Software is unique in that it sells a product that can be used in any inventory environment. The engineers can then add enhancement to the product that will tailor the product features to the customer’s specific needs.

2.1 Company Ownership

Royal’s Software is owned by John Royal and Dan Whiteaker. The company will be set up as a C Corporation. It is expected that this form of incorporation will allow room for growth and an exit strategy of selling the business in five to seven years.

• John Royal has ten years of experience as an application software developer for Rogue Wave Software. John was the Lead Developer for New Products for the last four years. He was the principal designer of Rogue Wave’s Ace Software Suite.
• Dan Whiteaker has seven years of programming experience with Rogue Wave Software. Dan assisted the Ace Software Suite Development Group. He lead the Customer Modifications Group for the past two years.

2.2 Start-up Summary

The following is the start-up summary for Royal’s Software. As is typical for software companies the largest portion of start-up funds will go towards product development.

Royal’s Software products and services include the following:

• Royal’s Inventory Basic.
• MAS 90 portable data collection interface.
• Custom Modification Royal’s Inventory Basic.

In addition to selling software, the company will provide extensive customization services to meet the unique needs of its business customers.

Market Analysis Summary how to do a market analysis for your business plan.">

Software products for inventory management are a $1 billion dollar industry. The lions share of the sales are with the largest companies with billions of dollars of inventory. This is where there is the greatest competition between inventory software products.

This category of the industry also faces competition from the enterprise resource planning software vendors. At the low end, with small and emerging businesses, there is very little competition.

Usually, the smaller businesses will spend no more than $5,000 on an inventory solution which will include software and hardware. Royal’s Software believes this a tremendous opportunity for a software product with a $2,500 price tag.

Another opportunity area is the growing demand for software interfaces that improve the portability of data. The interface improves the ability of businesses to move data between systems. In an age where new management products are introduced each year, a company’s ability to move its data quickly and efficiently is becoming essential to a successful business.

MAS 90 portable data collection interface is designed to be used by accounting firms to improve the portability of data the firms stores for customers.

4.1 Market Segmentation

Royal’s Software is targeting small- and medium-sized businesses. Specifically it will focus on these two target groups:

• Smaller businesses that will spend no more than $5,000 on an inventory solution, including software and hardware.
• Accounting firms demanding MAS 90 portable data collection interface.

Strategy and Implementation Summary

During the first two months of operation, the company will focus on completing and testing beta copies of Royal’s Inventory Basic and the MAS 90 portable data collection interface. Sales will begin in May and grow steadily for the next 10 months.

5.1 Sales Strategy

Royal’s Software will not do any direct selling, instead it will work closely with Pursuit Solutions’ VARs to sell and service Royal’s Inventory Basic. The two owners have existing relationships with a number of VARs through their existing positions, and since this product is unique in its price range, it is not expected that it will be difficult to find VARs to represent it.

MAS 90 customers will be developed by the CPA firm, Johnson and Roe. It is projected that the MAS 90 product will have over a 100 customers by June of 2003. A large number of small- to medium-sized businesses use MAS 90 in their dealings with Johnson and Roe, and it is expected that sales will be healthy through this channel.

5.1.1 Sales Forecast

The following is the sales forecast for the next three years.

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Personnel Plan

The current staff of Royal’s Software are the two co-owners of the company. The owners have been working on developing the product on their own time over the past year, are beta testing the product and now feel that they are only a couple of months away from having a final product. It is envisioned that Royal’s will need to ramp up significantly as sales take off and they are pulled away from product development and support in order to run the company. Three new hires are planned in March to meet the anticipated demands of software sales. The following positions will be filled:

• Application Engineer (1)
• Support Engineer (1)
• Technical Support Staff (1)

To keep fixed costs to a minium and to keep existing technical staff committed to the development of new products, much of the customization will be done by outside consultants. This expense is illustrated in the profit and loss table.

In addition, we will not have large sales and marketing costs, because VARS will take on this role on our behalf, and their large commissions shall reflect this.

Financial Plan investor-ready personnel plan .">

The following is the financial plan for Royal’s Software. The plan includes:

• Break-even point;
• Projected profit and loss;
• Projected cash flow;
• Projected balance sheet.

7.1 Break-even Analysis

The estimated monthly fixed cost and monthly break-even point are shown below.

7.2 Projected Profit and Loss

The following table and charts highlight the projected profit and loss for the next three years.

7.3 Projected Cash Flow

The following table and chart highlight the projected cash flow for the next three years.

7.4 Projected Balance Sheet

The following table highlights the projected balance sheet for the next three years.

7.5 Business Ratios

Industry profile ratios based on the Standard Industrial Classification (SIC) code 7372, Prepackaged Software, are shown for comparison.

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A Guide to Office Inventory Management

May 13, 2024 •  6 min read

Regardless of what industry your business is in, chances are you rely on a host of administrative inventory and office supplies to keep everyday operations running smoothly.

In this article, we will focus on how to manage inventory of office supplies. We will discuss why office inventory management is so crucial and also provide a free office supply list template to help you kickstart your office inventory management strategy.

What is office inventory management?

There are a variety of reasons why office inventory management is so important. For one, regardless of what industry your business is in, it almost certainly relies on some administrative assistance to run smoothly, and to swiftly meet customer demand. Whether that means printing packing slips for outgoing orders or sending appointment reminder postcards to dental patients, there are infinite ways that everyday business practices require office supplies.

Another reason why solid office inventory management is crucial is that when office inventory becomes disorganized, organizations are forced to purchase these items locally at retail prices. 

For example, supplies like printer paper and ink can cost at least twice as much when purchased at an office supply shop versus through a wholesaler. If your business runs out of these supplies, it likely won’t be able to wait until the wholesaler can deliver the next order, forcing your organization to spend way too much on inventory it should have never run out of in the first place.

Related: What is Reorder Point?

How to manage inventory of office supplies

Regarding office inventory management, there is no getting around the first step: organizing those filing cabinets and storage closets. After that, a business should determine how it will track office supplies and create a plan around that strategy. Here is a step-by-step guide to managing office inventory:

1. Physically organized office supplies

Regardless of the size of your organization’s administrative office, there is no sense in implementing an office inventory management strategy without first organizing that inventory physically . Whether your operation has just a few filing cabinets, an entire stockroom, or a variety of mailrooms and storage facilities where office supplies are stocked, the best office inventory management strategies begin with a thorough clean-out and reorganization of these supplies and materials.

Sometimes, to facilitate a more organized strategy, businesses should consider investing in smarter physical storage equipment such as new shelving, racks, and bins. 

2. Determine how to track office supplies

There are three different ways to track office inventory: using a manual system, spreadsheet, or inventory management software . If your business tracks only a dozen or so other items, simply recording these supplies and materials on a sheet of paper or a shared document and updating it about once a week may suffice.

However, when an organization stocks enough office-related inventory or wants to add its office inventory to an existing inventory management tracking system, stakeholders will typically opt for either an inventory spreadsheet or inventory software (also referred to as an inventory app ).

There are a variety of reasons why most businesses, upon determining a manual inventory system is not sophisticated enough, select software over a spreadsheet. For one, the best inventory management software has streamlined and automated the various inventory processes so that it’s faster, easier, and more intuitive to track inventory using the app than with the spreadsheet.

Additionally, spreadsheets are prone to human error due to jumbled numbers and mixed-up cells, especially when items have similar names or are difficult to distinguish without a picture. This is partly because it is challenging to display visuals on a spreadsheet. (Software can display many high-resolution images.)

Inventory software can also be particularly helpful if a single employee is managing office inventory across multiple locations.

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3. Decide between a physical and perpetual inventory system

For most inventory management strategies, it’s widely agreed that a perpetual inventory system is better. That’s because, in perpetual inventory, items are checked in or out as soon as they are moved, consumed, or discarded. That said, if an organization has limited office inventory, it may determine that it is unnecessary to keep track of inventory perpetually.

In this case, an organization may manually count and then update inventory records regularly, such as weekly or monthly.

While inventory management software makes it incredibly fast and easy to practice perpetual inventory, organizations can also manually update inventory lists within inventory software at whatever interval they’d like. Although inventory records will only be accurate once numbers have been updated, organizations will still reap many benefits of inventory software, including access to inventory records and data that can inform future purchases.

4. Create a reordering plan

Whether your organization chooses to track office supplies perpetually or physically, one of the most important steps of a solid office supply inventory management strategy is determining when and how office supplies will be reordered. After all, an organization that runs out of office supplies unexpectedly is likely to overspend on those items from a retail store.

Create a standard operating procedure (SOP) for all your organization’s inventory needs, regardless of your industry. Then, within that SOP, outline additional best practices for keeping stock of and reordering office supplies. This includes detailing which vendors stock what items, how long it takes for these vendors to deliver those supplies, and when these orders should be placed each week or month.

5. Perform an annual audit

While the monetary value of your organization’s office supply inventory might be limited, it is still recommended that you perform an annual inventory audit to ensure that all best practices are being followed and that all inventory accounted for on your inventory list actually exists in real life and is in good, usable condition.

During this time, if you discover that the condition or organization of any such inventory has dwindled, remedy the situation and update your standard operating procedure accordingly.

Free office supply list template

If you’re looking to improve your office inventory tracking but are not yet ready to implement inventory software, this free office supply list template is a perfect place to start. Feel free to customize it to reflect your front office’s unique inventory. If you decide to start using inventory software, it’s easy to bulk upload this spreadsheet into Sortly for an even easier and more flexible inventory experience.

Free Download: Office Supply List Template

Download our free office supply list template today! The template is pre-populated with common office supplies but is totally customizable–feel free to add your items along with custom details, rows, and columns specific to your office's inventory.

About Sortly

Sortly is an  inventory management solution  that helps you track, manage, and organize your inventory—from any device, in any location. We’re an easy-to-use inventory software that’s perfect for large or small businesses. Sortly builds inventory tracking seamlessly into your workday so you can save time and money, satisfy your customers, and help your business succeed.

With Sortly, you can track inventory, supplies, parts, tools, assets like equipment and machinery, and anything else that matters to your business. It comes equipped with smart features like barcoding & QR coding, low stock alerts, customizable folders, data-rich reporting, and much more. Best of all, you can update inventory right from your smartphone, whether you’re  on the job, in the warehouse, or on the go.

Whether you’re just getting started with inventory management or you’re an expert looking for a more efficient solution, we can transform how your company manages inventory—so you can focus on building your business. That’s why over 10,000 businesses globally trust us as their inventory management solution.

Start your two-week  free   trial of Sortly  today.

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• Horizon 2024
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• Last Modified: May 14, 2024
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• 5 mins read

The Impact of Direct Procurement Metrics on Business Performance

• Strategic Sourcing
• Procurement Technology
• Accounts Payable
• Spend Analysis
• Indirect Procurement
• Procure to Pay
• Source-to-Pay

This blog post dives into Vendor Managed Inventory (VMI), a collaborative approach to inventory management that streamlines operations and reduces costs for both retailers and suppliers.

What is Vendor Managed Inventory (VMI)?

A collaborative vendor managed inventory strategy where a supplier (vendor) takes partial responsibility for managing the inventory levels of a customer (buyer) at a designated location. This location can be the buyer’s warehouse, production line, or even a retail store shelf. VMI leverages data sharing and communication to optimize stock levels, ensuring a steady flow of materials or products to meet the buyer’s demand while minimizing overall inventory costs. The vendor, with access to the retailer’s inventory data, determines reorder points, order quantities, and delivery schedules, ensuring optimal stock levels are maintained.

Read more: 7 Supplier Management Strategies to Skyrocket Your Success

Why is VMI Important?

VMI offers significant advantages for both Corporates and suppliers:

• Reduced Costs: VMI minimizes excess inventory, lowers storage and carrying costs for companies or retailers. It also allows for more efficient production planning for suppliers.
• Improved Forecasting: Real-time data exchange between company / retailer and supplier enables more accurate forecasting, preventing stock outs and overstocking.
• Enhanced Collaboration: VMI fosters a closer partnership between company / retailers and suppliers, leading to better communication and problem-solving.
• Reduced Risk: Suppliers often share the burden of unsold inventory, mitigating risk for retailers .

Which Companies Benefit from VMI?

VMI can be applied across various industries beyond retail, as long as there’s a well-defined supplier-customer relationship with consistent demand for specific parts or materials. Here are some vendor managed inventory benefits:

• Fast-Moving Consumer Goods (FMCG): VMI ensures consistent product availability for high-demand items in supermarkets and pharmacies. Read the Press release: India’s leading FMCG company chooses Zycus’ AI-powered Procure-to-Pay solution to transform its procurement process
• High-Value Products: Manufacturers of electronics or appliances can leverage VMI to manage expensive inventory at retailers. Car manufacturers are a prime example: A car manufacturer can utilize VMI with its suppliers of various parts, like tires, engines, or seats. The manufacturer would provide real-time data on production schedules and parts needs to the suppliers. The suppliers would then manage the inventory levels of those parts at the car manufacturer’s facility, ensuring a just-in-time approach to production.
• Complex Supply Chains: VMI simplifies inventory management for businesses with intricate production and distribution networks a complex supply chain of chips, circuit boards, and other components. Read more: 7 Critical Supply Chain Management Trends for 2024 and beyond
• Construction companies: Ensuring a steady flow of building materials like lumber, concrete, and steel to project sites.
• Hospitals: Maintaining adequate stock of medical supplies and pharmaceuticals.

Benefits for Manufacturers using VMI:

• Reduced storage costs: By keeping only the necessary parts on hand, manufacturers can minimize storage space needs.
• Improved production efficiency: VMI ensures a smooth flow of parts, preventing production line stoppages due to stockouts.
• Lower overall inventory costs: Vendor managed inventory avoids unnecessary investment in excess inventory.
• Enhanced supplier collaboration: VMI fosters a closer partnership with suppliers , leading to better communication and problem-solving.

What Problems Does VMI Solve and What Value Does it Deliver?

VMI tackles several inventory management challenges:

• Stockouts: By keeping stock levels optimized, VMI prevents stockouts and ensures product availability for customers.
• Overstocking: VMI minimizes excess inventory, reducing storage costs and the risk of obsolescence.
• Inefficient Ordering: VMI eliminates the need for manual order placement, streamlining the replenishment process.
• Poor Visibility: VMI fosters data sharing, providing both parties with clear insights into inventory levels and demand patterns.

What Preparations Are Required for a Successful VMI Implementation?

Both retailers and suppliers need to be prepared for a smooth VMI implementation:

• Technology: Implementing robust vendor managed inventory software with data exchange capabilities is crucial.
• Communication: Establishing clear communication channels and protocols for data sharing and issue resolution is essential.
• Performance Metrics: Defining key performance indicators (KPIs) to track progress and measure the success of the VMI program is necessary.
• Trust and Partnership: Building trust and a collaborative relationship between the retailer and supplier is fundamental.

What Are the Risks Involved in VMI and How Can They Be Mitigated?

VMI comes with potential risks that can be addressed through proper planning:

• Data Sharing Concerns: Secure data sharing protocols and confidentiality agreements can minimize risks.
• Loss of Control: Retailers can establish clear boundaries and ownership terms within the VMI agreement.
• Vendor Performance : Selecting reliable vendors with a proven track record in VMI is essential.
• Demand Fluctuations : Regular communication and forecasting adjustments can help manage unexpected demand spikes.

What Technology Solutions Are Required for Vendor Managed Inventory?

VMI relies on technology to facilitate data exchange and automate processes:

Inventory Management Systems (IMS): Both retailers and suppliers need robust IMS to track inventory levels and generate reports.

Electronic Data Interchange (EDI): EDI enables seamless, automated data exchange between partners.

Demand Forecasting Software: Advanced software can help predict future demand patterns and optimize inventory levels.

The Role of AI in Vendor Managed Inventory (VMI)

Artificial intelligence (AI) is transforming VMI by:

• Enhanced Forecasting: AI algorithms can analyze vast amounts of data to generate highly accurate demand forecasts.
• Automated Replenishment : AI can automate order placement based on real-time inventory data and predicted demand.
• Risk Management: AI can identify potential disruptions in the supply chain and recommend proactive measures.

Watch Video: AI-Enabled Supply Chain Resilience: Overcoming Disruptions

By leveraging VMI and AI , businesses can achieve significant improvements in inventory management, leading to increased efficiency, reduced costs, and enhanced customer satisfaction.

Vendor Managed Inventory (VMI) can be a game-changer for businesses looking to optimize stock levels, improve service levels, and strengthen supplier relationships.

Zycus provides a comprehensive supplier management solution that seamlessly integrates with your existing procurement processes. This empowers you to unlock the full potential of VMI and achieve significant improvements in your inventory management strategy.

Ready to take the next step? Book a demo today to learn more about how our VMI solutions can help your business streamline operations and achieve greater efficiency.

Related Reads:

• Unlocking Efficiency: The Pros and Cons of Supplier Managed Inventory
• The Value of AI in Proactive Compliance Management
• Optimizing the Procurement Process with eProcurement Solutions: A Comprehensive Guide
• Supplier Relationship Management: A Comprehensive Guide
• Vendor Management 101: Best Practices and Key Considerations
• 8 Unique Phases of Supplier Lifecycle Management
• A Complete Guide to Vendor Management – its Benefits, Challenges, Process & Best Practices
• Catalyzing Success with Supplier Management Strategies in 2024

Navigating the Next Frontier in Retail Procurement: Innovations for a Sustainable Future

ProcureNxt: Revolutionizing S2P with Generative AI for Procurement and Supply Chain Leaders

Experience cognitive procurement software, today, witness the automation & digitization of the source to pay process..

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17th May, 2024

5 benefits of cloud inventory management for distributors

Distribution businesses live and die by how efficiently and effectively they manage their inventory.

Having streamlined and robust processes from procurement through to dispatch enables the delivery of quality services to customers while keeping costs low and profit margins healthy.

Unfortunately, many distributors lack consistent, reliable workflows and find inventory management far from seamless.

This is particularly the case if the business is using spreadsheets rather than specialist inventory management software.

Likewise, businesses that continue to rely on inventory management software that is not cloud native or integrated into their business management platform can find themselves operating in the dark.

Without an integrated cloud inventory platform, data can become siloed in separate company systems, meaning managers don’t have visibility of what’s happening across the business at any one time.

READ: Understand how the cloud promotes business growth

Value of cloud enterprise resource planning.

Enterprise resource planning (ERP) software brings together all your business data in one system, so you have all the information you need at your fingertips.

From a single log-in you can manage your procurement, sales orders, inventory, customers, accounting, tax, payroll and more.

MYOB Advanced Business has deep inventory management capabilities, helping you run your business in the most efficient way possible.

It’s also cloud-based, so users can access live business information over the internet, while also updating it in real time.

5 benefits of using MYOB Advanced for inventory management

As a specialist ERP for distributors, MYOB Advanced Business offers the following key benefits:

Enhanced stock control

With MYOB Advanced Business you can set an automatic re-order point for stock with the system tracking sales.

This reduces the need for frequent manual stock counts while helping you to maintain a level of safety stock.

You can use analytics to decide your optimal re-order point to satisfy demand while keeping your carrying costs low.

MYOB also offers comprehensive track and trace capabilities. Warehouse staff can enter lot or serial numbers into the system on receipt or issue of the inventory.

As the software is online, staff can update the system from wherever they’re working so inventory data is always up to date.

With full inventory traceability, you can efficiently manage product recalls and track expiration dates to manage perishables and adhere to quality, safety and compliance controls.

Real-time and remote warehouse management

As your business expands and new product lines are introduced, you might need an additional warehouse.

However, server-based software limits your ability to scale as you’ll need to invest in hardware and IT maintenance at each location.

In contrast, cloud-native software scales easily. This means you can increase your warehouses, inventory volumes, transactions, users and more, while only paying for what you need.

Further, with staff accessing the software over the internet, each location can update business data straightaway.

This provides managers with the visibility and control they need for real-time, remote warehouse management.

Efficient supply chain management

With modern, cloud inventory software like MYOB Advanced Business you can automate key processes such as requisitions and purchase orders.

For example, the software can auto-generate a purchase order when inventory levels fall to a certain point.

You can also use the system’s predictive analytics to adjust this re-order trigger based on actual or forecast demand, helping you maintain continuity of supply.

Digitised and automated workflows enable you to minimise labour costs and prevent human error from damaging your supplier relationships.

By automating procure-to-pay — from requisition to accounts payable — you can efficiently manage your suppliers, maintain a digital audit trail of all purchasing activity, track supplier performance, and uphold relationships by making accurate, on-time payments.

Integrated accounting and inventory data

To manage inventory effectively, you also need to keep your financials up to date.

This is easier said than done if you’re using inventory management software that doesn’t integrate with your accounting software.

You’ll need to track what’s happening in your inventory and manually update your financial records to reflect this, which means your financial information will always be a little out of date.  

With all the modules in MYOB Advanced Business integrating seamlessly, data flows through the platform.

By connecting inventory management to your accounting software, your financial records instantaneously update with your income and expenses.

This data sync gives you real-time visibility of your financial information, while saving you the time and inaccuracies of data entry.

Unified distribution and inventory systems

Likewise, MYOB Advanced Business brings inventory management and distribution together in a single, interconnected system.

This means that your customers can place orders with you, and you can process them and manage fulfilment through your platform with everything you need to run your business available in one place.

You can also extend MYOB Advanced Business with third-party integrations.

For example, you can manage your shipping with seamless integrations with TIG Freight and EIZ Fulfillment, amongst others.

With the help of an implementation partner, you can tailor your solution to meet business requirements, optimise your workflows, and power future growth.

A competitive advantage with MYOB Advanced Business 

MYOB Advanced Business is a powerful ERP that offers extensive inventory management functionality.

As modern, cloud-based software, you can access your business data from anywhere that has an internet connection.

This means you can scale your business and expand to another warehouse, and your software can keep up. 

With MYOB Advanced Business, you can manage your entire company from one place.

With all parts of your organisation connected, you can automate workflows to ensure speed and accuracy, and maintain strong relationships with customers and suppliers.

You can also dig deep into your data with advanced reporting, so you get the strategic insights you need.  

Get in touch to find out more about MYOB Advanced Business  

Information provided in this article is of a general nature and does not consider your personal situation. It does not constitute legal, financial, or other professional advice and should not be relied upon as a statement of law, policy or advice. You should consider whether this information is appropriate to your needs and, if necessary, seek independent advice. This information is only accurate at the time of publication. Although every effort has been made to verify the accuracy of the information contained on this webpage, MYOB disclaims, to the extent permitted by law, all liability for the information contained on this webpage or any loss or damage suffered by any person directly or indirectly through relying on this information.

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How To Plan For the Latest Refrigerant Transition

Contractors and distributors should take steps now to ensure a smooth transition.

Over the past few years, the AIM Act has been an ongoing topic of discussion in the industry. As the Environmental Protection Agency (EPA) announced the most recent ruling , brands have realized that the need for planning and preparation is crucial for a smooth refrigerant transition.

READ MORE ABOUT

• Refrigerant Phasedown

To successfully navigate the transition, contractors and distributors should review their inventory, think about complete systems, and consider what impact the ruling will have on their customers’ behavior.

Managing Inventory

To prepare for this upcoming change, distributors must ask themselves one critical question: “How am I going to manage my inventory effectively through the A2L transition?” They must take ample time to evaluate existing inventory levels, historical sales, and projected growth, as well as their strategy on balancing both A1 and A2L refrigerants in their inventory to aid installation of R-410A components beyond 2025. Evaluation of the current state, as well as a roadmap to the future state, will be crucial in navigating this transition.

What we know is that the supply of R-410A refrigerant will be reduced over time. Contractors will be able to install split ducted system products manufactured or imported before January 1, 2025, until January 1, 2026. I recommend that distributors pulse their contractors to understand their plans for adopting the new A2L refrigerants to help minimize SKUs and simplify their current portfolio as much as possible. From our customer surveys at Oxbox, we are hearing a mix of some customers planning to switch to the new refrigerant immediately, while others are planning to wait.

Distributors need to ensure that systems are rated for the refrigerant type they use in order to comply with UL/CSA safety regulations, where the design refrigerant must be visible on the factory nameplate for both indoor and outdoor units. During this time, it will be essential to be careful with what products distributors choose to carry and how they match up with one another to reduce the risk of stranded inventory.

Distributors should work to identify high-performing products to bring maximum value to their business. They should also consider eliminating slow-moving SKUs and consolidating SKUs to allow space for the new product. Having an excessive number of SKUs could lead to inventory overstocking, increased holding costs, and market saturation. We recommend distributors also stock systems versus individual units, to ensure every piece of outdoor equipment has an indoor unit to match, readily serving the replacement market, while having some flexibility if a unit changeout is required.

Staying Educated

It is also important to understand that just because the EPA ruling allows for a longer sell-through period, it does not necessarily mean customer behavior will remain the same. For distributors, it is crucial to start learning early about the upcoming changes and creating a plan for your business. Take advantage of transitions playbooks, consistent communications, and training provided by OEMs to keep yourself — and your contractors — informed about the changes. Contractors can then position themselves as the knowledgeable, credible expert at the kitchen table — ultimately shaping consumer demand.

For those who are able to plan strategically through the transition, there may be potential opportunities to leverage the ruling to optimize margins — by plugging in R-410A products for specific markets while being ready with A2L products for the general population. By staying ahead of industry trends and regulations, you can make informed decisions and mitigate potential risks.

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Administration Associate

UNOPS South East Asia Multi-Country Office (EAPMCO)

The South East Asia and Pacific Multi-Country Office (EAPMCO) supports, develops and oversees the UNOPS portfolio of projects in South East Asia and the Pacific. EAPMCO was established in January 2023 following the merger of the Thailand Multi-Country Office, which covered 20 countries across  North East Asia, South East Asia and the Pacific, and the Cambodia Multi-Country Office, which covered 4 countries South East Asia - 3 countries in the Mekong Sub-region (Cambodia, Lao PDR and Vietnam) and the Philippines.  EAPMCO currently covers 24 countries across North East Asia, South East Asia and the Pacific. With its head office in Bangkok, the Multi-Country Office comprises nine business units: SEMCO Thailand, EAPMCO Indonesia,  EAPMCO Pacific Operations Cluster, EAPMCO Papua New Guinea, EAPMCO China, EAPMCO Vietnam, EAPMCO Lao PDR, EAPMCO Philippines and EAPMCO Cambodia.

In 2022, the UNOPS EAPMCO implemented projects worth more than USD 95.7 million, in the areas of Energy Transition, Digital Transformations, Sustainable Environmental Management, Climate Change, Waste Management, Rule of Law and Access to Justice, Water, Sanitation and Hygiene (WASH), Post Conflict Reintegration, Emergency Relief, Post COVID19 Economic Transformations, and Health, through HR, procurement, construction, contract management, fund and program management services. The Multi-Country Office head office in Bangkok provides strategic direction, operational support, delivery oversight and assurance of the excellence of business processes and quality standards across all of the entire Multi-Country Office locations. It is also responsible for developing, delivering and managing the portfolio of engagements in the country of the MCO location itself. 

UNOPS EAPMCO has embarked on a health portfolio across different countries in South East Asia and the Pacific, aimed at improving access to public health. Primarily the Administration Associate will provide support Tuvalu Health System Stregtening (THSSP) covering; project maangement support, team management, logistics, Asset Managment Services and Knowledge Buiding and Knowledge Sharing. 

Under the overall guidance and supervision of the Project Manager and also reporting to the Project Manager, the incumbent performs and may supervise personnel in delivering, technical and administrative support services, covering specialized and non-specialized processes and transactions for discrete work areas in administration and logistics, ensuring efficient, client oriented and effective service delivery. The Administration Associate promotes a client, quality and results-oriented approach, ensuring utilization of office resources in a most cost-effective manner.

Completion of Secondary Education or High School Diploma is required. 

First University Degree in Business Administration, Public Administration,] or equivalent disciplines is desirable but not required.

In the absence of a degree, administrative certification is an asset.

Experience: 

• Minimum of six years of relevant experience in general administrative, logistics, or operations’ support services in national or international public or corporate organizations.
• Some experience in UN system organizations is desirable.
• Proficiency in computers and office software packages (MS Office) and experience in handling of web-based management systems is required.
• Experience in use of Enterprise systems including OneUNOPS is desirable.

Full working knowledge of English is required. 

Knowledge of a second UN or regional working language is an asset.

• Contract type: LICA
• Contract level: ICS 6 / LICA 6 
• Contract duration: Ongoing ICA – ‘Open-ended, subject to organizational requirements, availability of funds and satisfactory performance.’

Please note that UNOPS does not accept unsolicited resumes.

Applications received after the closing date will not be considered.

Please note that only shortlisted candidates will be contacted and advance to the next stage of the selection process, which involves various assessments.

UNOPS embraces diversity and is committed to equal employment opportunity. Our workforce consists of many diverse nationalities, cultures,  languages, races, gender identities, sexual orientations, and abilities. UNOPS seeks to sustain and strengthen this diversity to ensure equal opportunities as well as an inclusive working environment for its entire workforce. 

Qualified women and candidates from groups which are underrepresented in the UNOPS workforce are encouraged to apply. These include in particular candidates from racialized and/or indigenous groups, members of minority gender identities and sexual orientations, and people with disabilities.

We would like to ensure all candidates perform at their best during the assessment process.  If you are shortlisted and require additional assistance to complete any assessment, including reasonable accommodation, please inform our human resources team when you receive an invitation.

Terms and Conditions 

For staff positions only, UNOPS reserves the right to appoint a candidate at a lower level than the advertised level of the post. 

For retainer contracts, you must complete a few Mandatory Courses (they take around 4 hours to complete) in your own time, before providing services to UNOPS. For more information on a retainer contract here .

All UNOPS personnel are responsible for performing their duties in accordance with the UN Charter and UNOPS Policies and Instructions, as well as other relevant accountability frameworks. In addition, all personnel must demonstrate an understanding of the Sustainable Development Goals (SDGs) in a manner consistent with UN core values and the UN Common Agenda.

It is the policy of UNOPS to conduct background checks on all potential personnel. Recruitment in UNOPS is contingent on the results of such checks.

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