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Inventory Management for the Small Business

Have you ever missed out on a sale because you were out of stock of a certain product? Perhaps more than one sale? As a small retailer, it is important to maintain a designated level of inventory so that you can keep your customer base satisfied. If a customer is not able to find the product they are looking for at your store, they will not only take their business to another store, but they will remember the negative experience they had at your store the next time they go shopping.

For small retailers to effectively manage their inventory, it is important to adopt an inventory management system. If implemented correctly, inventory management systems will allow businesses to efficiently manage their supply of merchandise and increase their bottom line. The two main inventory management systems are perpetual and periodic. Perpetual inventory systems use programs to automatically update an inventory database each time a product is received or sold, while periodic inventory systems use a physical count of inventory at designated intervals to maintain an accurate record of the inventory on-hand.

Periodic Inventory Management

For smaller retailers, perhaps offering only a few products, it may be possible to keep track of inventory manually by using a spreadsheet. For larger retailers that wish to use a periodic inventory management, an inventory control system is the right choice. Inventory control establishes controls over inventory on order and inventory in stock; it saves businesses money by limiting the quantity of products for sale, eliminating the need to purchase a larger warehouse to store items or hiring security personnel to protect the items stored in the warehouse. Visual control gives the retail manager the capability to look over the existing inventory and make the decision as to whether additional inventory is necessary or not. Ticker control allows the retail manager to count a small segment of the inventory from day to day; this ensures that every inventory segment is counted on a regular basis for a predetermined number of days. Click sheet control gives a retail manager the ability to record when an inventory item is used. This information determines when the item should be reordered. Retail managers use stub control to retain part of the price ticket after an item has been sold; this ticket stub is used to maintain a sales record of each inventory item.

Perpetual Inventory Management

For retailers that want to take their inventory management system to the next level, a perpetual inventory management system makes the most sense. Although the cost of these systems are higher, once implemented, they require less time to maintain and have a smaller margin of error than periodic inventory management systems. Inventory management systems that depend upon barcode technology achieve increased accuracy and are able to manage inventories more efficiently. Radio frequency identification (RFID) uses two types of technology to manage the movement of inventory: active and passive RFID technology. Active RFID technology uses fixed tag readers to record the movement of an item into an inventory management program. Passive RFID technology tracks the movement of inventory through handheld readers.

Computer systems provide technological and advanced ways of controlling inventory systems. Point-of-sale terminals transmit information about the sale or use of each item to the manager. The retail manager will review this information and use it to manage and control inventory. Off-line point-of-sale terminals convey sales information to the supplier's computer. The supplier will use this information to ship additional items to the buyer or inventory manager.

Through the implementation of an inventory management system, small retailers will not only experience short-term gains such as more accurate reporting of inventory and timelier ordering, but long-term gains including increased customer retention that will have a positive impact on the business for years to come.


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quotation mark Start small enough so as to get a feel for the market (any market) – that is, buy small amount of product to see how it will sell before actually investing in product. Always research the market first and try to get a feel for the consumers and what their buying habits are (and selling policies). – Laurie A.