Inventory management is a crucial part of any business, even though it may not be the most exciting part to manage. However, you should make sure that everything is running smoothly at the warehouse so that it reflects in a visible blossoming of your company.

And one way to make your small business inventory management more successful is to gauge your inventory health. But how do you define a healthy inventory? And how can you make your own inventory helpful? We’ll try to clarify this question, and give you some tips on the matter.

Inventory Health

Regrettably, there is not one single, universal definition of inventory health. As every business has its own characteristics, the parameters that make an inventory healthy for business A might not be as important in the health of business B.

However, we can try to define inventory health with some general ideas. Your inventory is healthy if your small business inventory management leads you to:

  • Holding optimal stock levels (no over or understocking)
  • Having the right percentage of each product given present and future demand (predicted with a forecasting tool for small business)
  • Not having obsolete, out-of-date or expired goods in stock (basically unsellable)

This may seem simple to accomplish, but when it comes to small business inventory management, things are easier said than done. That’s why we’re going to leave you some tips on how to have a healthy inventory.

1. Breakdown Your Inventory into Categories: Safety, Replenishment, and Excess Stock

To manage your inventory properly, you have to know it inside out. Being able to recognize these 3 categories helps you make better strategic decisions and have a more efficient small business inventory management.

For example, you should know the ideal safety stock level so that you can be self-sustainable if any problems occur in the supply chain and the next delivery cannot arrive on time. Likewise, the appropriate replenishment stock should provide enough goods to last you until the next replenishment order.

Finally, you should try to minimize excess, or obsolete stock, as much as possible. These goods are just sitting on the shelf and are basically unsellable, equaling lost money for you and your business.

2. Have a Plan of Action for Excess Stock

Ideally, you’ll have as little excess stock as possible, as we discussed on the previous tip. However, even if your management is on point, unexpected events can happen that leave you with an excess of obsolete goods.

In this case, you should have a backup plan to handle these goods in the best way possible so that you can put your funds to better use, like marketing or R&D. The first approach should be to try and sell these goods back to suppliers or mobilize your sales team to sell them to customers.

If these tactics do not work, you can always give high discounts, offer two products for the price of one, or ultimately, just give the products away to make room for more useful products.

3. Calculate Safety Stock Levels Efficiently

There are usually 2 approaches to calculate safety stock levels. The first is to use a simple, rule-of-thumb approach, which could say that product A made in factory X needs two weeks of safety stock.

The problem is that this calculation depends on a lot of factors, and taking this first approach is basically as good as guesswork. Your best option is to use statistical formulas that take historical data into account, as well as sales forecasts and production lead times.

Also, remember to recalculate these safety stock levels periodically to make sure that the calculation is based on the most recent data as possible.

4. Switch to a Modern Inventory Management System

There is much more to having a healthy inventory than the few tips we’re giving you here, but they are a good place to start. Finally, we’d like to give you a tip that can help you with all the previous tips, and make your small business inventory management much easier.

Acquiring a modern inventory management software, if you don’t already have one, can help you, for example, do the calculations for the safety stock levels discussed in tip number 3. We recommend using DataQlick, which also includes a sales forecasting app to help you forecast sales for upcoming periods.

A solution such as this ultimately allows you to perform all inventory-related tasks much quicker, and also gives you improved visibility over your inventory levels. This is a huge step towards your main goal, which is to have a healthy inventory.