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Managing inventory effectively is essential for small retailers, especially for retailers managing multiple locations or running both physical stores and online shops.
Managing inventory involves multiple moving parts, and every business has unique needs- what works for one may not work for another.
This article focuses on strategies and guidelines to help small businesses and multi-location retailers adopt the best inventory management practices that fit their specific goals and challenges.
Effective inventory management for retail ensures optimal stock levels across multiple locations and channels, helping small retailers minimize costs and meet customer demand consistently.
For retailers operating physical stores and e-commerce platforms, managing inventory across multiple locations and channels is critical to avoid stockouts, overselling, or tying up capital in overstocked items.
Accurate tracking enables businesses to allocate inventory strategically, ensuring each store or channel has the right amount of stock to meet customer needs.
Inventory management directly impacts the cash flow, customer satisfaction, and profitability of a business, because without effective inventory control, stockouts and overstocks can erode profit margins- either by losing sales to competitors or tying up capital in unsold goods.
For businesses with multiple locations, balancing inventory to meet the unique demand of each store can be challenging but essential to avoid missed sales or holding excess inventory in less active locations.
Unlike larger companies with extensive resources, small retailers often operate on tight margins, making efficient inventory management across locations and channels a key factor in staying competitive and achieving long-term growth.
Inventory tracking errors are a frequent problem for small businesses particularly when managing stock across multiple channels.
Limited resources and manual processes lead to lack of real-time stock visibility creating discrepancies between recorded inventory and what’s actually on the shelves.
For multi-location retailers, inaccurate tracking can result in one store being overstocked while another runs out of critical items, or online channels showing incorrect stock availability.
When stock counts don’t align with reality, small businesses experience disruptions in order fulfillment – leading to loss of revenue due to missed sales opportunities when items are out of stock unexpectedly or delayed shipments when stock adjustments are needed at the last minute.
Small businesses struggle to balance inventory across channels due to a lack of tools to predict demand and track inventory accurately. This leads to overstocking, which drains resources, ties up cash, increases storage costs, and risks items going unsold or expiring.
For example, stock allocated to online orders may not align with demand at physical stores, or regional preferences may create uneven inventory movement between stores. This mismanagement ties up cash in slow-moving stock, increases storage costs, and risks inventory going unsold or expiring.
Small businesses rely on manual inventory processes like physical inventory counts, order logs, or sales reconciliation, because they lack the resources to invest in automated systems.
These manual inventory processes become increasingly complex and error-prone as businesses expand to multiple locations or channels.
For small retailers, budget constraints often prevent investment in automation, but the lack of digital tools creates inefficiencies and delays, particularly when reconciling inventory across different locations and sales platforms.
When cash flow is tight, small businesses struggle to keep enough inventory on hand, often leading to cycles of reactive purchasing (last-minute buying – where inventory is ordered only when revenue is liquified) that disrupts inventory planning and forces businesses to operate with minimal stock, leaving them vulnerable to supply chain delays or unexpected spikes in demand.
Managing inventory for multiple stores and channels places additional strain on cash flow. Reactive purchasing is especially problematic for multi-location retailers, as it can leave individual stores or fulfillment centers vulnerable to supply chain delays or demand surges in specific locations or channels.
Limited cash also means they can’t invest in better inventory management tools, so they’re stuck with time- consuming manual processes that increase the risk of mistakes.
Seasonal demand swings make inventory management tricky for small businesses since they create sudden peaks and lulls that are hard to predict accurately.
When managing inventory across multiple locations and sales channels, sudden peaks at specific stores or online channels may outpace supply, while slower periods at other locations create excess stock.
The back-and-forth between peak seasons, struggling to keep up with demand, and slower periods with excess inventory makes it tough to maintain efficient inventory levels year-round, impacting cash flow, straining resources, and often leading to rushed purchasing decisions that aren’t cost-effective.
Schedule a no-obligation call with one of our experts to get expert advice on how Priority can help streamline your operations.
The FIFO method is an inventory management strategy where the older items are sold or used first, ensuring they move out before expiring or losing quality. This is especially relevant for businesses that handle time-sensitive goods, like pharma and cosmetics.
This method also supports accurate cost tracking, as it aligns inventory costs with current market prices, making it easier for businesses to manage profit margins and inventory value accurately.
Best For: Businesses managing perishable goods or products with expiration dates.
The Last In, First Out method is an approach where the most recently acquired stock is sold or used first. This method is often chosen by businesses that deal with durable goods that don’t face expiration concerns, such as hardware stores, and furniture shops, that want to account for rising costs, as it records the cost of the latest, usually higher-priced inventory on the books. LIFO can provide a tax advantage in inflationary times because it leads to a higher cost of goods sold (COGS), which may reduce taxable income.
These businesses benefit from LIFO’s ability to match current inventory costs with sales revenue, helping them manage profits and cost flow in an environment where prices for raw materials or products frequently change. However, it’s worth noting that LIFO isn’t accepted under IFRS (International Financial Reporting Standards), so businesses with international operations may need to consider this.
Best For: Businesses in markets with frequent price increases looking to lower taxable income.
The Just-in-time method is a way for businesses to keep inventory costs down by only ordering stock as it’s needed. Instead of keeping large amounts of inventory on hand, they bring in materials or products just before they’re required for production or sales.
This helps avoid the costs of storing extra items and frees up cash that would otherwise be tied up in unsold stock. However, the red underline is that JIT depends heavily on reliable suppliers and accurate demand predictions because any delay or miscalculation can lead to shortages that disrupt operations.
Best For: Businesses with limited storage that can predict demand accurately.
Economic order quantity (EOQ) is a formula that helps businesses determine the optimal order size to minimize both ordering and holding costs.
EOQ calculates the most cost-effective quantity to order by balancing the cost of ordering products with the cost of holding them, helping small businesses with consistent demand and reliable sales patterns, like wholesalers and office supply shops, find that “sweet spot” where they save money on storage without risking stock shortages.
Best For: Small businesses with steady demand and predictable sales cycles.
With these strategies, small businesses can sidestep common issues, maintain the right stock levels, and stay prepared to meet customer demand- without unnecessary waste or overstocking.
An inventory management software, like the one offered by Priority enables small businesses to precisely and efficiently control inventory and provides tools for tracking sales trends, setting reorder points, and managing supplier relationships, making it easier to align inventory with actual business needs.
Instead of manually updating spreadsheets or paper logs, an inventory management software helps small businesses automate tasks like stock tracking, reporting, and forecasting, and reduces the chance for human errors, ensuring that stock levels are accurate and up-to-date. This technology gives small businesses access to real time data and rapidly gains the insights for accurate demand forecasting, procurement planning, and storage optimization.
The seemingly high initial investment in the software might deter small businesses with limited resources, but rest assured – The cost savings realized over time far outweigh the upfront costs.
To choose an inventory management method, small businesses should look at factors like the nature of products, demand fluctuations, storage space, and their financial goals and monitor them over time to make sure the chosen method continues to meet the changing needs of the business.
For perishable items, FIFO is ideal to ensure older stock is sold first, reducing waste, while LIFO can benefit non-perishable goods in inflationary periods by lowering taxable income. Understanding sales trends is also a prerequisite; stable demand can call for methods like Economic Order Quantity for optimal order sizes, whereas unpredictable demand may favor Just-In-Time practices to maintain lean inventory.
Small businesses must evaluate their financial objectives, as LIFO may offer tax advantages during high-cost periods, while FIFO or EOQ can enhance cash flow by optimizing turnover rates. Reliable supplier relationships also play a role; strong partnerships may allow for JIT efficiency, but less reliable sources might necessitate maintaining a buffer stock.
Small businesses should implement a product identification system using SKUs or barcodes to stay organized and efficient, simplify stock tracking, and minimize the risk of errors in inventory counts to enable faster fulfillment processes.
Small businesses need to set reorder points based on factors like average demand, lead time from suppliers, and safety stock to keep the right amount of stock on hand by ensuring prompt restocking when inventory is low ( but high enough to meet demand until the new stock arrives.)
When selecting an inventory management system, small businesses should consider its ability to integrate with other core business functions and systems, like sales, accounting, and procurement, to create a centralized management hub that provides real-time visibility and seamless data flow across departments and enables quicker responses to fluctuations in demand.
Good inventory management positions small businesses for resilience and growth. It means less stress, more control, and being ready for whatever comes next.
With Priority Software’s Retail Management Solution, you get an all-in-one, omnichannel platform where inventory management is seamlessly integrated as a core feature, you can focus on what you do best—serving customers and growing your business—knowing your inventory is in check.
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