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Best Practices Guide: Inventory Management For Small Business

May 20, 2022

Inventory Management Best Practices

You may select from a range of inventory management systems based on several factors. These factors include the types of products you sell, the industries you serve, your specific operations, your customer base and market conditions. Here are some inventory management techniques to use.

ABC Analysis

ABC analysis requires a small business to evaluate and categorize products based on value and consumption. The more important products or services would be put in the “A” group; less important products/services in the “B” group; and so on. Considering previous sales data and sales cycles, you can separate inventory based on consumption, costs, demand and other factors.

While ABC analysis allows you to understand which items are the most important in your warehouse, fluctuating customer demand may quickly change which inventory may become popular soon.


Consignment is an inventory planning system in which suppliers maintain ownership of all products until an order is sold. This practice offers cost benefits, as you do not have to pay the supplier until a customer places an order. However, it may limit how you brand and market your company, since you have no control of the inventory.

Inventory Shrinkage Rates

Inventory shrinkage is a tracking calculation to determine whether the business has any unplanned inventory losses. These losses may be due to theft, accounting problems, administrative errors, product damage, outdated or destroyed products, vendor fraud, or other factors.

Determining your shrinkage rates allows you to check actual inventory levels against accounting records. However, it does not tell you the root cause of the shrinkage.

Demand Forecasting

Demand forecasting allows companies to adjust inventory levels based on the previous sales history. This method evaluates customers’ sales histories and trends and how they may impact future customer demand. It also allows you to purchase more or fewer products, so you can maintain balanced inventory levels.

A disadvantage to demand forecasting is that it may not take into account aspects that could influence previous sales periods, such as promotions. Also, a business that is just starting operations may not have the sales history to perform accurate demand forecasting analysis.

Minimum Order Quantity

Minimum order quantity is the smallest number of products you are willing to sell to a customer in a single order. This technique allows you to spend less when ordering products from suppliers. It also provides additional product options to customers.

Yet, some suppliers may not agree to the minimum order quantity when you are seeking an inventory source. Also, this method is not always ideal for certain products that are usually sold in bulk to customers to make a decent profit.

Batch Tracking

Some items possess similar qualities or properties. Batch tracking allows your operations to group products based on these characteristics for better tracking purposes. Batch tracking can improve the transparency of your supply chain because you can track the inventory’s product cycle. It can also improve supplier relationships. However, batch tracking can be time consuming if performed manually.

AMS Fulfillment Capabilities

At AMS, we offer inventory management solutions for companies of various sizes and operational stages. We rely on a comprehensive warehouse management system (WMS) and our inventory specialist team to reduce waste, balance inventory levels and ensure data integrity — so you can make the best decisions for your operations.

With our fulfillment solutions and value-added services, you can gain greater levels of product traceability along with logistics solutions to please your customers. For more information and to get started with our services, contact AMS Fulfillment.