Effective retail and warehouse inventory management boils down to ordering only what you can sell, selling everything that you've ordered and making sure that you provide what your customers want—when they want it—on a continual basis. While maintaining a genuine interest in customer satisfaction and paying keen attention to their feedback is sufficient for some businesses, most will benefit from having a few extra inventory management tricks up their sleeves.

One of the benefits of living in the Internet age is that shipping, communication and tracking are all easier and faster than before—if you're proactive about making sure they get done right. If you're really making the most of inventory management, you should be able to:

1. Let someone else's inventory management systems work for you.

2. Build customer commitment with sincere inventory management solutions.

3. Get customers involved in management of inventory.

Action Steps for Effective Inventory Management
The best contacts and resources to help you get it done

Transform warehouse inventory management into a customer perk

The easiest way to manage inventory is not to have it at all. While drop shipping--when customers order through you at retail prices, but the order is handled and shipped from the manufacturing/distribution point--is not for all businesses, customers typically appreciate the ease of delivery to their door or place of business. An added benefit, also of value to customers, is being able to specify exactly what they want instead of depending on what you may have in stock on any given day.

I recommend: Check out WiseGEEK for more useful information about drop shipping. You can either track down wholesalers for specific products through directories such as Wholesale Central, or you can approach your current wholesaler directly about joining or setting up a drop shipping program, which is the preferable method.

Be honest with customers about your inventory control management

Customers tend to prize flexibility and a retailer or supplier that's willing to trust them, but there comes a time in every supplier's business plan when you just can't afford to shoulder the full financial commitment of a large special order. In these instances, it's time to take a deposit.

I recommend: Be frank with your customers about why you need to ask for a deposit, commitment in writing or other signal of their commitment to purchase. You might explain to them that you're following one of the steps outlined by Effective Inventory Management. If you're having trouble finding inventory management software to track special orders that require deposits, rely on a software consulting service like Software Advice to help you find the right product.

Turn every customer and client into an inventory management specialist

Your customers and clients are your best guides to inventory management. By carefully tracking their purchases you'll be able to gauge which products sell, how quickly they sell and whether there are seasonal or special occasion runs that you can stock up for with reasonable certainty they will move.

I recommend: Traker Systems sells a well-established line of inventory management software that lets you track and control ordering, transfers, sales and shipping of your business assets, whether in a warehouse, industrial/manufacturing or small business setting. Visual Online Data sells Visual Inventory, a web-based inventory control software system.

Tips & Tactics for Best Inventory Management System Practices

Helpful advice for making the most of this Guide

• •  Once you've got an inventory management system in place, take it a step further. Use your database or clerks' experience to earmark which customers order what when, and approach them with special offers--targeted to their purchasing habits--whenever possible.

Your inventory can be sizeable if you run a retail business or minimal if you operate a consultancy. However much inventory you have, properly controlling the costs are an important part of running your business. You need to know when to order items, how much to keep on hand, how much you have at any given time, and what the carrying costs are. An effective inventory management system can:

1. Reduce carrying costs.
2. Improve the ordering process.
3. Maximize order flow.
4. Reduce waste.
5. Get items on hand when you need them.
6. Increase customer satisfaction.

Action Steps
The best contacts and resources to help you get it done

Learn the ins and outs of inventory management

You'll need to know how and when to order, how to receive items, how to track stock and how to monitor sales and returns. In short, you need to have an inventory management system that can tell you at any given moment what you have on hand, what's arriving and what's going out.

I recommend: For a thorough discussion of the inventory management process, see this article from the U.S. Small Business Association library on Inventory Management. Find a glossary of terms and industry links at InventoryOps.com and review white papers and blogs about inventory management at Supply Chain Knowledge Base.

Know your inventory management needs

An essential element of inventory planning is knowing how much inventory you need and when you need it. It involves forecasting sales before they happen, tracking items that leave and knowing how long it will take to receive new items. A successful inventory management system will have just enough of each item to meet needs at any given time, thus reducing the cost of keeping extra stock or causing delays by running out of items in demand. The Just In Time manufacturing method distills this idea into an inventory management system that industries, such as retailing, have adopted with great success.

I recommend: Find a quick overview of the Just In Time method as well as a list of the major players providing such inventory management systems and services. For assistance with sales forecasting, check out seminars and software from ForecastPro.

Get rid of excess inventory

Keeping too much stock can be a major cash drain. Items sitting for extended periods of time in your warehouse represent idle capital that could be put to more productive use. The key is knowing the minimum amounts your business needs to keep.

I recommend: See this discussion and checklist on reducing inventory. Sign up for email updates containing the latest white papers on inventory reduction.

Get inventory management software

Most of your inventory management and control will be run through an inventory management software system. Your system will need to be flexible enough to meet your specific needs and sophisticated enough to help you control your inventory. But it should also be user-friendly so inventory management software itself doesn't become a roadblock to successful inventory control.

I recommend: For help, see this article on inventory management software as well as this Guide to Inventory Management Software. Some popular business software systems double as inventory management software, including NetSuite and QuickBooks. Smaller businesses may be able to get by using Microsoft Office, which offers a demo and templates for inventory management. Find more vendors of inventory management software and warehouse management software at Business.com.

Get help with your inventory management system

Modern inventory management is complex but integral to success. Both the basic principles and latest techniques are often offered in seminars and courses through local schools, community colleges or agencies. The SBA and its affiliates can also offer guidance.

I recommend: Check out the offerings at your local community college. Also look for assistance through SBA-affiliated organizations like Small Business Development Centers (SBDC) or Service Corps of Retired Executives (SCORE).

Tips & Tactics

Helpful advice for making the most of this Guide

• •  Look for defects: Check new items for defects or damage before adding to inventory.
• •  Purge your inventory: Keep track of how long an item should remain in inventory and take action to sell it or dispose of it after the deadline.
• •  Spot Check: You should always have a system of periodic spot checks to make sure what's in your actual inventory agrees with your lists and logs.

Inventory management—tailoring your orders to meet customers' needs without exceeding them, and making sure everything gets to and stays where it needs to be—means the difference between viability and bankruptcy for many small businesses. While the need for proper inventory management may not be as critical for you if you run a large company, it can still affect your bottom line.

Effective inventory management requires an initial investment in basic supplies, but that investment should quickly repay itself by enhancing your ordering process and stopping incidental losses. Getting the right supplies for inventory management will help you to:

1. Track purchases with simple inventory management solutions.

2. Build orders with the right inventory management software.

3. Stop loss of inventory with anti-theft devices.

Action Steps
The best contacts and resources to help you get it done

Let barcodes--custom and standardized--be your first line of inventory management

Barcoding is one of the simplest ways to implement basic inventory management systems. Barcoding allows you to keep track of items through scanning them as they arrive, before shelving, and again at the point of sale. By following these simple steps, in compliance with industry standards, you'll already be building a reliable database of information for future ordering.

I recommend: System ID Warehouse sells a full line of supplies for custom barcoding and scanning. It's good practice to ensure that the barcodes you're using adhere to industry standards; use an inventory management specialist business like Barcoding Inc. to help verify your standards compliance, or use their directory of industry oversight companies to locate the standards relevant to your business.

Customize high-tech inventory management solutions to your business needs

Specialized industries often require specialized tools; using inventory control software that is designed specifically for the products you sell, warehouse or supply may be the key to a smooth transfer of assets. Using warehouse inventory software is critical if you want to view, interpret and apply the data gathered by your barcode scanning systems.

I recommend: Some industry-specific inventory management software, such as OrderDog for the natural products industry, has cropped up in recent years. Big business owners or middlemen that function as both purchasers and suppliers may find versatile ordering and asset management software like NetSuite more to their liking.

Watch your exits for complete management of inventory

You can't very well control your inventory if it's sneaking out the door without your knowledge. Help put an end to theft, both from customers and employees, by using an effective anti-theft system.

I recommend: Carlson JPM Store Fixtures offers Ketec anti-theft systems that can be installed without the aid of a technician and are suitable for small to mid-size retail establishments. SecurityTagStore.com sells packages and individual components of anti-theft solutions, both new and refurbished, intended for inventory management in businesses both small and large.

Tips & Tactics

Helpful advice for making the most of this Guide

• •  Beware companies and inventory control software that offer to automate product ordering. Keeping track of orders you place in addition to automated orders can snowball out of control, much like consumers' credit card spending, if you're not very careful; monitoring the automated orders may turn out to cost you more time and money than it saves.

In simplest terms, inventory management is having enough merchandise available to meet the needs of your customers, without having too much excess. Systems are available to help track the location and quantity of merchandise, as well as tabulate losses. Losing merchandise or stocking too much excess will have detrimental effects on your operating budget. If your business needs to improve the inventory management system, review these basic key term knowledge as a first step.

Action Steps
The best contacts and resources to help you get it done

Barcoding

Barcoding for a merchant ensures that the inventory can be tracked beginning from when it arrived at the warehouse, prior to being stored or placed on a shelf and at the end of the cycle, which is when they are sold. Barcoding is an extremely simple method of inventory management.

I recommend: You can read more about industry standards for barcodes at Barcoding. While there, you can also view some industry standard barcode examples.

Inventory control software

Inventory control software will help your business keep track of how many products are in your warehouse and how many items have sold. Inventory control software will also help make product re-stocking and ordering more concise.

I recommend: There is a free article on inventory management software from the folks at Inphinet Interactive Communications.

Availability

It may seem simple to define availability in the terms of inventory management, but there is a calculation to determine it. Availability refers to the number of items available to sell after any holds or pre-sold items are subtracted.

I recommend: For the exact calculation and more information on availability, EPIQ can provide consulting.

Drop shipping

A popular inventory management method is drop shipping. When a merchant participates in drop shipping, they do not keep any inventory on site. When a customer orders from the merchant, the order will be shipped directly from the manufacturer. This is the case with many companies who operate with catalogs only or an Internet-only based store.

I recommend: Visit the site wiseGEEK for additional information about drop shipping and how it works with inventory management.

Lead time

When you hear the phrase lead time, what the person using it is referring to is the time period between when a product is ordered and when it is delivered. Lead time is very important when dealing with inventory, because you want your popular items to have a short lead time to meet customer demand.

I recommend: You can visit Management-Hum.com to find out more on how reorder levels and lead time fits into inventory management.

Carrying cost

The term carrying cost refers to the actual cost for having items in inventory. The price of acquiring the item and actually storing the item are what goes into the calculation.

I recommend: For more on the carrying cost, or holding cost, PMICP has a free calculator with definitions to help fill in the boxes.