Managing Inventory

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Managing inventory is the process a business uses to obtain, organize, track, and replenish necessary stock. Businesses that sell any kind of tangible merchandise have inventory. For example, manufacturing companies must keep track of the materials they need to assemble their products, as well as the finished products. Retailers and wholesalers must order the products they plan to sell and know when to replenish their stock. If a company manages its inventory well, it is usually able to avoid either running out of merchandise or becoming overstocked, both of which can prove quite costly. Inventory management can also help decision makers determine things like which products are sold most often and at what times demand reaches its peaks.


While inventory management at large corporations tends to be more complex than at smaller businesses, it is no less important for small companies. In fact, small businesses are less likely to be able to handle the financial repercussions of inadequate inventory management. Businesses with too much inventory will find themselves paying excess fees for storage. As a result, they may have less cash available for operations. Businesses with too little inventory might alienate customers by being out of stock too often. Finding a balance between these two extremes is the goal of inventory management.

Electronic inventory management systems used at big companies are quite often complex and costly. By contrast, some small businesses opt to keep track of inventory manually. According to recommendations published in the October 2000 issue of, "it's to your benefit to implement a scaled-down version of the same inventory/order fulfillment management tools used by large corporations." By having a more sophisticated system in place, you will be able to grow your business without having to revamp your inventory management processes. Also, using an existing inventory management system upon which to model your own procedures might help you to avoid problems that might arise if you decide to develop your own system. Finally, if you eventually decide to outsource inventory management, "the transition to a fulfillment house will be far easier if your system adheres to standards other than the ones that only you understand."


Creating an inventory management system for a business, even with a model to follow, involves considerable research. You will likely find that you need to purchase inventory management software. Be sure to investigate your options as price and functionality can vary substantially. Many small business owners purchase a point-of-sale (POS) software system, which tracks each sale as it is completed. This allows inventory data to remain as current as possible. In addition, because information is gathered and stored electronically, you can run various reports on the data to glean valuable information about your customers purchasing patterns.

One option that allows online retailers to bypass completing the task of managing inventory is having manufacturers ship finished products directly to customers who make purchases online. According to columnist Juanita Ellis, if your manufacturers are agreeable, "you can request that when orders are placed at your site, they're fulfilled and distributed with your company's shipping information and logo. You'll need to address product returns and customer services. However, you won't have to maintain inventory."


Should you choose to outsource inventory management tasks, you will find that a wide number of fulfillment companies offer services including inventory management, packaging, shipping, return processing, and credit-card transaction processing specifically for small online businesses. For example,,, and each offer such services. serves both business-to-consumer (B2C) and business-to-business (B2B) ventures and offers standard fulfillment services, such as inventory management, packaging and shipping, and return processing. All three firms offer comprehensive services that handle the fulfillment process from the moment a customer clicks on a "Buy Now" icon until the merchandise is delivered, ensuring all the while that your inventory is adequate. Also, many Web hosting companies offer inventory-related fulfillment services. While these services can be somewhat limited, depending on the hosting company, they may be suitable for small online businesses.


Ellis, Juanita. "Regulating Your Online Inventory.", June 26, 2000. Available from

Lesonsky, Rieva. "Elements of the Accounting System: Inventory." Start Your Own Business: The Only Start-Up Book You'll Ever Need. Irvine, CA: Entrepreneur Press, 1998. Available from

Lesonsky, Rieva. "Tracking Inventory." In Start Your Own Business: The Only Start-Up Book You'll Ever Need.

Entrepreneur Press, 1998. Available from

Obie, Delilah, and Kelley Westrick. "Behind Warehouse Doors.", October 27, 2000. Available from