Best Practices for Inventory Management

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For small business owners, inventory is often the primary source of sales and revenue, and as such, it is imperative you can provide good customer service to your customers by having available what they want, when they want it.

Inventory may very well be a primary source of revenue, but it can also tie up a lot of cash, it may require frequent handling and it takes up considerable warehouse space.

Failing to implement best practice inventory management into your business can leave you susceptible to spoilage, loss and even obsolescence of inventory stock. All of which can be costly to your business, and if you are continually out-of- stock the long-term effects of poor customer service can be even more detrimental.

The Best Fit

It’s important to choose an inventory system that is right for you. Decide which method of inventory measurement is the best fit for your business, continuous or periodic review?


With a continuous or perpetual inventory system, inventory levels are constantly monitored. A perpetual system will update inventory continuously each time a transaction occurs either when a purchase is made, or by making an adjustment when an item is returned due to damage or defect.

Inventory stock is replenished when the quantity of an item drops below a set level. Online inventory management software provides businesses with the capability to automate this reorder process when inventory stock reaches a pre-set minimum level.

Under the perpetual inventory system, the cost of goods sold is determined when a sale occurs.


There are no set reorder levels for a periodic review system, order quantities are based on stock levels at the end of each period. The periodic inventory system is not designed to track either the quantity or cost of inventory stock.

In the periodic inventory system, the ‘cost of goods sold’ is calculated after the physical inventory count at the end of the evaluation period. It assumes that all goods not on hand at the end count were sold. This may not be correct in the case of inventory items that were either damaged or stolen.

Automate to Expedite

Online inventory management can completely streamline inventory processes, it helps a business to track their inventory stock and optimise merchandising activities. Some online inventory management systems are even capable of using artificial intelligence to provide predictive merchandising analytics.

Online inventory management helps with asset tracking, improves forecasting, can simplify documentation and save time. In addition, it will reveal precisely how much stock you should have on hand.

Asset tracking also enables businesses to optimise facility layouts, indicating what the most frequently used items are so they can be stored in convenient areas for ease of picking and dispatch.

Handheld barcode scanners are another excellent tool for fully automating data collection, allowing staff to quickly scan inventory stock, reducing the frequency of manual inventory counts, providing for optimal inventory control and saving considerable man hours.

Optimising Inventory

Excess inventory stock adds to overhead costs and takes up valuable space. Although inventory levels are largely dependent on the type and size of your business, it is generally better to keep lower levels of stock to help reduce operating costs.

An online inventory management system will help you identify the inventory levels most beneficial to the flow of your specific business. You can track important data, including seasonality, sales patterns and historic turnover allowing you to make more informed business decisions.

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Melanie - Unleashed Software

Article by Melanie Chan in collaboration with our team of Unleashed Software inventory and business specialists. Melanie has been writing about inventory management for the past three years. When not writing about inventory management, you can find her eating her way through Auckland.

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