How To Effectively Manage Stocks In Your Small Business


How To effectively Manage Stocks In Your Small Business.

  • Prevent spoilage
  • Avoid obsolete stocks
  • Buy what customers need
  • First In, First Out method
  • Economic re order level.
  • Buffer stocks
  • Contingency planning
  • Regular stock counts
  • Accurate forecasting
  • Take control of your stocks

Stocks, variously called inventory or merchandise, occupy an important place in your business.

This is because without stocks customers will not come to your shop.

And if they do not come, you will not sell.

And without sales you cannot talk of profits or business growth.

Because of the importance of stocks, this article is, therefore focusing on the best possible ways you can manage stocks in your business.

Get rid of stocks nearing expiry dates

Expired products or those nearing expiry dates are obvious sources of financial losses.

For example, many products have expiry dates after which they cannot be used again.

In other words, their efficacy has been lost.

Examples will be food, drugs and cosmetics that are made to be effective within the specified validity date.

In other to prevent losses on your stocks, you should:

  • monitor and track all yours stocks
  • ensure that the stocks you have in your shop are still potent
  • stocks nearing expiry dates are used  to do sales promotion.

How to manage stocks: Avoid obsolete stocks

Obsolete stocks are items that are no longer in demand because they:

  • have gone out of fashion
  • are no longer relevant
  • technology has overtaken them

Clearly, obsolete stocks are obvious sources of losses.

Therefore, it is your responsibility to always monitor the trending products in your industry.

Step out. Move around. Nose around so that you do not have to stock products nobody wants to put his money.

Furthermore, you can even identify from your computer system or bin cards some of the stocks that are experiencing decline demand.

Stocks storage expenses

You need to optimize your expenses on storage facility for stocks.

For example, you do not need to occupy a large store with space a lot more than what your business really needs.

The bottom line is that you should hire a store or warehouse just large enough to accommodate your stocks.

And ensure that the stocks will not be exposed to excessive heat or damage.

Remember that any damage to your stocks is a loss to your business.

How to manage stocks: improve cash flow

Effective inventory management can improve your cash flow.

For example, if you lock up a large part of your business capital in stocks that are not selling, it impact on your ability to pay creditors and other bills when you are supposed to.

Remember, stocks are merchandise you have paid for and which you want to sell for cash.

But if they are lying in your store and no one is coming to buy, it can lead to negative cash flow.

This is because low sales means that you will not have cash to meet your obligations.

Besides, inventory directly determines how much cash you need to have on hand because:

  • You will have a clear picture of the stocks you have in the store
  • when they are likely to be exhausted
  • you need to know when to replenish them when they get low
  • plus you will need to have cash in hand to make purchases

How to manage stocks: Set par levels

Another strategy to manage stocks in your business is to set stock buffer stock for each category of your products.

Buffer stock levels are the minimum quantity of stocks that must always be available in the shop at any given time.

Another strategy you can use is the EOQ model.

EOQ means economic re-order level. When your stock touches this level, then it is time to place order for new suppliers.

Economic Re-order Quantity are calculated using quantitative methods to how quickly the item sells and how long it takes to replenish stock.

Setting stock levels require some research and decision-making up front. It has some benefits, including:

  • quick replenishment of stocks
  • easier decisions quickly
  • employee can make decisions depending on the authority you have given to them.

So you need to check on par levels a few times throughout the year to confirm that the assumptions are sustainable.

Most importantly, if something changes occur, you should not be afraid to adjust your par levels up or down as  the need arises.

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How to manage stocks: First-In First-Out (FIFO)

“First in, first out” is an important principle of stocks management.

FIFO principle simply means that you should sell your older stocks before selling the ones you bought lately.

In particular, it is very helpful if you are selling easily perishable products.

It is also a good idea to practice FIFO for nonperishable products.

For example, you can use this principle for slow selling stocks that remain dust ridden at the rear of your store.

Plus, packaging designs and features often change over time. You do not want to end up with obsolete that you cannot sell.

Effectively manage relationships with suppliers

You should be able to manage relationships effectively with your suppliers.

Moreover, having a good relationship with your products suppliers is very crucial to the success of your business.

A good relationship is not only being friendly.

It is also about being clear in your communications with your team and business partners.

For example, you need to let your supplier know when you are expecting an increase in sales so that they can adjust production.

Most importantly, let them know when a product is running behind schedule so that you can slow down sales promotion or look for alternative products you can fall back on.

How to manage stocks: Contingency planning

A lot of issues concerning inventory management can pop up.  These types of problems can catch you unaware with severe consequences on your business.

Examples can be that you:

  • experience unexpected rise in demand for your products
  • run into a cash flow shortfall and can’t pay for products you desperately need
  • do not have a warehouse that accommodate all your products
  • have miscalculation in stocks that leaves you with less products than you really need.
  • allow a slow moving product take up all your storage space
  • have a manufacturer that runs out of your product to meet your needs
  • have to contend with a manufacturer that has discontinued your product without warning

More importantly, in business, it is not a matter of “if problems will arise, but it is when”.

Most importantly, you need to figure out where your risks are and prepare a contingency plan:

  • How will you react? What steps will you take to solve the problem?
  • How will this impact on other parts of your business?

In all circumstances good relationships go a long way here to ensure that you keep your business on track.

Regular stock counts

In stocks management, regular internal checks and stock counts are very crucial to the success of your business.

It is important that you maintain your stocks on a computer software.

This will make it easy, quick and cost-effective to track your stocks seamlessly.

How to manage stocks: Physical count of inventory

A physical inventory is the practice of counting all your merchandise at once.

This is especially necessary at year ends when you will need to prepare your annual accounts and file your tax papers.

You can do physical inventories counts yearly, even though it can be disruptive to some of your business processes.

Alternatively, you can also use the continuous stock counts method to monitor and manage your stocks.

You can also do random stock checks of some your stocks, especially fast selling products or expensive products.

This simply means choosing a product, counting it, and comparing the number to what it is supposed to be in your computer system or bin card.

How to manage stocks: Accurate forecasting

You need to able to predict stocks your customer are likely to need.

In other words, you should be able to predict customers’ demand.

Although it is not easy to predict accurately, but you can get close.

Here are a few things to look at when projecting your future sales:

  • Trends in the market
  • Last year’s sales during the same week
  • This year’s growth rate
  • Guaranteed sales from contracts and subscriptions
  • Seasonality and the overall economy
  • Upcoming promotions
  • Planned ad spend

If there is something else that will help you create a more accurate forecast, be sure to include it.


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Take control of your stocks

Remember that with an effective inventory management system in place you can:

  • help reduce costs,
  • keep your business profitable,
  • analyze sales patterns and predict future sales,
  • and prepare the business for the unexpected.

With proper inventory management system in place, your business can stand a better chance of making profits.

It is time to take control of your inventory management and stop losing money. Choose the right inventory management techniques for your business, and start implementing them today.


About Samuel Ijenhi

A graduate in Accounting, University of Benin, Benin City, Edo State, Nigeria.
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