Inventory Control Basics for a Small Business

Know what you hold and what matters most

Start by listing every item with its unit, current quantity, purchase cost and supplier. Then sort the list by value moved in a year: items that account for most of your purchase spend go in group A, a middle band in group B, and the long tail in group C. This is the classic ABC approach.

The point is attention. Group A items deserve weekly review and tight control. Group C items can be ordered in bulk less often with minimal checking. Treating every item the same way wastes the storekeeper's time on low-value things.

Set reorder levels you can explain

A reorder level is the quantity at which you place a new order. A simple way to set it: take the average daily use, multiply by the days your supplier usually needs to deliver, and add a safety margin for delays or spikes in demand.

For example, if you use 20 units a day, the supplier takes 7 days and you want a 3-day cushion, the reorder level is 200 units. These are illustrative numbers only. Use your own usage data, and revisit the level every quarter or when a supplier's lead time changes.

Count on a schedule

The book quantity and the physical quantity will drift apart through breakage, wrong issues, unrecorded returns and plain mistakes. Do not wait for the annual stock-take to find out. Count group A items often, say every month, and group C items less often.

Cycle counting means counting a small section every week instead of shutting the business for a full count. Whoever counts should not be the person who records receipts and issues, so that errors are caught and not hidden.

• Count a rotating section every week
• Investigate every difference, not just the large ones
• Record the reason: damage, wrong entry, theft, unrecorded return
• Fix the cause in the process, then adjust the book

Keep receiving and issuing disciplined

Most stock errors begin at the door. Check every delivery against the purchase order for quantity and condition before signing, and enter it the same day. On the way out, no material should leave without a note, slip or entry, even for urgent jobs.

Put goods in labelled, fixed locations. When the storekeeper can find an item in under a minute, issues become faster and mistakes fall. First-in, first-out arrangement matters for anything with an expiry date or one that deteriorates.

Watch slow and dead stock

Once a month, list items that have not moved in a long time, with their value. Decide for each: return to supplier, discount, bundle with a fast seller, use in another product, or write off with your accountant's guidance.

Also look at why it happened. Over-buying to get a supplier discount, a customer who cancelled, or a product that changed are common causes. Add a note to the purchasing routine so the same decision is not repeated.