Forty-three percent of small businesses don’t track inventory at all.¹ Not managing inventory is problematic, but assuming automatic inventory control software can do the job alone may be more dangerous. If you don’t have a person counting and checking the data that goes into your software, you’ll get poor data that can lead to out-of-stock and overstock problems. 

• Set a Periodic Automatic Replenishment (PAR) level. A PAR level is the minimum quantity of products to have on hand. Some inventory management software will automatically trigger a reorder when a product is sold down to the PAR level. PAR levels should be set based on sales history and whether you are in or approaching your peak sales season. You’ll want to evaluate your PAR levels several times a year.
• Use First In, First Out (FIFO) rules. These rules are most helpful for perishable items, such as dairy products, fruits, vegetables, wine, etc. They ensure the oldest stock is sent out first. But they’re also helpful for non-perishable items. You don’t want to fulfill orders with dusty boxes or out-of-date packaging.
• See if Just-In-Time (JIT) inventory is right for you. You keep only enough inventory on hand for current orders. Many small businesses use JIT inventory management to control costs, and it’s a great choice if you have limited space for inventory. To make JIT effective, though, you must monitor suppliers and orders closely. You'll also need to know exactly how long it takes to replenish your inventory. JIT is also helpful for a drop shipping model of fulfillment. You don’t keep products in inventory. You pass the orders on to the manufacturer, and they ship directly to the customer. It also works with handmade items, like on Etsy. You make the item once it's ordered. But keep in mind, while shoppers are willing to wait for customized items, they generally are not willing to wait extra days for ready-made items.

Pick the right inventory management software.

You’ll want software that includes:¹

• Programmable min/max Periodic Automatic Replenishment (PAR) levels
• Low inventory and reorder alerts
• Automated reordering
• Cross-channel inventory sync
• Just-In-Time inventory management
• Interfaces for point of sale and mobile scanning
• BIN IDs and pick lists
• Multi-warehouse/multi-site inventory tracking

It’s possible that your inventory management software may be built into your e-commerce platform.