How Small Businesses can Maximize Growth by Optimizing Their Inventories

Brahm Meka
August 27, 2022
10 min read
Share this post
Small Business Grwoth

Small businesses have to face a number of hurdles to be successful. Their very nature means they are starting with a variety of handicaps as compared to bigger businesses in the same niche.

Entrepreneurs who enthusiastically bring their small business idea to life have to contend with the low strike rate of businesses – 20% of small businesses fail in their first year, 30% in the second year and 50% fail after five years.

However, there is no doubt small businesses continue to be a very important part of the economies of various countries. A case in point being the United States of America:


The 30.2 million small businesses in the United States essentially make up 99.9% of United States businesses. They are powering the economic growth of the country. In India, the number of small businesses is around 51 million, and these employ 120 million people.

These figures illustrate the importance of small businesses for the economy and their major role in creating a sustainable livelihood for people who work for them. Unfortunately, their low success rate means owners are left scrambling to make their business work, generate ROI, and drive profitability.

But, this is easier said than done, because there are challenges aplenty. These challenges include:

  1. Cash flow problem
  2. Cash management
  3. Talent crunch
  4. Competition
  5. Inability to scale
  6. Burgeoning bottom and top line costs

The last is a major problem and out of all the difficulties related to keeping the expenses in control (bottom line growth), the biggest challenge, often ignored by small businesses is inventory control or management. It is the elephant in the room that a number of businesses ignore at their peril.

Here are some of the problems that small businesses encounter because of poor inventory management:

Inadequate Stock:

Inventory stock needs to be managed in a way such that you are able to effectively meet market demand. Therefore, it needs to be categorized into normal stock, buffer stock, anticipation stock, transit stock.

While businesses might categorize their stock, many small businesses fail to maintain optimum stock levels for each category.

Error-Prone Inventory Checking:

At times, businesses have stocks across warehouses in different locations; and they depend on manual stock checking to ensure proper availability of stocks.

A mammoth 43% of businesses still use a manual method to track inventory or do not track inventory at all. This can lead to all sorts of order fulfillment problems, erroneous calculation of stock levels, especially safety stock levels and overall ineffective inventory control.

Slower Decision Making:

The size of small businesses makes them nimbler than their larger competitors, thus allowing them to take faster decisions as per changing market requirements.

However, their lack of focus on inventory management means key inventory control decisions are not taken quickly, and businesses lose valuable time; this impacts various key business processes such as product delivery, customer service, sales and marketing, and more.

Dead Stock and Spoilage:

Trends come and go and market demand for products moves in-step with these trends. Your inventory should be aligned with these trends as well, otherwise you will end up having a lot of dead stock on your hands; lots of businesses do and therefore lose a lot of money.

The same is the case with perishable stocks, with expiry dates. If you don’t sell well within the expiry date, it will go bad – result – the losses incurred will eat into your bottom line.

It is important to understand that optimizing inventory can help businesses maximize their growth. They can adopt a proactive stance when it comes to taking business decisions especially those expressly related to customer satisfaction.

If you want your business to grow, you must prioritize customer satisfaction:

And one of the ways your business can grow and do just that is by giving top priority to inventory management. Here’s how it can help you grow:

Helps Run a Lean Operation

Small businesses need a razor-sharp growth outlook. They need to get rid of excess baggage in the form of inventory that is costly to maintain and manage. Excess inventory results in a wasteful process, needless complexity in logistics operations, and eats into man-hours spent in trying to handle this inventory.

Small businesses do not have the luxury of time, money or manpower.  If you are a small business and you have working capital tied up in useless inventory, you are essentially putting good money after bad.

If you invest in inventory management solutions, you get a ringside view of your inventory. You get real-time information and visibility into what your inventory looks like, enabling you to get rid of dead stock, replenish out-of-stock items and do a whole lot more.

The end result is the order allocation process at the store level becomes a breeze; the delivery process gets shorter and overall customer satisfaction levels to go up.

Sound Business Decisions

Better inventory control can drive faster and improved decision making. Faster decisions and their implementation is the key to success for small businesses. If you are looking to take more business-oriented decisions (and you should be!), it is imperative that you are able to understand your customers; better inventory control makes this possible.

Something as basic as keeping track of your sales order life cycle can give you a better understanding of your customers’ buying patterns, returns, sales data and more; this, in turn, helps you make more meaningful customer-centric decisions.

Another benefit that prioritizing inventories gives you is that it offers granular insights into the problems that you might be encountering in your supply chain. This will help you get rid of bottlenecks and make sure that your stock reaches its intended customers seamlessly.

Addressing such inefficiencies promptly helps save money and fuels business growth.

Optimizing your inventory can also help you work with high-quality error-free data that acts as a catalyst for better business decisions. Good inventory management software automates plenty of tasks associated with inventory processing and churns data that can be used to take speedier decisions with respect to resource mobilization, customer service, and resource investment.

Protects Against the Whims and Fancies of the Market

The demand for a particular product experiences variations over a period of time. A product might be in demand today, but a few months later, you might find the demand dissipating.

How do you plan for fluctuating demand especially if you are a small business?

The answer lies in optimizing your inventory and ensuring you keep an eagle eye on the stock that is seeing movement and the stock that is dead. This allows you to take proactive steps to meet the fluctuating demands of the market.

Your business is better prepared and many a time can get a first mover advantage over your competitors.  

Optimizing inventory helps you adapt quickly. If there is a product that is slow selling, you can make room for a product that is in-demand and which has the potential to sell quickly. Here, you are also optimizing your storage space. It’s like hitting two birds with one stone.

Achieve Overall Operational Efficiency

If you have comprehensive knowledge of the stock that you have and real-time data insights that a good inventory management software offers you, your personnel do not have to scramble to search for a product once the order comes in or have to wonder whether a particular product is available or not.

You are able to stock items that are in demand, place repeat orders for items that you know are running out soon and if you know you cannot get your hands on an item, you can remove it from your ‘sell list’. This ensures great operational efficiency and you are always one step ahead.

You can prepare for emergencies and have enough time on your hands to address any problems that can occur. This helps you adopt an organized approach to running your business. In the long run, it is this approach that fuels business growth.

Profit Maximization

Profitability is a huge problem for small businesses. Most businesses cannot remain profitable over a course of time and shut shop. One reason for this is the inability to invest time and attention on the core areas of the business because their time is consumed elsewhere in a non-profitable activity.

Inventory control especially the kind of control brought about using cutting-edge software ensures that the time businesses are spending on managing their inventory can be spent elsewhere in top-line activities that help generate more revenue and thus make a business more profitable.

There is another element to this; by prioritizing and optimizing inventory management, businesses are actually stocking up on products that are actually getting sold or have a very good chance of getting sold. This increases profitability.

Meeting Rising Customer Expectations

If you are a small business retailer, you must contend with rising customer expectations. Today, an average customer expects a business, irrespective of its size, to meet really very high standards when it comes to customer service.

For e.g., many expect super-quick delivery times; others expect the facility of changing a product after an order is actually en-route; there are others who are extremely disappointed if they find a product is out of stock; there is a section who feels irritated when they are unable to find an item that is as per their size and there are again those who expect to be notified immediately when an out of stock product is available again.

As a business, you can fulfill many of these expectations if you are able to get a handle on your inventory.

Future Focus

A small business that cannot plan for the future is doomed to fail. Optimizing inventories with feature-rich inventory management software can help get your hands on historical data that offers valuable insights that can be acted upon to put in place a plan of action for the future.

You can easily access historical stock and sales data making it that much easier for you to collate data, analyze it and make informed forecasts; this, in turn, helps you plan inventory investments across quarters, bi-annually or annually. You are not left wondering about the kind of items that you need to invest in.

The data is right in front of you.

All you need to do is make purchase decisions based on the available data. You won’t go wrong.

Beating the Competition

As a small business, you not only compete with other small businesses in your niche but the behemoths as well. Say you are a small retailer; in this case, you also compete with the likes of Amazon and must ensure that you are not steamrolled by such big players in the niche.

One of the ways you can actually compete is by ensuring you have better control over your inventory. Imagine you are experiencing all the benefits mentioned above, through proper inventory management. This means your business is competitive and has the ability to take on the big boys.

To Conclude

Don’t go into the process of optimizing your inventory without a plan in mind.  The first thing you must do is identify the problems you are experiencing and then search for a solution that helps you sort out these problems.

If you plan on deploying inventory management system, make sure that you pick software that can take care of all the problems you have identified.

The whole point behind optimizing your inventory is to ensure you have better control over a key organizational asset – your inventory. A major chunk of the regular investments you are going to make in your business will be taken up by your inventory. With optimum inventory management, you will be able to earn maximum returns on this investment.

It is also an arm of your business that will define its success or failure.

Small businesses that have succeeded in their domain have been very careful not to take inventory optimization lightly. They have focussed on better inventory management and control as the keystone of their businesses, which has essentially seen them improve their supply chains, and which in turn has seen them achieve sustainable customer satisfaction.

Brahm Meka
Founder & CEO

Related Blogs