How to implement an inventory management system

To implement an effective inventory management system, you must choose a tracking tool—ranging from a simple spreadsheet to dedicated software—and establish reorder points (par levels) for every item to ensure your production never grinds to a halt while keeping your cash flow healthy.

1. Choose your tracking platform

Depending on the size of your operation, you generally have two choices:

• Spreadsheets (Excel or Google Sheets): Ideal for startups with a low volume of products. It is free (or cheap) and highly customisable, but requires manual data entry which is prone to human error.
• Inventory Management Software: As you scale, tools like Cin7, Unleashed, or even the built-in inventory features in accounting software like Xero or QuickBooks are better. These can often sync directly with your online shop to update stock levels automatically.

2. Categorise your stock

Divide your inventory into two main buckets to make tracking easier:

1. Raw Materials: The individual components or ingredients needed to make your product (e.g., fabric, screws, or flour).
2. Finished Goods: The final products ready to be shipped to customers.

3. Create a SKU system

A Stock Keeping Unit (SKU) is a unique alphanumeric code for every item you hold. Don't just name things "Blue T-shirt"; use a code like TSH-BLU-LRG. This makes it much easier to search your system and avoids confusion during busy periods.

4. Set your 'Par Levels'

A "Par Level" is the minimum amount of a specific product or material that must be on hand at all times. When your stock dips below this level, you know it's time to reorder. Base these levels on how quickly you sell the item and how long it takes your supplier to deliver a fresh batch (the lead time).

5. Establish an update routine

A system is only as good as the data put into it. You must decide who is responsible for updating the system when:

• New raw materials arrive from a supplier.
• Materials are "checked out" to the production area.
• Finished goods are sold or dispatched.
• Items are wasted, damaged, or returned.

Top Tip: Even with the best software, you should perform a physical "stocktake" (counting every item by hand) at least once a quarter to ensure your digital records match what is actually on your shelves.

Comparing Spreadsheets vs. Software

Feature	Spreadsheet	Dedicated Software
Cost	Low / Free	Monthly Subscription
Ease of Use	Simple to start	Learning curve required
Automation	Manual entry	Automatic sync with sales
Scalability	Difficult	High

By staying on top of your inventory, you'll avoid the frustration of telling a customer you're out of stock, and you'll stop wasting money on materials that sit gathering dust in the corner of your workspace.