Inventory is money sitting on a shelf. Too little and you miss sales and disappoint buyers. Too much and cash is locked up in boxes that may never sell. Inventory management is simply the habit of knowing what you have, where it is, and when to order more.
You do not need complex software or a degree in logistics to do it well. This guide covers the basic terms, three simple formulas and a routine you can start this week.
The terms you need to know
- SKU (stock keeping unit). One sellable item. A T-shirt in size M and colour blue is one SKU; the same shirt in size L is another.
- Stock on hand. How many units of a SKU you physically have.
- Reserved stock. Units already promised to orders that have not shipped yet.
- Available stock. Stock on hand minus reserved stock. This is what you can still sell.
- Lead time. How long it takes from placing an order with your supplier to having the goods on your shelf.
- Reorder point. The stock level at which you should order more.
- Safety stock. A small extra buffer for delays or a sudden rise in demand.
- Stock movement. Any change in stock: a delivery from a supplier, a sale, a return, a correction or a transfer between locations.
Step 1: Track every SKU, not just every product
The most common beginner mistake is tracking stock per product instead of per variant. "We have 40 T-shirts" tells you nothing if 35 of them are size XL. Track each size, colour or other variant as its own SKU, with its own count.
Step 2: Record every movement
A stock number is only useful if you know how it got there. Each time stock changes, write down what happened:
- restock (goods arrived);
- sale (an order was placed);
- return (goods came back);
- adjustment (a correction after a count, damage or loss);
- transfer (goods moved between locations).
When a count looks wrong, the movement history tells you why. Without it, you are guessing.
Step 3: Set reorder points
You want new stock to arrive just before you run out. The basic formula is:
Reorder point = average daily sales × lead time in days + safety stock
And a simple way to set safety stock:
Safety stock = (maximum daily sales × maximum lead time) − (average daily sales × average lead time)
Example with made-up round numbers
The numbers below are an example:
- A SKU sells 4 units a day on average, and up to 7 on a busy day.
- Your supplier usually delivers in 10 days, but sometimes takes 14.
Safety stock: (7 × 14) − (4 × 10) = 98 − 40 = 58 units
Reorder point: 4 × 10 + 58 = 98 units
So when this SKU drops to about 98 units, it is time to order. If 58 units of buffer feel like too much cash on the shelf, you can choose a smaller buffer and accept a little more risk. The formula gives you a starting point, not a rule.
Step 4: Decide how much to order
Order too little and you reorder constantly. Order too much and stock sits for months. A practical approach for a small store:
Order quantity = average daily sales × days of cover you want − stock already on order
If you want 30 days of cover for the SKU in the example: 4 × 30 = 120 units, minus anything already on its way.
Step 5: Count regularly
Even with good records, real stock drifts from the numbers: a damaged item, a miscount at delivery, a parcel packed with the wrong size. Regular counts keep your records honest.
- Full count: count everything, usually once or twice a year or before closing the books.
- Cycle count: count a small group of SKUs every week, so the whole range is checked over a month or a quarter.
Record any difference as an adjustment, with a short reason, so it shows up in your movement history.
Step 6: Watch slow and dead stock
Look at which SKUs have not sold for a long time. Dead stock costs storage space and ties up cash. Options include bundling it with popular items, offering it at a reduced price, or not reordering it next season.
Common mistakes to avoid
- Updating stock by hand after each sale. Sooner or later someone forgets. Stock should change automatically when an order is placed.
- One stock number for several locations. If you have a storeroom and a shop floor, you need to know what is where.
- No reserve for paid but unshipped orders. Otherwise you sell the same unit twice.
- Returns that never go back into stock. The item is on the shelf, but the system says zero.
- Counting without recording the difference. The count fixes the number today, but you lose the reason.
A weekly inventory routine
- Check SKUs at or below their reorder point and place supplier orders.
- Count one group of SKUs and record adjustments.
- Review returns accepted this week and confirm they are back in stock.
- Look at the slowest-moving items and decide what to do with them.
- Update lead times if a supplier was faster or slower than usual.
How RedCart helps
The Warehouses module in RedCart keeps stock per warehouse and per SKU. When a buyer places an order, stock is written off in the same transaction as the order, so you never need to adjust counts by hand after a sale and the same unit cannot be sold twice through a timing gap.
Every change is recorded in a movement log with its type: restock, sale, adjustment, transfer in and transfer out. Accepted returns are restocked into the warehouse you choose and logged like any other restock. If you keep goods in more than one place, you can add any number of warehouses and move stock between them with transfers in the cabinet.
Because stock lives in the same shop database as products, orders and customers, the numbers in your catalog, your orders and your warehouse always agree.
Summary
Track every SKU, record every movement, set reorder points with a simple formula, count a little every week and act on slow stock. These habits work in a notebook, in a spreadsheet or in a system, but they are much easier when stock updates itself.
If you would like to set up your warehouses and stock with us, create a RedCart account.