What Does the 2017 Small Business Report Tell Us?

Paul Trujillo — January 24, 2017 Follow @TruPaultx

As small and medium-sized businesses everywhere look to 2017 and beyond, one of the major questions has to be how they’ll compete with large companies like Amazon, which is “traditionally” an online retailer but appears to have its sights set on virtually every industry, from software to entertainment. How can smaller companies mimic that kind of success, even on a lesser scale?

There is more than one answer to that question, depending on whether your business provides a service or product, is online-only, and a number of other factors. But one tool we’ve identified as crucial to Amazon’s dominance (and the dominance of other multinational corporations around the world) is the way they handle their inventory management. As you might expect, their inventory control system is automated, though it is powered by low-cost and high-functioning technology like barcodes.

Small businesses, on the other hand, tend not to make large investments in inventory management software. We know this because the 2017 Wasp Barcode State of Small Business Report shows that use of automated systems for inventory is still lacking.

Here’s the report’s breakdown, based on the responses of over 1,100 business owners and executive leaders, of what businesses use to track their inventory:

• 18% use an inventory control software or system
  
• 21% use Excel or another spreadsheet program
  
• 15% have inventory functionality in an accounting system
  
• 14% use manual processes to track inventory
  
• 8% don’t track their inventory at all

The rest of the respondents selected “other” or said they didn’t have inventory to track. The latter choice was common for very small businesses (5-10 employees) who provided a service rather than a product.

This means fewer than one in five respondents said their business used an inventory management system, while more than one in five either used manual processes or didn’t track inventory at all (which, in our view, might as well be the same answer). Here’s why the numbers don’t add up, and why those who chose not to invest in inventory management may feel differently by next year.

Not tracking inventory or using manual processes is a losing battle

First of all, no serious business that offers a product can afford not to track their inventory at all. Simply guessing at whether you have enough in stock to meet customer demand—whether it’s around the holidays, when buying everywhere surges, or even during lulls, when every sale counts—is how you run into problems like promising a customer an item that you don’t actually have in stock. There may be no better way to lose a potential customer-for-life, not to mention 4% in sales each year, than with this mishap.

There’s a domino effect to no inventory tracking. Unknown inventory numbers means a higher lead time, which means slower reaction to stockouts, which foments customer disapproval, which puts a greater strain on customer service and marketing, with no solution in sight. And we haven’t even mentioned issues that arise from internal issues like theft or misplacement.

We have to give it to those companies that use manual processes to track their inventory: At least they’re trying. But the odds of accurately tracking inventory with pen and paper, for example, are low. Most retail stores suffer from this problem—Management Science once found, in the days before widespread inventory software, that inventory numbers were inaccurate for 65% of inventory records examined from 37 retail stores.

We tend not to want to view ourselves as fallible, but mistakes are all-too-common when using manual processes. A misplaced digit, a twice-counted product, an overlooked return—any of these mistakes can cause major disruption as the company tries to locate a ghost, or misses out on sales that could have otherwise gone through seamlessly.

Excel and other spreadsheet programs aren’t much better

The use of spreadsheet programs is yet another step up from “nothing at all,” but issues still remain. Similar to using manual processes, data entry errors in the spreadsheets your business uses are common, and can lead to extra hours spent each week double-checking inputs or tracking down inventory which is said to be in one location but is actually in another.

That’s not all. Excel and other programs have other limitations, including:

• A single Excel workbook limits user access, which increases the probability of errors.
  
• Excel doesn’t have real-time data capabilities, which means the Excel workbook is potentially out-of-sync with the real count (and becoming more incorrect with each transaction, including returns). There shouldn’t be more than a single step, or scan, or update in order to have accurate records across all data access points.
  
• Excel can’t help you quickly analyze historical data. Everyone knows that December is a busier month than, say, February. Your inventory turnover ratio—the amount of inventory you need to keep on hand in order to not overwhelm your warehouses, while still meeting demand—will vary markedly in different seasons. Excel can’t help you analyze data and forecast demand the way an inventory management system can, and why take the extra time to go back yourself when you can simply have that data on-demand?

If you have an automated inventory management system, access to virtually error-free inventory count is always at the tip of your fingers. The report shows that bigger businesses (those with at least 51 employees, and as many as 499) better understand the value of this information, as they have markedly higher use of inventory management software. When you start making lots of sales (especially if you have an ecommerce platform), you see the immense value in accurate inventory control.

But if you’re reading this and thinking, “Well, my business is really small, why do I need to spring for that investment now?” consider that it’ll be much easier to grow into an automated inventory management system than it would be to transfer over years of inaccurate data once the need becomes pressing. Don’t waste time auditing your own work—if you see the value in always knowing where your inventory is, it’s never too early to get a handle on it.

There wasn’t a noticeable increase in the use of inventory management software from 2015 to 2016. We don’t expect that trend to remain as we move forward. The world is becoming automated, and inventory control is unlikely to remain an outlier.

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