Inventory Basics for Small Product Businesses in India

Good inventory control comes down to three habits: count stock regularly, know when to reorder, and spend most of your attention on the few items that matter most. You can do all three in a spreadsheet to start with.

Start with clean basics

Give every product one name, one pack size and one product code. Treat a 250 g pack and a 500 g pack as two items, because they sell and run out separately. Record stock in the unit you actually sell.

Count physically on a fixed day each week or month and compare with your records. Note the difference and the reason. If you sell items that can spoil, also record batch or expiry dates. That last point is my suggestion, not from the sources below.

Know your lead time

Lead time is the number of days between placing a supplier order and having stock ready to sell. Note it for each key item, and note how much it varies. A supplier who sometimes takes four days and sometimes ten needs a bigger buffer.

The reorder point

The reorder point is the stock level at which you place a new order. A standard formula is:

Reorder point = (average daily demand x lead time in days) + safety stock

The source article stresses that this is not the same as a minimum stock level. It is the level at which you act, so that new stock arrives before the old stock runs out.

Example. You sell 12 pouches a day on average. The supplier takes 5 days. You keep a safety stock of 24 pouches. Reorder point = (12 x 5) + 24 = 84. When your count reaches 84, you order.

Safety stock

Safety stock is a buffer that absorbs surprises in demand or in supplier delivery. The formal formula uses the standard deviation of demand and lead time, with a service factor. For example, one worked example in the source uses a 95 per cent service level.

For most small businesses, a simpler approach is enough to begin. Look at your busiest week and your slowest delivery in the last few months, and set a buffer that would have covered both. Then adjust. This is a practical judgement, not a formula from the source.

ABC analysis: focus where it counts

ABC analysis ranks items by value and splits them into three groups. The sources describe it roughly as follows:

A items are a small share of products, about 10 to 20 per cent of items, that make up around 70 to 80 per cent of value. Watch these closely.

B items are a middle group, with moderate value.

C items are the largest group by count, often 50 per cent or more of items, but only about 5 to 10 per cent of value. Keep these simple.

To do it, gather sales for a period, multiply quantity by unit cost, rank items from highest to lowest, work out cumulative percentages and assign groups.

Cautions from the sources: new products cannot be classified without sales history; counting variants separately can skew results; revenue alone can miss items that matter strategically; and groupings go stale, so review them quarterly or twice a year.

Putting it together

For A items, count weekly, set a careful reorder point and keep a reliable second supplier if you can. For B items, count monthly with a standard reorder point. For C items, count less often and reorder in simple bulk.

Common mistakes

Selling stock that is already promised, forgetting returns and damaged goods in the count, and recording stock in several places. The last one is why many businesses move from sheets and chat messages to one shared system.

One option for this

MM AgroFlow is a multilingual business-operations platform for MSMEs and brands of every kind, from MM Rooted Ventures. Inventory sits alongside orders and analytics in one place. We built it first for our own operations.