Inventory Management When You're Growing Fast

Every inventory decision is a bet. Stock too little and you run out, losing sales, disappointing customers, wasting whatever you spent on ads driving people to 'out of stock' pages. Stock too much and cash is tied up, you're paying storage, and eventually you're discounting to move products that aren't selling.

Most growing brands I see err toward stockouts. They're being prudent with cash, which is sensible, but they underestimate what stockouts actually cost. It's not just the lost sale. It's the ad spend wasted, the customer who went to a competitor and might not come back, the momentum that's hard to rebuild.

My rule of thumb: for your top 20% of SKUs, the ones driving 80% of revenue, never stock out. These are proven sellers. The risk of holding too many is low because you'll sell through. The cost of having none is high.

For everything else, be leaner. If a slow-moving SKU stocks out for a few weeks, it's probably not materially hurting you.

You don't need elaborate systems to forecast demand. A spreadsheet and some discipline gets you 80% of the way there.

Start with last year's data. How many of each SKU did you sell per month? That's your baseline. If you're growing, say 30% year-on-year, apply that multiplier to your baseline. If December was 2x your average month last year, assume similar seasonality.

So if you sold 100 units of something monthly last year, and you're up 30% this year, plan for 130. If December is typically double, plan for 260 in December. Then add a safety buffer for your bestsellers, maybe 15-20%.

The numbers won't be perfect. They never are. But you'll be right directionally, which is far better than 'I reckon we need about 200.'

Update your forecasts monthly. A product that's suddenly trending upward needs revised projections. One that's underperforming needs orders scaled back. Reality diverges from predictions constantly. The discipline is in adjusting as you go.

Most stockout disasters I've seen come from underestimating lead times.

Lead time isn't just what your supplier quotes. It's production time, plus shipping, plus customs if applicable, plus your own receiving process. If your supplier says '3 weeks' and shipping is another 2 weeks and it takes you a week to receive and shelf stock, your actual lead time is 6 weeks. Not 3.

And lead times stretch unpredictably. That 6-week lead time might become 10 weeks around Chinese New Year or during a shipping crunch. Build in buffer.

Once you know your actual lead time, you can calculate reorder points. The formula is: average daily sales multiplied by lead time, plus safety stock. Safety stock is the extra buffer to handle demand variability, usually calculated as the difference between your maximum and average daily sales, multiplied by lead time.

Concrete example: if you sell 10 units a day on average, but sometimes 18 on busy days, and your lead time is 42 days, safety stock is (18-10) × 42 = 336 units. Reorder point is (10 × 42) + 336 = 756 units.

When stock hits 756, order more. Set up automated alerts. Don't rely on remembering to check.

Your suppliers can make or break your inventory performance. The relationship is worth investing in.

Negotiate on lead times. Can they hold buffer stock for you? Can you get priority treatment during peak seasons if you commit to volumes? These conversations are worth having.

Push back on minimum order quantities. High MOQs force you to over-order slow sellers, which creates the dead stock problem. Sometimes you can negotiate lower MOQs if you pay slightly more per unit. Often worth it.

Payment terms matter for cash flow. Net-30 or Net-60 terms, where you pay after receiving goods rather than upfront, can significantly ease the cash pressure of holding inventory. As you grow and become a more valuable customer, these terms become easier to negotiate.

Diversify if you can. A single supplier is a concentration risk. One factory fire, one quality problem, one port closure, and you're stuck with nothing to sell. This isn't always feasible early on (you might not have the volume to spread across suppliers), but work toward it.

And just be a good customer. Pay on time. Communicate clearly. Give them visibility into your forecasts. When capacity is tight, suppliers prioritise the customers who aren't nightmares to deal with.

Every catalogue has products that seemed like a good idea but don't sell. The question is how long you sit on them.

Look at inventory turnover by SKU. If something's turning over less than twice a year, it's slow. Less than once a year and it's basically dead.

First, try bundling. Sometimes a slow mover sells when paired with a popular item at a slight discount. It's a way to move units without discounting the product itself.

Second, check if it's actually been given a fair shot. Maybe the photography is poor. Maybe it's buried in your navigation. Maybe you've never actually promoted it. Some products need a push before you write them off.

Third, if it's genuinely not working, discount and clear. Get the cash out. Stop paying storage. It feels like admitting defeat, but holding onto dead stock costs money every day. Better to take the hit and redeploy the cash into products that actually sell.

The best approach is prevention: order conservatively on new products. Test with small quantities before committing to large orders. Air freight exists if something takes off. You can't un-order stock that isn't moving.

At low volume, a spreadsheet is fine. Really. I've seen perfectly well-run operations at $300-400K managed in Google Sheets with discipline.

As you scale, you need something more robust. What you need the system to do: track stock across locations, calculate days of stock remaining, alert you at reorder points, integrate with your sales channels so data is accurate and real-time, and generate reports on turnover and slow movers.

Shopify's built-in inventory is fine for simple operations. Once you're multi-location or have complex needs, look at apps like Stocky or move to dedicated systems like TradeGecko (now QuickBooks Commerce). At higher scale, $3M+, you might need Cin7 or Brightpearl, but those are overkill until you're there.

The principle is matching your tools to your complexity. Don't over-invest in systems you don't need yet. But also don't outgrow your tools. Trying to run $2M through chaotic spreadsheets leads to expensive mistakes.

Inventory is cash in physical form. Every pound sitting on a shelf is a pound you can't spend on growth.

Growing businesses often hit cash crunches because inventory needs grow faster than revenue. You sell 20% more but need 40% more inventory because you're stocking a larger range, carrying more safety stock, and can't afford the stockout risk. This catches people by surprise.

Ways to ease the pressure: negotiate payment terms so you're paying suppliers after you've sold the product, not before. Improve turnover by focusing marketing on proven sellers rather than slow movers. Reduce lead times where possible. Shorter lead times mean smaller safety stock requirements.

Consider dropshipping for true long-tail items. If something sells once a month, maybe it doesn't need to sit in your warehouse. Let someone else hold that inventory risk.

Inventory financing exists too: lenders who'll advance cash against stock. It costs money but can unlock growth if cash is the bottleneck.

Know your inventory value at any moment. Track how much cash is tied up in stock. Watch whether that number is growing faster than revenue. If it is, you've got a problem developing.