Inventory Management System for Small Business: A Complete Guide

Aleksander Nowak · 2026-02-08 · Inventory Management

Find the right inventory system for your small business. Learn the difference between retail and manufacturing inventory—and which software fits each.

Inventory Management System for Small Business: A Complete Guide

Search for inventory programs for small business and you'll find dozens of tools designed for retail: barcode scanners, POS integration, shelf tracking. Great if you're running a store.

But what if you make products? What if your inventory includes raw materials that become finished goods through production?

For small manufacturers, inventory management is fundamentally different. You're not just tracking what's on shelves. You're tracking ingredients, components, and materials that transform into products through recipes or assembly. Standard retail inventory software doesn't handle this.

This guide explains how inventory systems differ by business type, what features actually matter, and how to choose software that fits your operations.

What Is an Inventory Management System?

An inventory management system (IMS) tracks what you have, where it is, and how it moves. At minimum, it records items coming in and going out, maintains current stock levels, and alerts you when supplies run low.

Beyond basic tracking, good inventory software provides:

Real-time visibility into stock across locations. No more guessing what's available or walking to the warehouse to check.

Automatic updates when sales happen or shipments arrive. Stock levels stay accurate without manual counts.

Low-stock alerts that trigger before you run out. Reorder points prevent stockouts and lost sales.

Reporting on inventory value, turnover, and trends. Data for smarter purchasing decisions.

Most small businesses start with spreadsheets. That works until it doesn't. The breaking point usually comes when you're managing hundreds of items, multiple locations, or a team that needs shared access. That's when dedicated inventory management small business software pays for itself in time saved and errors avoided.

Retail Inventory vs Manufacturing Inventory

Here's where most guides get it wrong: they assume all small businesses work the same way. They don't.

Retail Inventory Management

A retail business buys finished products and resells them. The inventory flow is simple:

1. Purchase products from suppliers
2. Receive into warehouse or store
3. Track on shelves by SKU
4. Sell to customers
5. Reorder when low

A retail inventory system optimizes this flow. It syncs with your point-of-sale system, tracks products by barcode, and manages stock across sales channels. When you sell a shirt, the system deducts one shirt from inventory.

Retail store inventory software is built for businesses that buy and sell finished goods. It's widely available and works well for shops.

Manufacturing Inventory Management

A manufacturing business makes products. The inventory flow is more complex:

1. Purchase raw materials from suppliers
2. Receive materials into inventory
3. Use materials in production (following recipes or BOMs)
4. Create finished goods from production
5. Track finished goods available for sale
6. Sell to customers
7. Reorder materials when low

This involves three types of inventory:

Raw materials: Ingredients, components, packaging. What you buy from suppliers.

Work-in-progress (WIP): Items currently being produced. Materials committed to production but not yet finished.

Finished goods: Completed products ready for sale or shipment.

Retail software only handles finished goods. It doesn't understand that your face cream requires shea butter, fragrance oil, preservatives, and jars. It can't track material consumption during production or calculate whether you have enough ingredients to fulfill an order.

Why This Matters for Small Businesses

Using retail inventory software for manufacturing creates constant problems:

You track finished products but not the materials needed to make them. You run out of a key ingredient with no warning. You can't see true product costs because material consumption isn't linked to production. There's no traceability from materials through production to sales.

The right software matches how your business actually works. A retailer and a manufacturer have fundamentally different needs.

Key Features for Retail Businesses

If you buy finished products and resell them, here's what matters:

POS Integration: Your inventory should sync with your point-of-sale system. Every sale automatically updates stock levels.

Barcode Scanning: Speed up receiving, counting, and picking with barcode or QR code scanning. Most systems support mobile scanning via smartphone.

Multi-channel Sync: If you sell on Shopify, Amazon, and in-store, inventory should stay synchronized across all channels.

Reorder Points: Set minimum stock levels that trigger alerts or automatic purchase orders.

Location Tracking: Know what's in the back room versus on the sales floor versus in transit.

Reporting: Track bestsellers, slow movers, inventory value, and turnover rates.

Retail inventory software is widely available and works well for shops. The challenge for manufacturers is different.

Key Features for Small Manufacturers

If you make products, you need different capabilities:

Raw Material Tracking

Track all materials separately from finished goods. Each material has its own quantity, unit of measure, supplier, cost, and reorder point. When materials arrive, they go into raw material inventory, not finished goods.

Recipes and Bills of Materials

Define what goes into each product. A candle might require 200g wax, 20ml fragrance oil, one wick, and one jar. The system uses these recipes to calculate material requirements and production costs.

Production Orders

Create orders that transform materials into products. When you complete production, the system automatically deducts raw materials and adds finished goods to inventory. No manual adjustments needed.

Batch and Lot Tracking

Assign batch numbers to production runs and trace which material lots went into which products. Essential for food, cosmetics, and any business that might need to trace quality issues or manage recalls.

FIFO Management

First-in-first-out tracking ensures older materials get used before newer ones. Critical for anything with expiration dates. Good systems suggest which lots to use during production.

Cost Calculation

Automatic cost tracking that includes material costs, and optionally labor and overhead. Know your true product cost, not just what you paid for finished goods.

Semi-finished Goods

Some products require intermediate steps. You might make a base mixture, then use that base in multiple final products. Manufacturing inventory systems handle these multi-stage processes.

Inventory Software for Small Manufacturers

If you make products, especially in batches (food, cosmetics, chemicals, paints), you need inventory software built for production, not retail.

Krafte is designed specifically for small batch manufacturers. Here's how it handles manufacturing inventory:

Raw materials and finished goods as separate inventories. Track ingredients and components with their own quantities, costs, suppliers, and reorder levels. Finished products are tracked separately with their own SKUs and pricing.

Recipe-based production. Define recipes that specify exactly what materials go into each product. The system calculates material requirements and costs automatically.

Production orders that consume materials. When you create a production order, materials are reserved. When production completes, materials are deducted and finished goods are added. Inventory stays accurate without manual updates.

Batch traceability. Every production batch gets a number. The system records which material lots were used. If a customer reports an issue, you can trace back to the exact production run and ingredients.

FIFO and expiration tracking. The system suggests using oldest materials first. Track expiration dates for both materials and finished products.

Semi-finished goods. Create intermediate products that become components in final products. The system handles multi-stage production.

Low-stock alerts for materials. Get notified when raw materials run low, not just when finished products are gone.

Pricing starts at €7/month for small operations, scaling to €47/month for larger teams. No implementation fees, no consultants. Most manufacturers are running within days, not months.

Inventory System Comparison

For small batch manufacturers, Krafte covers the middle row: materials tracking, recipe-based production, batch traceability, and cost calculation without enterprise complexity.

How to Choose the Right System

Start by understanding your operations. Ask these questions:

Do you make products or resell them? If you manufacture, you need inventory software that understands raw materials, recipes, and production. Retail inventory control software won't work for manufacturers.

How many SKUs do you manage? Simple tools work for dozens of items. Hundreds or thousands of SKUs need robust search, filtering, and organization.

Do you need batch traceability? Food, cosmetics, and pharmaceutical manufacturers often need to trace materials through production for compliance and quality control.

How many locations? Single location is simpler. Multiple warehouses need transfer tracking and location-specific inventory views.

What integrations matter? Accounting software like QuickBooks or Xero? E-commerce platforms? The system should connect to tools you already use.

What's your budget? Enterprise systems cost thousands monthly plus implementation. Small business tools range from free to under $100/month.

Common Mistakes to Avoid

Using retail software for manufacturing. If you make products, tracking only finished goods leaves you blind to material levels and production costs. You need a system built for manufacturing.

Outgrowing spreadsheets too late. By the time spreadsheets become painful, you've already lost time to manual updates and errors. Switch to proper inventory software before the pain becomes acute.

Overbuying enterprise software. Enterprise ERP systems are powerful but expensive and complex. A 10-person cosmetics company doesn't need the same system as a multinational. Match software to your actual scale.

Ignoring implementation time. Some systems take months to set up. Others work in days. Factor setup time into your decision, especially if you're already struggling with inventory management.

Choosing based on features you won't use. A longer feature list isn't better if you won't use most of it. Focus on features that solve your actual problems.

Frequently Asked Questions

What is the best inventory management system for small business?

It depends on your business type. Retailers need POS integration and multichannel sync. Manufacturers need raw material tracking, recipes, and production orders. Krafte handles materials, production, and finished goods in one system for manufacturers.

What should manufacturers look for in inventory software?

Software that tracks raw materials separately from finished goods, supports recipes or bills of materials, and handles production orders. Krafte is built specifically for batch manufacturers in food, cosmetics, chemicals, and similar industries.

How much does inventory software cost for small businesses?

Basic retail tools start free or under $30/month. Mid-range options run $50-150/month. Manufacturing inventory software like Krafte costs €7-47/month. Enterprise systems cost $1,000+ monthly plus implementation fees.

Can I use spreadsheets for inventory management?

Yes, when starting out. Spreadsheets become problematic as you grow: no real-time updates, manual entry errors, no multi-user access, no automatic alerts. Most businesses outgrow spreadsheets between 50-200 SKUs.

What's the difference between inventory software and ERP?

Inventory software focuses on stock tracking. ERP (Enterprise Resource Planning) integrates inventory with accounting, HR, sales, and other business functions. Small businesses usually start with focused inventory tools and consider ERP later if needed.

Do small manufacturers need special inventory software?

Yes. Manufacturing involves raw materials, production processes, and finished goods. Standard inventory software only tracks finished goods. Manufacturing inventory software like Krafte handles the complete flow: materials in, production, and products out.

Tags: Inventory Management, Small Business, Retail