Foundation 11 of 20 · Supply
Inventory Management for Small Business: Par Levels and Reorder Points
Out of What You Need. Buried in What You Do Not.
"How can I be out of one thing and buried in another?" If your storeroom is full and you still run out of the one thing customers need, you do not have a supply problem. You have a counting problem. Here is how inventory management works for a small business, with two numbers for every item.
Last Updated: 10/25/2026 · Written by Dr. Paul Borosky, DBA, MBA
The Short Answer
What Is Inventory Management for a Small Business?
Textbook Definition
Inventory management is the process of ordering, storing, tracking, and controlling a business's stock of materials and goods, using periodic counts, par levels, and reorder points to balance availability against carrying cost.
In Plain English
Inventory management means knowing what you have, how fast you use it, and when to order more. For each item that matters, you set two numbers: the order-now line and the fill-to line. Then someone checks the shelf against them on a schedule.
Why It Matters
Why Do Businesses Run Out and Overstock at the Same Time?
Because they order by sight. Things you can see get reordered. Things hidden behind other things run out. And whatever the friendliest salesperson sells piles up, because there is always a deal and you can never have too much of it. Until you can.
Both mistakes cost money. Running out loses sales and sends you to a competitor to buy at twice the price. Overstock is cash sitting on a shelf, earning nothing. The fix starts with an inventory count, then one rule per item.
Signs you have this problem:
- You order when something "looks low."
- You have run out of a key item in the last month.
- You have a storeroom shelf of something you will not use up this year.
- You buy extra because the supplier offered a deal.
- Nobody can say how many of your top item are on hand right now.
- Items you need are stored behind items you do not.
What It Looks Like
What It Looks Like When the Boxes Are Gone and the Tape Is Not
From the Fabled Forest · Chapter 11
Otto the Octopus runs Eight-Arm Errands, a busy shipping counter. One morning, with seven customers in line holding parcels, his clerk Tobias reached for a box and found the shelf empty. Otto opened the storeroom. It was full to the ceiling with tape.
They closed an hour early and counted everything. Four hundred and seven rolls of tape, at four or five a week: almost two years. Zero boxes. Labels nearly gone. Otto had ordered boxes "when they looked low," and the boxes were kept behind the tape, where nobody could see them.
Doctor Owl gave every item two numbers. Boxes: thirty a day, three days to deliver, plus a cushion. Order at 150, fill to 300. Tobias took the Friday count. When boxes still ran out once between Fridays, Tobias added his own rule: the fast movers get counted every morning. A sign went on the storeroom door: TAPE: DO NOT ORDER.
Otto's story is Chapter 11 of Operations for Small Businesses, Book 3 of Dr. Paul's Fabled Forest Business School Series.
The Fix
How to Set Up Inventory Management in 5 Steps
You can do this with a clipboard. Software helps later, but the numbers come first.
Count everything once.
Every item, every shelf, written down. It takes an afternoon. Close early if you have to. You will find things you forgot you owned.
For each item that matters, find two facts.
How many you use in a typical day or week, and how long a new order takes to arrive.
Set the reorder point.
Daily use times delivery days, plus a cushion for late deliveries. When the shelf reaches that number, someone orders. This is your reorder point.
Set the par level.
How full the shelf should be after an order arrives, usually a week or two of use. When you order, count what is on the shelf and what is already coming, and order enough to reach the par level.
Give one person the count.
Weekly for most items. Daily for the fast movers. Write the count next to the reorder line so anyone can see when it has been crossed.
Dr. Paul's Insight
The most common mistake is counting once and never again. The numbers go stale and everyone drifts back to "looks low." The second mistake is counting fast-moving items too rarely. If you use thirty a day and count once a week, the shelf can cross the line on Monday and nobody sees it until Friday. Match how often you count to how fast it moves.
Sample: An Inventory Card
One line per item that matters. Check the count against the reorder point.
| Item | Use per day | Delivery days | Reorder at | Fill to | Count |
|---|---|---|---|---|---|
| Small boxes | 30 | 3 | 150 | 300 | Daily |
| Large boxes | 10 | 3 | 50 | 100 | Daily |
| Labels (sheets) | 2 | 5 | 20 | 40 | Weekly |
| Packing straw (bales) | 0.5 | 7 | 6 | 10 | Weekly |
| Brown tape (rolls) | 1 | 2 | Do not order | On hand | Weekly |
Sample for illustration. Use your own usage and delivery times.
Watch
Video: How to Set Par Levels and Reorder Points
Inventory Management for Small Business: Par Levels and Reorder Points
Dr. Paul counts a small storeroom and sets two numbers for each item on screen.
From the Book
We Are Out of Boxes
Chapter 11 · Inventory Management
A Warehouse of Tape: An Octopus's Count
"We are out of boxes," said Tobias.
The line behind Doctor Owl made a low unhappy sound. Every creature in it was holding something that needed a box.
"Out?" Otto came forward, all eight arms at once. "We can't be out. We had boxes on Friday. I saw them." He went to the storeroom door and opened it.
What was behind the storeroom door, and what two numbers fixed it? Find out in Chapter 11. Book 3 of Dr. Paul's Fabled Forest Business School Series.
Get the Book on Amazon →FAQ
Inventory Management Questions
What is the difference between a par level and a reorder point?
How do you calculate a reorder point?
How often should a small business count inventory?
How do I avoid overstocking?
Keep Going
Related Foundations
Inventory management connects four foundations along your supply chain. New to a term on this page? Every one is in the operations glossary.
Foundation 10 · Supply Risk and Backup Suppliers
Safety stock and a backup supplier protect the items you cannot run out of.
Foundation 9 · Supplier Management
Predictable suppliers let you set leaner reorder points.
Foundation 12 · Routing and Load Planning
Delivery routes depend on having the stock to deliver.
Foundation 7 · Capacity
More capacity needs enough materials to keep up.
Written by Dr. Paul Borosky, DBA, MBA, business consultant and author who helps owners build businesses that run on systems. Want help taking cash off your shelves without running out? See fractional COO services.
This page is for general educational purposes only. It is not legal, safety, employment, financial, or tax advice. Safety and employment rules differ by place and industry. Dollar figures are illustrations. The Fabled Forest and its characters are fictional. For decisions about your own business, consult a qualified professional.