Bicol University

College of Business, Economics and Management

2020

Inventory Management Tools for Local

Micro Businesses

Jeremiah Cordial
Bachelor of Science in Business Administration
Operations Management III
 Inventory Management Tools for Local Micro Businesses
Jeremiah B. Cordial
Bicol University
College of Business, Economics and Management

Abstract
Micro businesses in the Philippines cover sari-sari stores, carinderia, laundry shops,
computer shops, printing shops, street food stalls, and canteens among others. This
research would like to probe possible inventory management tools for these businesses and
understand how reduction of inventory maximizes sales and improves profit. Although
complex inventory system is not necessary for micro businesses, but as they store their
ingredients and products before sale, however, it is possible that inventory management
tools can be integrated to achieve efficiency in the operations and allow them to have a
total control of the movements of goods in and out of their business.
Key terms: inventory management, inventory, stocks, micro businesses

Introduction
Inventory management is a vital operational management tool integrated within a supply
chain. It is essentially used to handle the inventory of a business through a systematic
approach that can help reduce cost for holding one. Bhasin (2019) states that inventory
management is the process of tracking the stock of various products. This may include
finished products manufactured by a company or even the raw material which may be
required for production on finished goods. According to Devasenapathy (2020), any
organization which is into production, trading, sales and service of a product will necessarily
hold inventories to aid in future consumption and sale.
Businesses, whether they produce services or goods, can integrate an inventory system for
storing their tools, equipment, supplies, raw materials, and products. Inventory has different
classifications at different points in the supply chain, and commonly, there are four types
of inventory according to Karachiwala (n.d.). These are raw materials, work-in-process,
maintenance/ repair/ overhaul (MRO), and finished goods. According to Rouse (n.d.), the
flow of goods from manufacturers to warehouses and from these facilities to point of sale
is a key function of inventory management. By keeping a ‘detailed record’ of each new or
returned product as it enters or leaves a warehouse or point of sale, it’s basically a
rudimentary application of inventory management system.
While inventory management is mostly employed in large businesses due to its flexibility in
the movement of goods, it can also benefit other businesses such one as small as micro
business. RA 9178, also known as Barangay Micro Business Enterprises Act of 2002,
defines micro businesses as any business entity that produces, processes or manufactures
products or services, whose total assets are not more than three million pesos. Micro
businesses in the Philippines cover sari-sari stores, carinderia, laundry shops, computer
shops, printing shops, street food stalls, canteens, mini shops, and ukay-ukay among others.
Stevens (2019) laid out in her article about the importance of inventory management that
inventory management tools such as point-of-sale (POS) systems, bookkeeping systems,
accounting systems, and customer relationship management systems, can also be integrated
to aid the business in its day-to-day operations. These tools require application of technical
skills for it to effectively work. Other inventory tools that are very common and may be
employed in the micro business setting include just-in-time inventory management, safety
stock inventory, FIFO/LIFO, batch tracking, perpetual inventory management, demand
forecasting, and bulk shipments. According to Walts (n.d.), inventory management is only
as powerful as the way one uses it, thus knowing these techniques and inventory
management features will help business owners utilize their inventory.
The primary goals of inventory management are to achieve smooth fulfilment of orders,
reduce losses due to theft, wastage, and etc., know when to scale or shrink production of
goods, clear-off the slow-moving goods, and analyze product sales patterns (Bhasin, 2019).
Having a clear understanding of inventory management system can reduce operational and
inventory costs. According to Rajeev (2008), pursuing appropriate IM practice is one of the
ways of acquiring competitiveness among others, by effectively managing and minimizing
inventory investment. Inventory management can therefore be one of the crucial
determinants of competitiveness as well as operational performance of small and medium
enterprises (SMEs) in inventory-intensive manufacturing industries. It also provides better
customer service, and prevent loss from theft, spoilage and returns. In a broader context,
inventory management also provides insights into the financial standing, customer
behaviors and preferences, product and business opportunities, future trends, and more
(“Guide to inventory management,” 2020).
Although complex inventory system is not necessary for micro businesses, but as they store
their ingredients and products before sale, however, it is possible that inventory
management tools can be integrated to achieve efficiency in the operations and allow them
to have a total control of the movements of goods in and out of their business. Moreover,
this research seeks to understand if some of these inventory management tools that are
applicable to micro businesses will help them optimize their sales and improve selling.

Definition of Terms
• Inventory Management - refers to the process of ordering, storing and using a
company's inventory, including management of raw materials, components and
finished products, as well as warehousing and processing such items (Hayes, 2019).
This study focuses on the integration of inventory management and its system and
shall be studied if its tools can be used in micro business setting.
 • Micro Businesses - any business activity or enterprise engaged in industry,
agribusiness and or services, whether single proprietorship, cooperative, partnership
or corporation whose total assets, inclusive of those arising from loans but exclusive
of the land on which the particular business entity’s office, plant and equipment are
situated, must have value of not more than 3 million Pesos (Sec. 3. of R.A. 9501
otherwise known as the Magna Carta for Micro, Small and Medium Enterprises
(MSMEs). The researchers sought if inventory management tools may be applicable
to enterprises belonging to micro business. These businesses include sari-sari stores,
carinderia, laundry shops, computer shops, printing shops, street food stalls, and
canteens, mini-shops, and ukay-ukay among others
• Stocks - refers to products sold that could be in any form to the customer
(“Inventory vs Stock,” n.d.). In the study, these are the products held in the storage
that are utilized by vendors, sellers and/or micro business owners.
• Inventory - refers to the value of sum of the finished products, work-in-progress
products, and raw materials (“Inventory vs Stock,” n.d.). In the study, inventory may
be synonymous with stocks, but it basically refers to the value of those products that
are held in the storage.
• Inventory Management Tools - refers to the tools and techniques that are used
in inventory management system. This study will attempt to determine which simple
inventory management tools may be used by micro businesses to be integrated in
their inventory management.

Materials and Methodology

This study is a qualitative business research and will use survey method to accomplish its
objective, which is to know the applicable inventory management tools that micro
businesses can use in their operations. Opinions and insights from the respondents shall
also be gathered through survey questionnaire to help realize a justifiable conclusion.
A population size of 30 shall be composed of micro business owners, vendors and sellers,
who shall serve as the respondents in this study. The study shall also integrate a non-
probability sampling method, which is convenience sampling, in order to select participants
that are available and willing to respond around Legazpi City. Sampling process will be
carefully done to ensure that there will be no bias in formulating conclusion and its
assessment.
Survey-questionnaires shall be the primary source of data and will serve as research
instrument, and by conducting survey to the respondents, will yield an analyzable data. The
second part inside the questionnaire contains questions that, for certain answers, will refer
to a key inventory management tool. It is basically designed to know if vendors or sellers
have simple familiarity about these tools in their operations.
The procedure will start from conceptualization of the study through its introduction and
methodology. Then, the research will proceed to the gathering of data, where thirty micro
businesses around Legazpi City will be chosen as respondents to the survey. This will be
executed in three days, with a minimum of ten respondents per day, to accommodate other
tasks. The survey (see Appendix A) contains two parts: inventory management and
inventory management tools. Close-ended and multiple-choice questions are laid out in the
questionnaire to determine if micro business owners have basic knowledge in inventory
management excluding conceptual and theoretical comprehension, and if they apply some
of the basic inventory management tools in their daily operations prior to conducting of
survey. Once determined, it will be easy to assess which among the tools are basically
known. The identified tools, thus, will be further developed, if possible, and be integrated
in micro businesses.

Results and Discussion

After a survey conducted within Legazpi City, specifically in Brgy. 3 Em’s Barrio East and
Brgy. 8 Bagumbayan, the researcher found the results which may be able to help in knowing
what inventory management tools are applicable for micro-businesses. The following are
graphical and tabular presentations, including an interpretation, of the results of the survey:
I. Inventory Management
Figure 1
Type of Micro Business
N=30

Type of Micro Business

Carinderia
Sari-sari store
10% 17%
Street food stall
17% Computer Shop
0% Laundry shop
10% 27%
6% Printing shop
13%
Canteen
Others

It is revealed that 27% of the respondents from Brgy. 8 and Brgy. 3, Legazpi City owns
sari-sari store, whereas carinderia and canteen comes second, both having 17%. Sari-sari
stores can be found in almost all corners of the country and they are usually situated within
the house of the owners. Carinederias are smaller than canteens, and although they both
sell dishes, carinderia can be located outside the owner’s house while canteens require a
large space for the customers. Street food stalls are third, having 13% of the respondents.
Laundry shops and other micro businesses classified under “Others” took the fourth rank,
both having 10%. In Brgy. 3 Em’s Barrio, where boarding houses are usually found for
transients studying near Bicol University, laundry shops are one of the key micro-businesses
that can be found in the barangay. Other micro businesses listed in the respondents are
ukay-ukay, mini stores, and fish stand. Computer shops are 6% while printing shops are
zero in survey participation.
Table 1
Respondents with inventory
N=30
Characters Frequency Percentage
Yes 26 87%
No 4 13%
Total 30 100%
Among the respondents, 26 out of 30 micro business owners have inventory for their
ingredients, supplies, equipment and/or products. Meanwhile the remaining 4 doesn’t have
any inventory. This shows that even micro businesses have their own storage, where they
store their goods for future consumption or sale.
Table 2
Respondents who heard about inventory management
N=30
Characters Frequency Percentage
Yes 22 73%
No 8 27%
Total 30 100%
Table 2 shows that the majority of the respondents are aware about inventory management
where they management their inventory by recording the incoming and outgoing products,
recording sales, counting the number of items that are still available, and recording a list of
the supplies that were used. 22 out of 30 are positive that they heard about inventory
management while the remaining are unfamiliar with it.
 Table 3
Usefulness of keeping a record of the inventory
N=30
Characters Frequency Percentage
Yes 30 100%
No 0 0%
Total 30 100%
It is shown that all the respondents think that keeping a record of their inventory or storage
is helpful for their micro business.
Table 4
Respondents who think lessening items in inventory is good
N=30
Characters Frequency Percentage
Yes 23 77%
No 7 23%
Total 30 100%
In Table 4, 77% of the respondents, equivalent to 23 out of 30, think that lessening the
items in the inventory is a good idea. This will help reduce their operational cost and instead
of spending their profit for improving or developing their inventory, less items would help
them focus on selling. The remaining 23% think that it will not be good idea to reduce the
items in their storage.
Table 5
Actions done for perishable goods inside the inventory
N=32
Characters Frequency Percentage
Making sure the products 11 34.38%
will be consumed
immediately within the day.
Storing in the refrigerator 6 18.75%
to extend shelf life.
Using the products for 6 18.75%
personal use when not
consumed within the day.
 Consuming first the first 6 18.75%
item stored, and
consuming last the last
item stored.
Others 3 9.38%
Total 32 100%
Note that in this question, the respondents were given freedom to choose more than 1
answer, which extends the frequency. For non-bias results, the percentage will be taken into
consideration. In this table, there are 34.38% from the respondents who always make sure
that their products will immediately be consumed within the day. Storing the perishable
goods in the refrigerator to extend shelf life, using the products for personal use when not
consumed within the day, and consuming first the first item stored, and consuming last the
last item stored, are tied for 18.75%. Meanwhile, the remaining 9.38% consists of vendors
who said that perishable goods are not applicable in their micro business.
Table 6
Convenience of receipts in transactions
N=30
Characters Frequency Percentage
Yes 18 60%
No 12 40%
Total 30 100%
Table 6 shows that 18 out of 30 respondents feel that receipts are convenient in their
transactions, while the remaining 12 are not convenient. This reflects that although the
process of giving receipts is a bit complex, many micro businesses can still apply the system
in their operations. Among the 60% of the respondents include carinderias, laundry shops
and canteens. Fast-moving and crowded stores such as street food stalls and computer
shops are among those who are not convenient with receipts.
Table 7
Convenience of recording sales
N=30
Characters Frequency Percentage
Yes 26 87%
No 4 13%
Total 30 100%
It is revealed above that 26 out of 30 respondents, equivalent to 87% of the participants,
are convenient with recording their sales. Meanwhile, 4 out of 30, equivalent to 13% of the
participants, are not convenient with it. This shows that the majority of micro businesses
are positive in recording their sales or would at least feel convenient if they start recording
their sales. Majority believe that recording is important because it tracks how much of the
items in the inventory are bought, and it helps them compute how much have they earned
in a day.
Table 8
Situations where micro business owners often record their sales
N=30
Characters Frequency Percentage
Transactions are 24 80%
recorded all the
time in a
notebook
Records when a 6 20%
customer has
debts
Others 0 0%
Total 30 100%
Out of 30 respondents, 24 respondents record their transactions all the time in a notebook.
This helps them track the items sold in a particular day or time, and helps them assess if
they need to replenish their stocks. Meanwhile, 6 respondents say that they only record then
a customer has debts, and none of the respondents have other recommendations.
Figure 2
How products, ingredients, supplies, and etc. are stored
N=30

Refrigerator
0%
Box
36%
42% Cabinet
Cooler
4% Storage Room
13% 5%
Others
From the above graph, 42% of the respondents are using refrigerator for their inventory.
Some of the micro businesses such as carindenria, sari-sari stores, canteen and street food
stalls are using refrigerator for their perishable goods, dishes, ingredients and work-in-
process products. There are 36% of the respondents who use storage room, which are used
mainly by sari-sari stores, laundry shops, and computer shops. Cabinets are also used by
13% of the respondents, which many include laundry shops and sari-sari stores. There are
4% who use cooler for cold products and meat, and 5% who use box for storing raw
materials and other ingredients. Meanwhile, none of them recommended other ways to
store their products.
II. Inventory Management Tools
In this section, answers from each question refer to a particular inventory management tool,
which includes just-in-time inventory management, safety stock, FIFO/LIFO, batch
tracking, perpetual inventory management, bulk shipment and demand forecasting, in that
order.
Table 9
Respondents who order too much and keep many products inside the storage
(Just-in-time inventory management)
N=30
Characters Frequency Percentage
Yes 11 36.7%
No 19 63.3%
Total 30 100%
This table shows that 19 out of 30 respondents, equivalent to 63.3%, do not order too
much and keep products inside their storage. It can be interpreted that just-in-time
inventory management can be applied for micro businesses since micro business owners,
sellers, or vendors are already familiar with it. By storing in their storage the only necessary
products that are marketable within a short period of time, they are saving themselves from
cost of inventory. The remaining 11 respondents do order much products for their storage
probably to lessen the times for grocery.
Table 10
Respondents who order/make extra products as preparation for unexpected sold
out (Safety stock)
N=30
Characters Frequency Percentage
Yes 20 66.7%
 No 10 33.3%
Total 30 100%
This table shows that 20 out of 30 respondents, equivalent to 66.7%, make or order extra
products as preparation for unexpected sold out. This reflects that micro business owners
anticipate if an unexpected soul out might occur, so their supply would usually increase, but
their products available for sale would remain the same. This reflects safety stock, and it
would be safe to assume that it can also be applied to micro business. Securing a number of
items in the inventory for unexpected sold out helps the business so that if they ran out of
available products, they can still suffice the customer demand. Meanwhile, 10 out of 30
respondents do not make necessary safety stocks for their inventory.
Table 11
Respondents who pull out from the storage the first product they stored
(First in, First out)
N=30
Characters Frequency Percentage
Yes 20 66.7%
No 10 33.3%
Total 30 100%
This table shows that 20 out of 30 respondents, equivalent to 66.7%, pull out from the
storage the first product they stored. It can be interpreted that majority of the micro
businesses apply first in, first out (FIFO), where the first item they stored will be taken out
first, and the last item they stored will be taken out last, for that matter. It can also be
assumed that since majority of the respondents own sari-sari stores, carinderia and canteen,
it is necessary for their perishable goods and those products with expiry date will be taken
out first from the storage to avoid spoilage. Having a better understanding about FIFO can
be beneficial for the business. Meanwhile, 10 out of 30 respondents do not pull out from
their storage the first product they stored. This can be interpreted that these businesses do
not sell products applicable for FIFO.
Table 12
Respondents who categorize their products before putting them in the inventory
(Batch tracking)
N=30
Characters Frequency Percentage
Yes 26 86.7%
No 4 13.3%
 Total 30 100%
The table above reveals that 26 out of 30 respondents, equivalent to 86.7%, categorize their
products before putting them in the inventory. This reflects that majority of respondents is
likely to understand better batch tracking, and it can be an applicable tool for micro
businesses. Through categorizing the products, it will be easier for the micro business
owners to find the items in their storage. This is usually applied in sari-sari stores, where,
for instance, soaps are categorized with similar products, and snacks are categorized in a
different compartment. This way, the seller would be able to track where their products are
placed. Meanwhile, the remaining 4 respondents do not categorize their products in their
inventory.
Table 13
Respondents who immediately record and count the items as soon as they arrive
(Perpetual inventory management)
N=30
Characters Frequency Percentage
Yes 29 96.7%
No 1 3.3%
Total 30 100%
Table 13 shows that 29 out of 30 respondents, equivalent to 96.7%, immediately record
and count their newly added items in the inventory as soon as they arrive. It can be
interpreted that majority of the respondents are familiar with the perpetual inventory
management and thus, it can be integrated in micro businesses’ inventory management
system. Perpetual inventory management helps businesses secure a record for accounting
purpose. However, complex system may not necessarily be applied, but the concept of
perpetual inventory management can be used as a tool to improve recording of items as
soon as it arrives or as soon as it leaves the inventory. This will also help ensure mistake-
free record. The remaining 1 respondent do not immediately record and count his items as
soon as they arrive.
Table 14
Respondents who tried selling their products in bulk
(Bulk shipment)
N=30
Characters Frequency Percentage
Yes 14 46.7%
No 16 53.3%
 Total 30 100%
Table 14 shows that 16 out of 30 respondents, equivalent to 53.3%, haven’t tried selling
their products in bulk. It is likely due to the sole purpose of micro business where the
owners sell in relatively small quantities, such as sari-sari store. Although there could be
some instances where vendors, such as those who own street food stalls, are able to sell
their products in large quantities. It can be interpreted that bulk shipment may not be an
applicable inventory management tool for micro businesses. Meanwhile, the remaining 14
respondents, equivalent to 46.7%, have tried selling in bulk. The reason behind the narrow
discrepancy between those who answered yes and those who answered no is uncertain, but
due to many possibilities that vendors can do for their business, some factors may be
present for it to be that close.
Table 15
Respondents who assess their products that are profitable and increase its items in
the supply
(Demand forecasting)
N=30
Characters Frequency Percentage
Yes 20 66.7%
No 10 33.3%
Total 30 100%
Table 15 reveals that 20 out of 30 respondents, equal to 66.7%, assess their products that
are profitable and increase its items in the supply. This shows that majority of the
respondents can forecast the demand through historical records. For instance, if a certain
product from their store is profitable, the next time they will produce, they will make more
of it so that more customers may buy that product again. This technique is used in demand
forecasting tool where sellers assess the profitability of the products and increase it in the
next production suffice the demands of the market. Survey shows that demand forecasting
can be used as an inventory management tool for micro businesses. The remaining 10
respondents, equal to 33.3%, do not asses their products’ profitability and increase the
items.

Conclusion
Some of the local micro businesses in Legazpi City apply the concept of inventory
management without them even knowing. They have familiarity with the basic inventory
management tools and thus, it will be easier to integrate these tools in their inventory.
Although a point-of-sale system, where there is a complex recording method using
technology, barcodes and cash register, is not necessary for micro businesses, there are
other inventory management tools that are most likely applicable for them. This includes
just-in-time inventory management, safety stock, FIFO, batch tracking, perpetual inventory
management, and demand forecasting.
By using the aforementioned inventory management tools in the day-to-day operations of
a micro business, it can help improve their sales by many ways. Customers will be satisfied
if demand is fulfilled, cost for spoilage will be avoided, and products that are not easily sold
can be replaced or removed (Bhasin, 2019). Consequently, reducing their inventory will be
beneficial for their micro business as a whole. For vendors, sellers, and micro business
owners, having a clear understanding on how to manage their inventory can help them
optimize their sales and fittingly be organized in their operations for efficient returns.

Recommendation
The researcher would like to recommend further study about the development of micro
businesses through integrating the concepts of operations management because businesses
usually discard operational tools when in fact, it contributes highly in the financial status of
a company and increase its profitability by competitive advantage. In every field of
management, quality has implications on a company’s reputation. By applying operations
management where quality is seen as an asset rather than an attribute, this will bring
advantage to businesses integrating operational tools in their processes (“Gaining
Competitive Advantage,” 2015).
There are limited sources and literature about inventory management tools for micro
businesses due to lack of study and perspectives regarding it. Micro businesses are prevalent
in the Philippines, thus conducting business research in its many facets will be radical in the
field. It would also be necessary to conduct furtherance in this same study and improve its
methodology. Thirty is relatively small for a number of respondents who will participate in
this business research. This was only done due to time and financial constraint and difficulty
in the survey method. It is highly recommended to expand the population size develop the
best methodology for this study.
This research will be a steppingstone for a fully developed research without budgetary and
time restrictions. Furthermore, the researcher would approvingly be in favor for a potential
experimental study and more quantitative approach in this research, so that we would be
able to analyze how to integrate the inventory management tools in the actual micro
business setting by giving tests to the respondents and apply statistical treatment afterwards.
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definition/inventory-management
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 APPENDIX A

Name (Optional): ______________________________________________________

Type of micro business: Carinderia, Sari-sari store, Street food stall, Computer shop,
Laundry shop, Printing shop, Canteen, Others:

I. INVENTORY MANAGEMENT
1. Do you have an inventory or storage for your ingredients, supplies, equipment, and/or
products?
a. Yes
b. No
2. Have you heard about inventory management? Businesses use inventory management to
manage their inventory by recording the incoming and outgoing products, recording
sales, counting the number of items that are still available, and recording a list of the
supplies that you used.
a. Yes
b. No
3. Do you think it’s helpful if you keep a record for your inventory or storage?
a. Yes
b. No
4. Do you think lessening the items in your inventory will be a good idea?
a. Yes
b. No
5. What do you usually do for perishable goods inside your inventory?
a. I always make sure that they will be consumed immediately within the day.
b. I store them in refrigerator to extend its shelf life.
c. I use them for personal use when I was not able to use them.
d. I consume first the first item I store, and consume last the last item I store
e. Others, please specify:
6. Is it conventional to use receipt in your transactions?
a. Yes
b. No
7. Is it conventional to record your sales?
a. Yes
b. No
8. How often do you record your sales and in what situations does it happen?
a. I record all transactions all the time in a notebook.
b. I only record when a customer has debts.
c. Others, please specify:
9. How do you store your products, ingredients, supplies, and etc.?
a. Refrigerator
 b. Box
c. Cabinet
d. Cooler
e. Storage room
f. Others, please specify:

II. INVENTORY MANAGEMENT TOOLS

1. Do you order too much and keep many products inside the storage?
a. Yes
b. No (JIT)
2. Do you order or make extra products as preparation for unexpected sold out?
a. Yes (Safety stock)
b. No
3. Do you pull out from the storage the first product that you store?
a. Yes (FIFO)
b. No
4. Do you categorize your products before putting them in the inventory?
a. Yes (Batch Tracking)
b. No
5. Do you immediately record and count the items as soon as it arrives?
a. Yes (Perpetual IM)
b. No
6. Have you tried selling your products in bulk?
a. Yes (Bulk shipment)
b. No
7. Do you assess the products that are profitable and increase its items in the supply?
a. Yes (Demand Forecasting)
b. No