Excel inventory management techniques - 7 basic tips & free template

Inventory management is t2e operational backbone of any business with a product to sell. If you are just starting out with a small number of products without many variants, Microsoft Excel is a good tool for beginners to create an inventory list template.

However, efficient utilization of Excel for online inventory management requires time, and setting up your initial template accurately is crucial. In this post, we give you tips on building and using an Excel spreadsheet for basic inventory management.

Using Excel as a low-cost inventory management solution

If you’re looking for a low-cost way to manage your inventory, Excel could be a good solution. It’s a program that most of us are already familiar with, whether for accounting or spreadsheet forms, and it is an alternative option for applications like inventory management. With integrated tools, features, and formulas to make spreadsheets more dynamic and interactive, Excel is also capable of handling basic inventory management for small businesses. While not ideal for a medium or large sized inventory, Excel is cost-effective or, if you use it in OneDrive, even free.

Like anything that’s free or cheap, Excel isn’t perfect inventory management, but it has plenty of valuable features. While it is easy to make mistakes in Excel (and avoiding them will require time-consuming auditing, proper organization, and strict management), it is fully capable of handling a startup businesses inventory.

Setting up your Excel inventory list template

A basic template for your Excel inventory should include the product number, product name, item description, item price, item cost or value, item stock, quantity to reorder, and, if you want to update sales quantity or value, quantity sold. Time to reorder, whether or not the product has been discontinued, total inventory value, and other functions are also very useful, but the more columns you have, the more difficult it is to keep up with everything.

If you would like to gain a deeper understanding of crucial inventory management techniques and how you can apply them to your business, download our free eBook: Inventory Management: Everything you need to know.

You can then use Excel formulas to automatically calculate information for total sales, total profit, and organize your inventory based on products that sell the most using a few simple formulas. You can modify Microsoft's basic free template (available when you open Excel) to your needs, purchase a template, or create your own.

Formulas can increase the value of your Excel spreadsheet while reducing the headache and stress involved with calculating numbers. While they may seem a little complex at first, don’t worry; most of them are easy to get the hang of.

SUM

The SUM function can be used to add any figures that you put into two or more cells. For example, you can create a running sales quantity using the SUM function to automatically update how much revenue you've earned by doing math based on calculations you put in per line. This removes the need to go over each line with a calculator every night.

This is very useful for creating automatic value totals for the products in your inventory. Keep in mind, though, that if you have 300 lines, you will have to add it to each one. For example, if your products are worth $27 each and your in-stock number is 65, the SUM function would automatically update the 'inventory value' section to $1,755 (65 x $27).

SORT

Sort allows you to order your inventory by number size, or by color, so that you can see products based on sales, profitability, or remaining stock to quickly and easily go through products. Not surprisingly, the sort function will be incorrect if any of your data is entered incorrectly.

If you use a subtraction formula (=B1-B2) when you input how many items you sold, it will automatically deduct that number from your current stock number, which you can then use to sort based on stock, so that you can see which items you have the least of. This also conveniently circumvents issues surrounding not ordering products because you don’t know which ones you need to order.

RANK

Rank allows you to rank items based on sales quantity, inventory quantity, or the number of products you have received. Because it makes the most sense to rank high-sale items that you have to restock on the top, you can use it to organize your inventory based on either specification.

Rank differs from Sort because Sort organizes your data in order when you tell Excel to do so by clicking “Sort”, while rank does so automatically. Interestingly, it doesn’t automatically adjust the order, so your #1 could still be in the middle of the page. Your rank formula should be written like this: =Rank (Cell, Cell:Cell), where the cells mentioned include all of the cells you want to rank.

7 Tips on how to manage your Excel spreadsheet to ensure you are tracking inventory movement accurately

1. Avoid pitfalls and mistakes with Excel inventory

Many professionals avoid using Excel for inventory management for the simple reason that humans are error-prone. Finding errors on sheets of numbers and hard data is also difficult unless you know exactly what you're looking for. The only way to avoid this is to create a best practice of self auditing and daily review to minimize errors.

2. Update immediately

Make sure that anyone handling orders updates the Excel document immediately to prevent issues. Excel is not a real-time inventory management solution, so you will never be able to see the real inventory value at that moment, but it’s important to make sure that it is updated as often as possible to circumvent issues like overselling a product that you cannot backorder.

3. Use the cloud

Traditional offline Excel documents are severely limited because only one person can use the sheet at once. Using Excel in the Cloud (OneDrive) or Google's alternative, ensures that you can invite multiple people to the sheet and edit it at once to improve self-auditing, input data from multiple sources, and speed up processes. It also comes with the added benefit of automatic backups and syncing across all of your devices so that you can edit on an iPad, or on your computer at home.

4. Take the time to consolidate data

Taking the time to consolidate your data monthly allows you to create charts that outline how much you sold in each period. You should do this monthly and quarterly, paying special attention to holidays and occasions.

One of the biggest issues many people have with Excel is not being able to easily analyze your historical data – but taking the time to add your entire month's data into an easy-to-read pivot table will fix this. It is time consuming, but it allows you to track your sales based on period, and during different seasons, for better inventory optimization in the future.

Here’s how to create a pivot table in Excel:

1. Click 'Insert', Choose 'Tables', select 'PivotTable'. (click the arrow below PivotTable to create a chart.Select the table range (I.E. 1A-21G) in the Create Pivot Table dialog box that pops up.Choose the location of the new pivot table (new worksheet or existing one).Click 'OK'.Customize your Pivot Table as needed.
2. Select the table range (I.E. 1A-21G) in the Create Pivot Table dialog box that pops up.Choose the location of the new pivot table (new worksheet or existing one).Click 'OK'.Customize your Pivot Table as needed.
3. Choose the location of the new pivot table (new worksheet or existing one).Click 'OK'.Customize your Pivot Table as needed.
4. Click 'OK'.
5. Customize your Pivot Table as needed.

5. Review your data

Excel can be a valuable tool for tracking inventory, but it is up to you to make sure that you are tracking and calculating everything necessary. For example:

• if you're tracking time to reorder, have you included lead times (time from manufacturer to warehouse or 3PL) in your calculations?
• Are you calculating profits based on sales, or based on your actual per-item profit?
• Are you using your inventory to calculate sales tax immediately?
• Is your total inventory value based on resale or purchase value?

Going over the figures you use in your calculations to ensure that they are correct can save you expensive and time-consuming mistakes in the future.

6. Audit and review

Excel relies on people to input data unless you have a barcode scanner connected to your system, and even then not everything is automated. This will lead to human error, which can throw off your entire supply and demand when you reorder too much or not enough, or under- or overestimate profits.

A policy of keeping track of everything on paper as well as in your Excel document allows you to go over your inventory at the end of each day to correct any mistakes.

7. Know when to upgrade

Excel simply does not work with medium to large inventory volume because hundreds of columns are too complex, time consuming and difficult to keep track of and up-to-date. At some point, you will have to upgrade to a dedicated inventory management system, and you should know when to do so.

Inventory management software like QuickBooks Commerce is well worth the investment if you have a growing inventory of products, frequently move products from location to location (such as from a supplier to 3PL warehouse, to your physical store or to customers) and want to handle large volumes or multiple location tracking in real time. You can consider the number of hours, the headache and stress, and mistakes you save when deciding whether or not to upgrade to an order management system.

QuickBooks Commerce allows you to manage your entire sales, inventory management, accounting, and operational processes from the one dashboard – which equals a virtually guaranteed increase in efficiency. Unlike Excel and other basic inventory tools, QuickBooks Commerce also takes raw data and creates automated intelligence reports that give you easy-to-understand insights into where your business is performing best and where it could be improved.

A dedicated inventory management system helps you with everything from optimizing your inventory for better sales and return on investment to growing your business and expanding to additional sales outlets as your consumer base grows – so your inventory management solution should grow with you.

The more sales you are making, the more your need for effective inventory management increases. Using Excel will allow you to cut costs at first, but eventually, a dedicated inventory management system will be necessary to save time and money in the long run.

If you’ve been using basic inventory list templates in Excel but need something more sophisticated, sign up for a 14-day trial of QuickBooks Commerce at no cost.

Find more tips on using Excel for inventory management.