Stock management
Learn what stock management is, the main methods and KPIs, and how to set up a system for your business.
Published Wednesday 30 September 2026
Table of contents
Key takeaways
- Stock management is how you order and track the products you sell, so you hold enough to meet demand without tying up too much cash
- Methods such as FIFO and FEFO help you cut waste and keep popular items on the shelf
- In Indonesia, PSAK 202 allows FIFO or weighted average cost for valuing stock, and LIFO isn’t permitted
- Regular cycle counts, a full stock opname and software linked to your accounts keep your stock records accurate
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Stock management is the process of ordering, storing, tracking and controlling the goods your business sells or uses. It tells you what you have on hand, when to reorder and how much to buy.
Picture a small shop in Bandung selling phone cases. With stock management, you know how many blue cases are in the back room before a customer asks. You make the sale on the spot.
Good habits around keeping track of inventory show you what’s arriving and what’s selling at any moment. With that view, you can buy with confidence and keep more cash free for the rest of your business.
Why stock management matters for small businesses
The rupiah you put into stock stays locked up until it sells, which matters for any UMKM (micro, small and medium enterprise). Until then, that cash can’t fund wages or marketing. Stock management helps you hold the right amount: enough to meet demand, with little left over.
Too much stock raises storage costs and the risk of products expiring before they sell. Too little means missed sales and customers who shop elsewhere.
Planning ahead saves you time, because you spend fewer hours chasing rush orders from suppliers. That frees you up to focus on growing the business.
Accurate stock data also makes your financial reporting more reliable. When your records match your shelves, your balance sheet reflects reality and your cash flow is easier to plan.
Types of stock
Most businesses hold more than one kind of stock, and each kind needs slightly different care. These are the four main types to track:
- Raw materials: the ingredients or parts you buy to make products, such as flour and eggs for a bakery
- Work in progress (WIP): items partway through production that aren’t ready to sell yet
- Finished goods: completed products your customers can buy right now
- Consumables: supplies you use to run the business but don’t sell, such as packaging or cleaning products
Stock management methods
The right method depends on what you sell and how long it lasts. Many businesses combine two or more methods across different product groups.
Just-in-time (JIT)
Just-in-time means ordering stock only when you need it for production or sale. It keeps storage costs low, but it relies on dependable suppliers and good demand forecasts, because a late delivery can leave you short.
First in, first out (FIFO)
FIFO means you sell or use your oldest stock first. It keeps products moving so nothing sits on the shelf long enough to spoil or go out of fashion.
First expired, first out (FEFO)
FEFO means you pick the stock with the earliest expiry date first, even if it arrived later. It suits food and medicines, where the expiry date matters more than the delivery date.
Last in, first out (LIFO)
LIFO means you pick your newest stock first. As a physical picking approach, it can suit goods that don’t age, such as bricks stacked in a yard with the newest load on top.
Valuing stock in your accounts works differently. In Indonesia, inventory accounting follows PSAK 202 Persediaan, which was renumbered from PSAK 14 and took effect on 1 January 2024.
PSAK 202 allows the FIFO or weighted average cost formula and doesn’t permit LIFO, as this AU Partners update explains. Check with your accountant to confirm which cost formula suits your business.
ABC analysis
ABC analysis sorts your stock into groups by value. A items bring in the most revenue, B items sit in the middle and C items are low-value lines you hold in bulk. You can then focus your attention on the A group.
Safety stock
Safety stock is extra stock you keep as a buffer against sudden demand or late deliveries. It’s most useful when supplier lead times are hard to predict, such as during busy periods like Ramadan and Lebaran.
Economic order quantity (EOQ)
EOQ is a formula that works out the order size that keeps your combined ordering and holding costs lowest. It works best when demand is steady, and it helps you avoid both overbuying and placing lots of small orders.
Minimum stock level
A minimum stock level is the lowest quantity of a product you’re willing to hold before you reorder. When stock drops below that point, you order a set amount, which makes it a simple option for smaller product ranges.
Periodic vs perpetual inventory
Periodic inventory means counting stock at set intervals, such as each month. Perpetual inventory updates stock levels every time you make a sale or receive a delivery, giving you a live view that usually needs software.
Stock management KPIs to track
Key performance indicators (KPIs) show whether your stock management is working and where to improve. Track these five to start:
- Inventory accuracy rate: how often your records match what’s physically on the shelf, found by dividing matching item counts by total items counted
- Stock turnover: how many times you sell and replace your stock in a period, calculated as cost of goods sold divided by average stock value
- Days inventory outstanding (DIO): the average number of days stock sits before it sells
- Carrying cost: what you spend to hold stock, including storage, insurance, spoilage and the cash tied up in it
- Stockout rate: how often customers order an item you’ve run out of, measured as stockout orders divided by total orders
How to set up a stock management system
You can set up a working system in seven steps, even if you’re starting from scratch. For more detail on each stage, see this guide to building an inventory management system.
1. Audit your current stock
Start with a full stock opname, the Indonesian term for a physical stocktake of everything you hold. Record how many of each item you hold and where it’s kept, which gives you a starting baseline.
2. Organise and categorise your products
Group your stock by product type or supplier. Give each item a unique stock keeping unit (SKU) code so you can track it and run reports easily.
3. Choose your stock management method
Pick the method that fits each product group. A café might use FEFO for dairy, while a retailer with hundreds of lines might use ABC analysis to prioritise counts.
4. Set reorder points and quantities
Decide the stock level that triggers a new order for each product and how much you’ll buy each time. Factor in supplier lead times and seasonal peaks, such as the run-up to Lebaran.
5. Pick the right software
Choose tools that connect your stock data to your financial records. You can track inventory in Xero alongside your cloud accounting software, so sales and purchases update stock levels automatically.
6. Train your team and set clear processes
Show everyone who handles stock how to record stock movements and report any differences. Write your processes down so they stay consistent as your team changes.
7. Review and adjust regularly
Run cycle counts, where you count a small section of stock on a rolling schedule, to catch errors early. Pair them with a full stock opname at year end, then adjust reorder points as demand changes.
Stock management software
Spreadsheets are a fine starting point, but they rely on manual entry and only show what someone last typed in. Dedicated inventory management software updates stock in real time and links it to your accounts.
It’s time to move from spreadsheets when you sell across several channels or locations, or when more than one person updates stock. Another sign is spending hours each week matching your sheet to your shelves.
Scanning speeds up every count and delivery. Barcode scanners or phone cameras update stock the moment you scan. Radio frequency identification (RFID) tags let you read many items at once without lining each one up.
As your business grows, you’ll see four main types of tools. Here’s how they differ:
- Spreadsheet: a manual record that suits a small range of products and a single person updating it
- Inventory app: software that tracks stock across locations and channels and connects to your accounting software, which often suits UMKM
- Warehouse management system (WMS): software that runs warehouse tasks such as picking, packing, storage locations and shipping
- Enterprise resource planning (ERP) software: one large system that covers stock, purchasing, production and finance for complex operations
Many small businesses start with an inventory app connected to their accounts. You can compare inventory apps in the Xero App Store to find one that fits how you sell.
Common stock management mistakes to avoid
A few everyday habits can quietly eat into your profit. Watch out for these common slip-ups:
- Skipping regular counts, so errors from theft or data entry build up unnoticed
- Overstocking just in case, which ties up cash and raises the chance of products expiring
- Letting slow-moving stock sit when discounts or bundles could free up shelf space
- Running disconnected systems, so your stock figures and accounting records drift apart
- Ordering on gut feel instead of using past sales data to forecast demand
- Leaving staff untrained, which leads to inconsistent records
Simplify your stock management with Xero
When your stock data and your accounts sit in one place, you spend less time on admin and more time on sales. Xero lets you track inventory and connect specialist inventory apps, giving you a clear view of your products and finances.
Choose a plan today and get one month free to see how much admin time connected stock and accounting data can save you.
FAQs on stock management
Here are answers to common questions about stock management.
What’s the difference between inventory control and inventory management?
Inventory control is the day-to-day execution, such as recording stock movements and counts. It’s part of inventory management, the wider planning discipline that also covers forecasting and purchasing.
What’s the difference between stock management and inventory management?
The terms are often used interchangeably. Some businesses use “stock” for finished goods ready to sell and “inventory” for everything they hold, including raw materials and work in progress.
What’s the difference between safety stock and a reorder point?
Safety stock is the buffer you hold for surprises, while a reorder point is the stock level that triggers a new order. Your reorder point usually covers expected sales during the supplier’s lead time plus your safety stock.
How do you manage stock for an online store and a physical shop?
Use one central stock system that syncs across all your sales channels. A sale on your website or a marketplace then updates the count for your shop straight away, so you only sell what you have.
Related terms
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Disclaimer
This glossary is for small business owners. The definitions are written with their requirements in mind. More detailed definitions can be found in accounting textbooks or from an accounting professional. Xero does not provide accounting, tax, business or legal advice.