Retail inventory management is essential to any successful business. When handled properly, it leads to increased profits and customer satisfaction, but if done poorly, it can lead to wasted products and heightened stress. Inventory management is understanding what your customers want and how to provide it while maximizing profits.
While it may look straightforward on paper, inventory management is a constantly changing, often trial-and-error, and sometimes unpredictable process.
What is Retail Inventory Management?
Retail inventory management means meeting customer demands with varying supply. It reduces costs and increases profits while keeping customers satisfied. It also gives you an idea of what to sell and when to sell it to ensure waste is minimized and sales are increased.
Why is Retail Inventory Management Important?
Retail inventory management is the heartbeat of a business. As a retail store, you’re expected to meet customer demands, but you can’t stock excessively to ensure you always have a product available. Inventory management allows you to find the right balance between being well-stocked and wasteful. It provides insights into sales patterns and trends so you can make reliable decisions on future stock.
Minimizes Out-of-Stocks
Keeping products in stock is essential for customer satisfaction and maximizing sales. Without enough goods, you can quickly run out of popular items. Inventory management is helpful in figuring out how much stock is needed to prevent the shelf from going empty while avoiding excess waste.
Decreases Inventory Cost
When you understand how much you have on the shelf, how much is in storage, and how much you need to satisfy demand, you can estimate how many goods to order. This understanding of your stock prevents you from ordering too much, minimizes carrying costs from excessive storage, and lessens the opportunity cost of not having an alternative product.
Reduces Waste
Inventory management helps avoid waste from spoilage and obsolescence. Products with limited shelf lives have to be constantly monitored and tracked. Understanding the shelf life of products and the level of demand for those items helps you plan how much needs to be ordered to curb waste.
Similarly, some products don’t necessarily spoil but can become obsolete as tastes change and technology advances. Knowing how to manage storage and disposal can prevent drastic losses when newer models replace the old ones.
Reduces Shrinkage
Shrinkage is often conflated with waste but differs in the cause of inventory loss. While waste refers to products that didn’t sell, shrinkage refers to the loss of goods due to shoplifting, product damage, administrative errors, and other reasons that prevent a product from being sold.
Shrinkage is often caused by incorrectly reporting inventory. A strong sense of retail inventory management lessens the likelihood of human error, leading to less shrinkage.
Increases Customer Satisfaction
Customers are always happy to see their favorite products in stock and can get irate when they aren’t. Inventory management ensures products in high demand stay in stock. As the seasons change, new products are in higher demand than others, and inventory management reveals sales patterns to help identify which products sell more during which time of the year, ensuring your customers remain satisfied year-round.
How Does Retail Inventory Management Work?
Retail inventory management works by implementing systems to receive products into storage, track product quantity, and register changes when sales occur. Tracking the movement of products gives you a better idea of how much stock is just right. The information from these systems provides a better understanding of product demand and how to maximize profits from those items.
6 Essential Steps for Effective Retail Inventory Management
The retail inventory management process is a revolving analysis of your business’s performance. Here are six essential steps of effective inventory management.
1. Plan Your Approach
Every effective process has a planning phase. During this step, plan what products to order based on market trends, sales forecasts, and customer feedback. Based on these criteria, decide the quantity needed for each product, ensuring you’re not understocked or overstocked.
2. Order Your Products
Once you know the types of products to sell and how many you need, place an order with your supplier. The order should be based on your forecast, current stock, and the time it takes to receive the order. Make sure to keep a record of purchase orders and invoices to keep track of purchases.
3. Receive Your Order
Once the order has arrived, it’s time to verify you’ve received what you’ve purchased. Inspect the quality of the goods and confirm the amount of each product is accurate by matching what you received with your purchase order. Address any inaccuracies and ensure you receive your products or your money’s worth.
4. Store Your Goods
Your storage system depends entirely on what you’re selling. If you’re selling perishable items, they must be kept under the appropriate temperature control. You may be stacking your products or shelving them.
Similar items should be kept together, and heavier items should be at the bottom of stacks. Properly storing your products will maintain their quality and reduce shrinkage from damaged goods.
5. Sell Your Goods
Maximize your sales opportunities through various channels, like offering in-store and online purchasing. Offer multiple delivery options and use point-of-sale tools to allow different payment options. By providing customers with numerous purchasing options, you increase the likelihood of making a sale.
6. Record Your Findings
Gather all the data you have on your inventory movement and analyze it. You can use management software to track your inventory and sales. This automation makes it easier to keep up with your stock and see what can improve. These tools can recognize trends, shrinkage, and inventory levels.
Once you’ve recognized relevant trends and customer demand, repeat the six steps to ensure you remain well-stocked and ready for the next selling period.
Best Practices to Improve Retail Inventory Management
There are several ways to improve retail inventory management. Below are some of the best practices to consider.
1. KPIs
Key performance indicators (KPIs) are set to track performance and see progress toward certain goals. KPIs provide data that help you better understand your inventory performance and areas for improvement. With a greater understanding of your strengths and weaknesses, you can make educated decisions on inventory management.
2. Automation
Automation is an effective way to increase efficiency in inventory management. Instead of having to log your inventory data manually, automation tools and software log the data for you as inventory changes, saving time and reducing human error. With automation, you can get instant insight into inventory movement and trends.
3. EOQ
Economic order quantity is a method that helps you determine the optimal amount of goods to order. Using the formula for EOQ, you can reach the ideal number of units to meet demand while minimizing ordering and holding costs. This technique is helpful in finding the most cost-effective order size but assumes that demand, ordering and holding costs, and the cost of goods are always constant.
4. ABC Analysis
The ABC analysis is a categorization technique where your stock is organized by value. Category A items are the most valuable and require frequent reordering. Category B items are moderately valued and require semi-often reordering. Category C items have the least value, require infrequent reordering, and are usually held in high volume.
5. JIT Inventory Management
With just-in-time (JIT) inventory management, products are ordered and received as you need them. This technique works best with high-value, low-volume goods you don’t want in storage. JIT requires an accurate forecast and a reliable supplier to ensure your products arrive on time and demand is met. If appropriately used, JIT can reduce storage costs, limit waste, and prevent overstocking.
6. Supplier Relations
Building supplier relationships is highly beneficial to business. Strong relationships allow you to negotiate prices and increase reliability and quality assurance. Maintain communication with your suppliers to streamline your orders and build trust with those providing your products.
Frequently Asked Questions
How to Manage Inventory in a Retail Store?
Remember the acronym FIFO, meaning first in, first out. This acronym refers to selling your oldest products first. The first items to go into stock are the first ones to be sold. This ensures that products are sold before they spoil, become obsolete, or lose value in some other way.
Need Help With Excess Inventory in the Bay Area, CA? We Can Help.
Excess inventory can pose issues for your business if not well managed. Effective storage methods can make products simpler to find while ensuring they reach your shelves in the order you want. With subpar storage, you risk sending out newer products first or missing a product altogether.
Consider a professional retail store junk removal service, like Nixxit, to help dispose of old inventory that can no longer be sold or has been in storage for too long. Book online today or confirm your location below and give us a call instead.
