Retail business owners and employees around the world are hustling to move inventory out of storage to make a profit, but the most successful businesses have one practice in common: they have determined how to manage inventory effectively. While each business has their own unique goals and needs, every owner or manager needs to implement practices to create a strong retail stock management system that allows for an organized and transparent vision of the inventory available and the product needs. If you are looking to improve your business so that it is functioning efficiently and productively, you need to establish a clear understanding of the best practices for retail stock management.
What is Retail Stock Management?
Retail stock management can make or break the productivity, efficiency, and overall success of a business. The stock that is being held in storage is representative of spent money that needs to be earned back through sales, and the proper management of this inventory will ensure a more successful cash flow to the business.
Retail stock management involves the procedures and guidelines put in place in order to monitor the inventory of stock. Values that need to be recorded include:
- Size and dimension.
- The amount of stock.
- The location of stock in a warehouse or storage space.
- How much of a certain item needs to be reordered.
- How a certain item is performing.
- If a stock is being reordered too quickly or not quick enough.
While the processes of recording and management will differ based on different business needs, it is important for every business to look at their model and decide how to manage the inventory effectively to best serve the goals and functions of a company.
Why Do You Need Effective Retail Inventory Management?
A well-developed retail inventory management system is necessary for a business to run as smoothly as possible and at its highest potential. By using effective procedures for your business, you will be fully aware of what is in stock, where it is, what products generate the most revenue, and what needs to be restocked (as well as what doesn’t).
A retail inventory management system that is disorganized and mismanaged will only create more trouble for your business. A wealth of issues can arise, some of them being:
- Shortage of popular stock. By not being fully aware of what you are carrying in stock, you could end up losing out on opportunities to sell items that would generate a lot of revenue, or may even need to cancel orders that can’t be fulfilled due to a miscalculation of available inventory. In both these instances, you’ll end up weakening the trust established with your customers, and could lose out on potential sales.
- Repurchasing unnecessary stock. On the same note as above, if you are unaware of what items you actually have in stock, you may end up repurchasing stock that doesn’t need to be replenished. You may end up with a backlog of inventory that you aren’t able to sell, especially if the items are seasonal or fit in with a trend that will eventually go out of style. By carrying an excess of a certain stock, you are simply wasting money by paying employees to sort and stock items that won’t move back out of storage, investing in products that you won’t get a return on, and taking up valuable storage space that could be delegated to more popular products.
- Stolen inventory. When stock is mismanaged, it makes it easier for employees (or anyone who has access to the storage space) to steal something from the inventory—and with a lack of organization, it will likely go unnoticed.
How Do You Manage Retail Stock Effectively?
Now that you have an understanding of why a strong retail management system is necessary, you can begin to look into how to manage inventory effectively. As mentioned, the specific procedures will differ from business to business, but these tips will guide you to develop a system that will help your business function at its highest potential.
- Audit Your Inventory
You will want to regularly audit your inventory to make sure your numbers match with the reports received from the warehouse and any management software you use. Doing a physical audit about two times a year will help you ensure everything is as it should be, and will inform you on any adjustments you need to make to your budget or stock.
In addition to doing a scheduled physical inventory of your entire stock all at once, you may want to implement a spot checking practice. This involves doing a physical inventory on a smaller segment of your stock, and will help you keep an eye on it throughout the year in a far less tedious manner than doing constant full physical audits. Spot checks typically aren’t done on a schedule, and involve auditing a portion of the inventory that makes the most sense for the business. You may choose to do a spot check on one of your most popular products, or on items that are causing issues in the business. Just like with a full physical audit, this is done to see if your numbers are being accurately reported. Do spot checks throughout the year to supplement your full physical audit to help identify and act on any issues in your retail stock.
A different method of auditing that combines these two methods is cycle counting. In cycle counting, rather than doing a full inventory once or twice a year, a rotating schedule is created to audit the inventory throughout the year. Depending on the size of the business and stock, every day, week, or month is dedicated to a certain segment of the products carried. That stock is audited, and then compared to the reports. Typically, the products that are of higher value will be counted more frequently in a year than the less valuable products.
- Use the FIFO Method
The FIFO (first in, first out) method stipulates that products should be sold chronologically, in the order that it was purchased. Naturally, this makes sense with perishable goods like food or plants, as they will need to be sold before they are no longer usable. However, this method should also be applied to non-perishables. Items that are just sitting in your warehouse may go out of style, or the packaging or design may change in the time that it is stored, making it become dated to the point where it might not be usable. As items sit there, they also can get worn out, and are at a greater risk of getting damaged.
In order to implement the FIFO method, you need to look at how to manage your retail inventory stock in the physical sense—specifically, how it is being stored. As new items are being delivered to the storage space, stock them in the back, so that the older products are beings stored up front. This will help you literally keep these items in your sight so that you know what needs to be sold next.
- Set Par Levels
Par levels refer to the minimum amount of a certain item that needs to be available in storage at all times. By setting these levels for each of your products, you can ensure that you won’t run into issues of not being able to fulfill certain orders. When a certain product goes below its par level, that will be your signal that you need to replenish your stock.
Each business will need to make their own decisions about what par levels are appropriate. These numbers need to be decided based on how popular an item is and how quickly it moves out of the storage space. It is also important to keep in mind how long it takes a certain product to be ordered and replenished. If a certain item takes a longer time to order and get shipped to you, you may want to set the par level a bit higher to make up for that time and avoid running the risk of dipping dangerously low with your inventory count.
Keep in mind that par levels shouldn’t be set in stone. You may find that you need to make adjustments based on the changing trends in your industry, such as a certain item becoming less trendy, or another becoming higher in demand based on the season. Continue to assess your par levels, and make adjustments as you see fit.
- Plan with the Future in Mind
While you can’t predict the future, your experience in your industry should help you make appropriate decisions for your business in terms of future plans. Take into account certain variables when it comes to replenishing and adding to your inventory, and make decisions based on this information. Look into sales from this time the year before, current trends in the market, how the business has grown this year, the overall economy and consumer spending patterns, and more. Making decisions based on research and history is one of the best practices when it comes to deciding how to manage inventory effectively.