Inventory management plays a vital role in retail operations. It refers to the process and techniques used to follow up, order, store, and sell the movement of goods in and out, to the absolute quantity needed, at specific times and places. Effective implementation is evidenced by reduced costs, stockouts or overstock situations, and customer satisfaction.
The dynamic nature of retail today has posed challenges in inventory management, such as fluctuating demand, disrupted supply chains, and changing customer expectations. This article discusses the best practices for efficiently handling retail inventory management and the related challenges to be sorted out to acquire and maintain a competitive edge in the business.
What is retail inventory management?
Retail inventory management is the process of forecasting necessary levels of inventory to be held for sale or in storage for each type of good across sales channels. It involves software to help determine demand and the value of the goods held in inventory for accounting and auditing purposes. It also involves a variety of best practices used to ensure that merchandise is effective in getting stored and shipped to retail outlets. The overall goal of inventory management is to ensure that retailers have enough goods on hand to satisfy demand and to minimise the expense of holding unsold goods.
Why Is Retail Inventory Management Important?
Effective management of the inventory is vital to retailers since it also ensures that they have just enough product to capture every possible sale, keeps costs minimised, and enables retailers to learn better about their customers and buying patterns. Inventory reflects that retailers cannot overstock goods that eventually expire or become obsolete, such as perishable foods or medicines. It also goes for goods prone to obsolescence, such as fashion and holiday items.
Furthermore, having accurate inventory data across sales channels helps retailers enable faster product delivery to consumers, which offers enhanced consumer satisfaction while relieving stress on the staff. It lowers inventory shrinkage, which is inventory that a retailer should have but does not because of internal theft, wrong recording of inventory at intake, lack of overall inventory counts, goods that are damaged or spoilt upon arrival, misplaced inventory, or other causes. Without good inventory management, retailers cannot return damaged goods to suppliers since they don't know how or in what condition those goods were delivered.
Having a good grip on inventory and sale trends imparts a competitive edge to retailers concerning the management of their supply chains. The British Academy for Training and Development offers the Advanced Supply Chain Management course. In this, you’ll learn how gaining a strong understanding of sales trends can give a competitive advantage in managing supply chains effectively.
Accurately tracking inventory and sales trends helps retailers make more informed purchase decisions. Just-in-time purchasing can cut down carrying costs, while small, larger orders would allow those retailers to estimate economic order quantity – the most efficient order size to minimise the cost of holding inventory.
Best practices for retail inventory management
Here are several retail inventory management best practices you should put in place to ensure the efficiency and accuracy of your stores:
1. Project accurate sales numbers
The amount of stock you have greatly influences how much you plan to sell and how quickly you plan to sell it. Forecasting is hard for startups. Dig up all bits of information out there that could help you sketch an estimated baseline, then tweak your expectations every 90 days based on hard data.
For retailers, having a sales history and growth forecast becomes an avenue to determine how much stock to hold for any item and when to replenish stock. The focus of inventory is particularly on the top-selling products.
2. Appoint a warehouse manager.
In charge of the day-to-day operations of a warehouse, a warehouse manager ensures that all personnel are regularly updating the software systems and observing the company policy. This includes scanning products into and out of the right locations when they arrive, moving products from one place in the warehouse to another, and when they go out for delivery to a customer. The warehouse manager also ensures quality assurance checks and regular inventory audits are performed as planned.
3. Establish regular inventory cycle counts.
While inventory sits in storage, it needs regular tracking of what is on hand. Companies could write off 2% to 10% of their products annually without a periodic cyclic inventory process due to loss or theft. Periodic auditing of inventories is necessary to keep the percentage of vanished goods as low as possible.
4. Implement a real-time tracking system.
Retailers can track inventory manually, but nowadays, it is much better to use retail POS with inventory management software. Such advanced software can greatly assist you in automatically updating your inventory levels in real time by scanning items and locations throughout your storage facility.
Challenges of retail inventory management
The key challenges in inventory management for retail businesses are carrying too much unsaleable inventory, not having enough inventory to meet orders, and failing to manage inventory properly. Other retail inventory management challenges include:
1. Poor real-time stock visibility
When you are not clear of exactly what products you have on hand, operating a store becomes challenging. Opening additional sites makes this much more difficult. Running out of popular products or ordering too much of other goods might happen if you don't have a clear picture of your inventory throughout all outlets. This generates angry consumers and headaches like postponed restocking.
Every location has particular difficulties; some goods sell better in some places; customer demand is always changing. Too much stock in some areas and not enough in others results if you cannot keep track of these variances.
2. Inaccurate demand prediction
Like basic spreadsheets, many stores continue to predict their clients' purchases using conventional methods. Though it might be okay for a tiny shop, it becomes a serious issue as the company expands. These old approaches are unable to properly manage great volumes of data; hence, groups frequently use multiple numbers. Bad choices result from everyone not being on the same page: either you lack enough goods to sell or your warehouse is crammed with unwanted items.
3. Uneven stock levels
Stores experience several issues when they purchase too many goods that consumers are not really keen on. First of all, your warehouses are filled with products you can't sell. Second, their money is locked up in goods lying idle. Most of the time, these products go outdated or expire before being sold. Both possibilities squander room and money.
Lack of goods is just as devastating. Customers are unable to get what they desire when items run out. This becomes particularly disastrous when popular goods sell out during hectic times such as Christmas shopping.
Such bad inventory control at retail stores results in disappointed customers and missed sales. Customers get frustrated with unavailable goods messages, shipment delays, or order cancels. Naturally, they immediately move stores.
4. Operational inefficiencies in the warehouse
Managing orders and inventory is difficult enough for most merchants selling on one platform. Consider the turmoil in tracking stock levels when selling on a Shopify store plus Amazon, eBay, Etsy, and physical stores. Not to say much, studies indicate that inventory opacity, incorrect or absent demand forecasts, and lack of automation prevent multichannel fulfilment in several respects.
43% of merchants claim that their biggest multichannel fulfilment issue is insufficient real-time inventory visibility. Around 49 per cent of the businesses lack complete visibility and inventory across channels. Companies counting inventory manually make 35% more mistakes than those using automated systems.
5. Bottleneck in manual process
Retail companies employ workarounds in inventory management, such as utilising numerous locations to monitor stock by store. This, however, adds to your burden if you must rebuild, synchronise, or refresh inventory for every store.
Not to add, manual inventory tracking using spreadsheets is dependent on incomplete data and cannot enable cross-channel activities. It also denies inventory visibility necessary during peak seasons or special events like flash sales. Although these inventory issues are severe, bear in mind that every obstacle has a solution.