5 Retail Inventory Management Strategies to Improve Efficiency
Retail inventory management describes how the employees, technology, and processes in a business help keep track of its stock levels. This information is usually taken by hand or electronically using software. Good retail management ensures all vital inventory information is easily accessible and allows a business to run with maximum efficiency as there is a clear view of where the money is going.
When done well, effective inventory management can answer important questions such as-
- What items need to be restocked?
- How much more or less inventory is needed?
- What is the best and worst selling item?
- Is there enough inventory storage?
- Which items should be phased out?
Types of Retail Inventory Costs
There are three categories that different retail inventory expenses can be placed into-
- Shortage costs - These costs appear when a product is out of stock. They can be non-monetary expenses such as drops in customer satisfaction or monetary expenses like expedited shipping.
- Ordering costs - This category involves the costs that come with buying inventory such as shipping, inspection, and vendor expenditures
- Carrying costs - These costs are usually the combined expenses of holding your inventory compared to the actual value of the products that are being held. The ideal inventory value that should be carried is 20-30%, but average rates vary by industry.
Importance of Inventory Management
Inventory management is key to keeping up with the increasing demands of businesses. Here are 4 reasons why inventory management is incredibly important for efficient operations.
1. Increases stock accuracy
Accurate data is an important part of running a business efficiently. If data is incorrect, it can lead to costly or ill-advised business decisions.
It can be difficult to stay up to date with consumer behavior manually, so a way to enhance the accuracy of this data is to find the correct inventory management platform.
2. Provides new insight
Inventory management tools and techniques can make it easier to look into data and gain insight from the figures recorded in reports. These reports can give insight into consumer behavior, inventory, purchasing, marketing, and so on.
3. Encourages automation of time-consuming tasks
Inventory management systems can automate time-consuming tasks related to tracking and managing inventory, such as categorizing products and making reports. This improves efficiency by allowing more time to carry out important tasks, which can help grow the business.
4. Increases profitability
Many reports show that careful inventory management overall can lead to an increase in profits. Inventory management reduces labor costs and creates the ability to study key metrics which gives a clearer holistic view of the business.
5 Ways to Improve Retail Inventory Management
With all of the key information regarding stock management in mind, here are 5 best practices to consider when improving retail inventory management strategies.
1. Invest in inventory management software
Manual inventory management can be time-consuming and leaves space for human-errors like miscounting. Inventory management software automates tracking processes, saves time, and increases overall accuracy. When choosing software, try to look for one that integrates with the retail POS currently used in store so that the inventory count is displayed in real-time.
2. Create stock alerts
Stock alerts can help prevent product shortages. They work by allowing a minimum inventory threshold to be set. This then alerts the staff when products in the inventory approach or are below the minimum, which means they can keep track of inventory and prevent profit loss.
3. Choose suppliers strategically
Vendors are partners, so you need to select them carefully. The relationship plays a big role in the retail inventory management strategy as they control the products. With each supplier, consider the price, quality, reputation, and efficiency of the product. Try to build a strong relationship early to get a clear idea of their efficiency and effectiveness.
4. Use SKU management practices
Many businesses feel pressure to increase the range of products they sell in order to meet the increasing demands of consumers. SKU management can allow you to plan ahead. Instead of carrying a wide range of products at your retail store and risking profit loss, this technique can be used to analyze the cost of carrying an SKU item - showing whether the cost is worth it. This can also highlight which items are not performing well financially, as well as showing which products are best serving the business.
5. Boost your orders or consider drop-shipping
Bulk orders are an effective way to lower purchasing and shipping costs if done strategically. These orders can be planned using data from the analysis of consumer buying patterns. This doesn't have to be done manually, as this information can be found using data analytics tools in your POS system. This tool can give insight into how bulk purchase orders should be created.
Alternatively, dropshipping is a retail fulfillment method that can also reduce shipping costs. Instead of the store holding inventory, products are shipped directly from the manufacturer to the consumer. This works especially well for online stores without physical storefronts.
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