4 Top Inventory Management Techniques and Best Practices
Do you know how to manage your inventory as effectively as possible? Do you have enough stock on hand? What are the inventory management best practices?
If you can’t answer these questions, it’s time to reconsider how you manage your inventory. Inventory management best practices enable you to run your business most effectively and profitably. When your product isn’t moving out the door, you are losing money. Are you aware of the inventory best practices you should be using to manage your inventory? By following inventory management best practices, you will run and manage your inventory effectively and efficiently.
Here are 4 inventory management best practices that will help you optimize your retail processes
1. Use the data : Your data will tell you everything you need to know about your inventory, so use it to make informed buying decisions that will make you more money!
- Track your inventory –Your data gives you information about how your products are doing and will help you make informed buying decisions. Tracking your inventory will provide you with the data necessary for these insights.
- Use and analyze the past seasonal orders to determine how to price products- By using the data, look at previous seasons to guide your pricing decisions. Knowing how your merchandise has performed in previous seasons will help you buy and price more appropriately for the current season.
- Check data and reports regularly – Consistently checking data will give you a good idea of how your inventory is performing overall. The more often you access these data, the quicker you’ll see red flags that need your immediate attention.
- Plan before buying your inventory- Use your data to determine what you should order. Instead of simply repeating the same quantities, look at which products were the best and worst sellers and order accordingly.
- Focus on demand forecasting- Study historical sales trends to forecast future patterns for inventory management. Use and analyze previous seasonal orders to determine how to price products. Knowing how your merchandise has performed in the past years will help you accurately buy and price for the current season. This data will help you make informed buying decisions that will help you increase your profits.
2. In-store practices : Be aware of what you should be doing with your in-store inventory to maximize your profits.
- Keep as much inventory on the sales floor as possible – If the product is in your store, it should be for sale. When you don’t sell products, you lose money. The stock room should only serve as a pit stop between the supplier and the storefront and the supplement products already being displayed in the showroom.
- Count physical inventory regularly – This will help mitigate the effects of missing inventory resulting from theft. Knowing exactly what products you have on hand will benefit you and make your customers happy. Counting inventory in manageable segments can make things easier for you. Focus your attention entirely on inventory counts to avoid errors and ensure accuracy.
- Buy from yourself first – If you own more than one store, see if you have that product in another store before repurchasing it from the supplier. It is beneficial to exhaust your resources first, so you don’t end up with the excess products in one store that you eventually have to markdown.
- Account for items you can’t sell – If you cannot sell an item due to damage, make sure it is classified as non-sellable. These items need to be replaced and either returned to the vendor or donated. It is essential to keep non-sellable products separated from your regular inventory.
- Liquidate non-moving items to make room for profitable products – If a product isn’t selling, it’s always better to move it off the floor and replace it with a profitable item. Offering discounts and promotions are effective methods for moving stagnant inventory through the purchase cycle.
- Utilize drop shipments to avoid excess inventory on hand – Drop-shipping products allow you transfer customer orders directly to the manufacturer. This will enable you to keep your backroom open while still making a sale.
- Track by batch and expiry date – allow you to see where each inventory “collection” has come from, where it’s going, how many are left, and when it will expire.
- Follow FIFO or LIFO – If you sell perishable items, you use the First-in, first-out (FIFO) approach. For non-perishable goods, you follow Last-in, first-out (LIFO) method, and sometimes you follow the mixed approach.
- Decouple inventory for additional safety- Decoupling inventory, also known as decoupling stock, refers to products that are put aside in case of a hitch or stoppage in production. This is also known as safety stock.
3. Monitor important metrics : Keep track of inventory costs, turn rate, and sell-through rates to know how your inventory performs and make appropriate changes.
- Maximize inventory turnover- Increase turn rate to move product gradually through the purchasing cycle. By tracking your inventory turn rate, you can gain insight into which products are most popular or doing poorly. The pace at which merchandise is sold within a given time frame is known as inventory turn rate. The greater your turn rate, the more profitable you will be; thus, frequent monitoring is essential. Inventory Turnover Ratio = Cost of Goods Sold / Average Inventory
- Know your inventory costs- knowing how your inventory costs are divided can help you to understand better where your money is going. Inventory expenses are usually allocated for ordering, holding, carrying, shortage and spoilage costs.
- Know total costs- Manage your inventory based on profit margins to know which products are the most profitable. To find the margin, subtract the cost from the selling cost of an item. Note that the same items might have different profit margins depending on if they were discounted by the supplier or in your store.
- Calculate sell-through rate- You should keep an eye on your sell-through rate to ensure you are not running out of stock. Knowing this number will enable you to make timely changes to your orders so that you never run out of stock. You may also calculate weeks of supply to determine how much inventory you’ll have leftover at your current rate. Sell through rate = (Number of Units Sold / Number of Units Received) x 100
- Learn your ABCs – ABC analysis is a technique for organizing your inventory into a hierarchy of most important to least important items. A-items are the best-selling, highest priority stock that requires regular reordering and constant quality review. B-items are valuable, medium-priority stock that usually requires monthly reordering. C-items are low-priority stocks that are typically carried in high volumes with minimal reordering.
Organizing your stock within your stores according to how they sell and how much value they bring to your business will help you optimize storage space and streamline order fulfillment.
4. Invest in Inventory Management Software : Stop using Excel and spreadsheets to manage your inventory that are time-consuming and don’t always reflect accurate inventory levels. You should invest in software that helps you figure out how much stock is on hand and when to reorder. Inventory management software can automatically calculate this for you based on the buying trends of your customers. This helps you accomplish all of this in a fraction of the amount of time it would take to do it all by hand.
- Use technology that integrates well – When investing in technology, make sure that it’s fully integrated and customized based on your needs. you monitor and manage your inventory by:
- Seamless inter-store or inter-company inventory movement completely integrated into accounting.
- Giving you efficient inventory management features
- Real-time inventory status across all channels
- Effective and efficient cost and price management
- Centralized inventory management and Inter-store transfer optimization.
ChainDrive’s real-time inventory monitoring tracks the location and status of your merchandise at all times throughout the product lifecycle by simultaneously monitoring purchases, receipts, allocations, sales, transfers, in-transit, on-hands, and related activity regardless of location.
By managing your inventory and using these inventory management best practices, your retail business will be more profitable, and you can see more return on your investment. If you’re looking for a robust inventory management solution to upgrade and optimize your inventory processes, you request a free demo from our software experts.