How to Manage Inventory in a Retail Store

How to Manage Inventory in a Retail Store

An organized inventory is the key to running smooth operations at your retail store. Through proper retail inventory management, you can identify sale patterns, forecast product sales, stock the appropriate amount of merchandise, lower expenditures, and increase your profits.

Practicing inventory management techniques is imperative for your retail store to generate adequate profits. Simply put, through inventory management, a strategic plan can be devised to increase efficiency by decreasing costs. You can take a look at how much stock you have and evaluate how much more you will need to meet customer demand. This way you don’t run out of merchandise leaving customers disappointed or you won’t have excess left-over stock which will spoil or become obsolete.

Moreover, keeping just the right amount of stock on hand will minimize shipping and storage costs, further decreasing your expenditures. Precise inventory data will also facilitate multi-channel performance and ultimately quick customer order fulfillment.


Guide to Retail Inventory Management

Successfully practicing the steps involved in retail inventory management leads to maximizing profit margins and an overall seamless flow of operations. It consists of logging products in the system, checking stock quantity, tracking their location, monitoring sales, and examining expiration dates. Following is the summarization of the steps involved in retail inventory management:

  1.   Centralized Product Record

Make a record of all products your store carries along with their details and images. Whenever you introduce a new product, change vendor, or cost, update your records. Product details should include:

  •     Name of the product
  •     Product brand
  •     Retail price
  •     Wholesale price
  •     Product size
  •     Batch number
  •     Stock location
  •     SKU (stock-keeping unit)
  •     Expiration
  •     Vendor details and SKU
  •     Quantity ordered
  •     Current inventory quantity
  •     Reorder point
  •     EOQ (economic order quantity)
  1.   Stock Location

For single-store businesses, locating stock or evaluating product quantity is relatively simpler. However, in chain stores with multiple locations, and multichannel/omnichannel sellers, items can get misplaced easily. Identifying product locations through labels, radio frequency identification (RFID) tags, and bar codes can help you better map your inventory and prevent the misplacing of items.

  1.   Stock Count

Period stock counts reduce the chance of errors and keep you updated on when to reorder new products. Employing an inventory management system makes this step easier by allowing you to cross-reference with accurate data. While carrying out stock counts, don’t forget to include damaged or defective products, returns, and shrinkage.

  1.   Integrating Sales Data with Inventory Data

Integrating sales data with inventory data can be achieved through automation. This will help you understand better which products turnover faster and which are slower. This information can then be used to determine how much should be reordered and when discounts or promotions should be offered.

Seasons, trends, and several other factors contribute to the sale of a product. Offering markdowns and promotions can strategically get rid of slow sellers and make room for more profitable items.

  1.   Purchasing Process

Periodically reviewing data and placing reorders accordingly will prevent stock outages and keep you on track with seasonal trends. To avoid the hassle and the possibility of errors while using a manual system, switch to automation. An automated system will give you updates about stock levels and notify you when a stock drops to a low percentage.

  1.   Stock Receiving Process

This requires verifying in transit orders and logging products into the inventory management system. The absence of a functional stock receiving process can lead to unexpected stock outages due to supplier errors or stock damage, excess payment to vendors, and possibly dead stock.

  1.   Return Process

An inventory management system optimizes the procedure for customer returns. Asses the returned item for damage or defects. If any are detected, send it back to the vendor for repair, a write-off, or return. If the item does not have any damage, it can be added back to the inventory and can be put up for sale.

  1.   Dead Stock Process

Dead stock consists of unsold products from last season, damaged items, and incorrect deliveries. Make a record of all dead stock in your inventory, remove them, and store them in a designated place. From there the items can either be sent back to the vendor for credit as per their policy, recycled, disposed of, or donated.

Retail Inventory Management Methods

  • Economic Order Quantity (EOQ)- By applying the data obtained by tracking your inventory into the EOQ formula, you can determine the size of your order according to your needs, the demand, ordering costs, and storage availability.
  • Reorder Point (ROP)- Reorder point is used as an indicator to replenish product stock. It can be calculated through sales data and the lead time for the arrival of new products from sellers.
  • JIT- Just in time (JIT)- is an inventory ordering method in which new inventory is received by the retailers when the old stock runs out rather than ahead of time. This minimizes storage costs and unsold stock.
  • First In, First Out (FIFO)- FIFO follows the concept of selling the oldest products first. The items closest to their expiry date, or the oldest items are sold before they spoil and are unusable, or they become obsolete.
  • Last In, First OUT (LIFO)- LIFO is the opposite of FIFO. It follows the concept of selling the most recently acquired products first.

ABC- Activity Based Costing (ABC) is a classification based upon the consumption value of the products. This information can be used by retailers to devise a purchasing strategy.

  1. Category A represents 20% of the inventory that generates 80% of the profits.
  2. Category B denotes 30% of the inventory that generates 15-25% of the profits.
  3. Category C represents 50% of the inventory that generates 5% of the profits.

POS Software System and Retail Inventory Management

Incorporating a POS software system with your retail inventory management provides you with data that you can use to improve your business. The information obtained through a POS system can help you make more accurate sales forecasts. You can determine which products are slower sellers and which products have a fast turnover. It also maximizes customer satisfaction by finding the location of the desired product and shipping it to the customer.

Measure the successful completion of your targets through selected key performance indicators (KPIs). Gross net and profit, inventory turnover rate, and sell-through rate are some of the primary KPIs for retail stores.


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