To ensure your efforts are setting your retail business up for success, keep these retail inventory management best practices on your radar.
1. Establish KPIs
Key Performance Indicators (KPIs) are designed to measure performance over specified time periods so that you can achieve certain goals. If you establish inventory KPIs, you will have a clear idea of what milestones you want to achieve on a weekly, monthly, quarterly, or yearly basis. KPIs will also give you the data you need to make smart business decisions. Some examples of KPIs you can set include inventory carrying costs, inventory turnover rate, order status, tracking, and fill rate.
2. Use ABC analysis
ABC analysis is a method in which you organize your inventory in order from most important items to least important items. While A items are considered the highest priority inventory and require frequent replenishment, B items are valuable but medium priority and ordered once a month. C items are low stock priority items that do not need to be ordered very often as they are usually transported in large volumes. By using ABC analysis to organize your inventory, you can optimize your storage space and streamline fulfillment.
3. Create a strategy to record stock entries
The reality is that suppliers make mistakes. Unless you have a proven process for checking and recording received products and detecting errors and damages, you will encounter problems, such as unrecorded inventory, unexpected stock-outs, and payments for items you you have never ordered. To ensure the accuracy of your inventory receipts, count products against purchase orders, follow up with suppliers for any errors, shortages, or damages, fully unpack entire shipments, and update inventory counts in your inventory management system.
4. Invest in an inventory management system
Although you can manage your inventory manually, it is cumbersome, time-consuming, and risky. If you use a single inventory management software or high-quality point-of-sale (POS) system, you’ll be able to automate many of your processes, understand how your inventory is changing, and expand it to more. ‘other brick-and-mortar locations or on the Internet easily. This can lead to fewer errors, improved efficiency and increased productivity.
5. Build strong supplier relationships
Your suppliers are some of your greatest assets. After all, without them it would be difficult for you to produce or sell products and earn money. That’s why it’s a good idea to update them on what happens with their items after they leave their hands. By building strong relationships with them, you may be able to secure discounts, reduce the risk of delays and quality issues, and simplify your inventory management. Don’t be afraid to abandon underperforming or problematic vendors and find new ones.
6. Calculate minimum stock thresholds
The minimum stock threshold refers to the minimum amount of inventory you need in your warehouse at any given time. If you determine this figure, you will have enough stock to handle an unexpected influx of sales. You’ll meet demand and reduce the risk of long lead times, which can damage your reputation. To calculate your minimum stock threshold limits, use this formula:
(Average daily product sales ÷ number of working days in the month) x average product delivery time
7. Manage Residual Inventory
Residual inventory is the inventory left over at the end of a season. If you sell clothes, for example, you might have shorts left over after summer is over. To manage and reduce this type of inventory, you can create season codes with style numbers when entering items into your inventory management system. This can make it easier to analyze seasonal sales and inventory so you can better prepare for future seasons.
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As a retailer, you know your inventory is the lifeline of your business. By following these best practices and ensuring you always have the right product levels, you can meet demand, satisfy your customers, and grow for years to come.