Though not the most exciting facet of your retail business, inventory management is crucial to your success.
Without it, you’re missing out on revenue opportunities, not to mention tossing money out the window.
In fact, retailers lose $1.75 trillion annually because of out-of-stocks, overstocks, and returns — problems that could be minimized with an effective inventory management solution.
Because inventory management is a crucial issue for store owners, it’s crucial to ensure you have the right measures in place to keep your shelves stocked and revenues flowing. So, let’s take a look at the ins and outs of inventory management, and how retailers can best optimize their processes.
What Is Inventory Management?
In a single sentence, inventory management is the process retailers take to manage their products.
Inventory management systems track basic things such as inventory quantity, size, weight, and location. It sounds simple, but inventory management is actually a more holistic view of your business.
You can use inventory management to understand when you need to order new product so you can easily meet customer demand. No customer likes being told a desired item is out of stock — and no retailer likes missing out on a sale.
Why Retailers Need Inventory Management
Regardless of your niche, an inventory management system is essential to growing your business. Without one in place, you face a lot of avoidable challenges.
In fact, if you don’t have an inventory management system, you are losing money.
Here are some reasons retailers need it:
Shrinkage is a widespread problem: It cost retailers $60 billion in 2015 alone. And though it’s a tough pill to swallow, employees are responsible for most of this theft (it’s also the biggest cause of loss to retailers).
An inventory management system will help you understand the unknown whereabouts of some of your missing products. Without one in place, it’s hard to tell why those products went missing, be it due to theft, loss or damage.
Prevent product expiration
Retailers in healthcare, beauty, and food especially have to worry about spoilage, or dead stock. Not knowing what’s on your shelves and how long it’s been there means products may sit until they’re no longer sellable.
If you can’t sell your products, you’re not only missing out on profits, but you’re also throwing money away. (Don’t sell expired products: It could cost you big money.)
Reduce storage expenses
If you don’t keep your inventory at your brick-and-mortar location, storage is an added monthly business expense. With an inventory management system, you won’t need to keep as many products on-hand. Less storage means more savings for you.
Save time with automation
Retailers benefit a ton from automation: Saving time means saving money. An inventory management system can automate certain processes saving you time on tracking inventory, pulling reports, and other tedious and time-consuming tasks.
Understand your business
Establishing an inventory management system gives you a whole new set of data to glean valuable, actionable insights — and turn that into profit. You’ll understand how products flow in and out of your store, which ones are most and least popular, and…
Forecast future demand
Without data to reference when you’re making purchasing or inventory decisions, how do you forecast for future demand of your products? An inventory management system will allow you to better predict and turn over more profit.
Keep your store organized
Your entire store constitutes the customer experience — even the things you don’t think they notice. If your inventory is kept behind closed doors in your store, a customer might get a peek inside unintentionally. Disorganization may turn customers off.
This also means that inventory doesn’t spill over onto the floor in places more visible to your customers, like the cash register.
Common Mistakes in Inventory Management
Instituting an inventory management system isn’t the end-all-be-all answer to retailer’s inventory tracking. In fact, there are many mistakes that retailers make when it comes to their inventory management system.
Insufficiently trained staff
With most tools, the data output is only as good as the data input. In other words, whatever or whoever is supplying your inventory management system with information must do so correctly and consistently.
Train your retail staff on how to use the inventory management system and the importance of using it correctly, ensuring the data you receive is accurate. When you’re making large-scale business decisions, you want to base them on accurate data.
MAKE TRAINING EASIER: Need a little extra help with training your new staff members? Check out these 5 tools that make employee education easier.
Inaccurately forecast demand
Human error is data’s arch nemesis. If you’re tracking inventory with manual processes, or merging data manually, you run the risk of mistakes. One number might seem an insignificant error, but if you add a “0” to the end of your annual revenue, think of the difference that makes.
It’s reported that an inaccurate forecast demand once cost Nike $100 million. Trying to forecast demand with manual processes or unreliable tools and processes could result in a major business mistake.
Find a dependable tool (we’ve got some recommendations at the end of this article) to help you forecast demand more accurately.
If you’re spending time completing time-consuming tasks that could be automated, you’re losing valuable time during which you could be growing your business. There are several inventory management tools that will automate inventory-related tasks for you. (Some even help with shipping!)
Checking inventory infrequently
An inventory management system does not take the place of human evaluation. Having automations and systems in place may make it easy to set it and forget it. But if you’re not proactively monitoring it and checking in, you could miss out on big opportunities — or identify issues too late.
Set a minimum and maximum amount of inventory to hold in your warehouse to help you understand when and what to restock. This helps you avoid both overstocking and running out of product.
Forgetting about the customer
It’s easy to forget about the people behind the sales of your products, but that’s the most important factor to your success.
Track fill rates and inventory turnover to find out how quickly and how sufficiently your customers’ demands are being met. Always work to improve their experience, and your inventory will sell itself.
Not making warehouse changes
Sometimes smart operational changes aren’t so obvious when you’re looking at the data from your inventory management system. This is especially the case when it comes to your physical warehouse, especially if you don’t spend much or any time there yourself.
If possible, take a walk through your warehouse and see where those best-selling products are. If they’re not easily accessible, some reorganization is in order.
Inventory Management Tools for Retailers
Convinced that an inventory management tool is what you need to increase profits and understand your business? Here are some inventory management tools for retailers:
- Stitch Labs: This is a great all-in-one tool that specializes in inventory management, complete with a virtual warehouse to prevent out-of-stock and backorders, cross-channel selling and a partner network of tools. One of their customers created their own customer loyalty program with Sitch’s API. Stitch Labs is recommended for retailers that are growing rapidly.
- TradeGecko: TradeGecko syncs your inventory with your online selling channels and offers customer data and real-time tracking. It’s also great for wholesale retailers, as it has both B2C- and B2B-specific features.
- Ordoro: A more affordable (free) inventory management system, Ordoro also manages inventory across multiple channels and keeps the data in a single place. It also has specific shipping and dropshipping features. Ordoro is an ideal tool for smaller-sized retail businesses who ship a lot of product.
- Shopify POS: Our own point-of-sale tools accept in-person payments, so you can make transactions on the go. It helps you track inventory and share data between the POS and your online store. You can also apply discounts for customers, email receipts, and process refunds.
- Xero: Xero works with many inventory management tools, so it’s a great way to keep multiple sources of data together. Plus, your inventory management tools will communicate with one another, providing you a more holistic view of your business. Xero automatically exports orders, simplifies your accounting processes and provides easy-to-understand reporting.
Inventory Management Is Crucial to Your Business
Without control over your inventory, you also sacrifice your opportunity to grow your retail business to its full potential. Which inventory management strategies have helped your retail business?