Inventory management means keeping track of the stock in your store, the stock coming into your store, and understanding what stock is selling and what isn’t. Managing your inventory means being able to predict what stock you’ll need, and know what stock is bad for your business.
De acuerdo a Veeqo, 43% of small businesses do not track their inventory, or use manual processes to track it. While this might work for a very small business, it is not ideal. Without the right inventory management, you’re at risk of selling out of products and missing out on sales, or ordering too much stock that you can’t sell and that clogs up your storage space. Both of these mistakes are leading to losses, and can be detrimental to your business.
Inventory management is essential to running a successful business, but Veeqo also states that 43% of retailers named inventory as their number one daily challenge! Now you know what inventory management is so important – now lets go over a few ways to actually do it.
The worst part of inventory management is the actual counting. It’s extremely time consuming and labor intensive and, well – it’s not very fun. Many companies stick to an annual inventory audit. However, this can be counterproductive as not only does it take time away from your business, but often when there are discrepancies in your inventory, it’s almost impossible to track down the culprit because you’re investigating such a long stretch of time. Instead, monthly, weekly, or even daily audits are more productive. Iinstead of taking on the entirety of your inventory, assign a specific product, or perhaps a specific category to audit. Some call this ‘spot-checking’, and it’s an effective way to consistently keep track of your inventory.
This seems like a no-brainer, but many retailers overlook this simple measure. To effectively choose the right stock, forecast your stock for the future, and to run your business successfully at all, you have to know what sells and what doesn’t. This is why it’s vital to have sales reports, so you can easily see which products are selling fast and which ones aren’t moving. Some retailers believe they already know what their best-sellers are, so they don’t bother to analyze their sales reports. This is a huge mistake! Consumer trends are always changing, and what your customers are buying and not buying changes all the time. That’s why it’s essential to have a good reporting tool for your shop, bonus if it’s built into your POS.
Analyze your reports. See what sells and when it sells, and use this to your advantage when merchandising and planning your displays and promotions. Whatever items are moving fast, those are the items you should set a par level for and probably order more for your store. The items that aren’t moving are the stock you shouldn’t be ordering any more of. Whatever stock you have left over, try to get rid of it with a discount or promotion, or even a giveaway. Trying to boost sales? Here’s a guide.
Your best-selling items will sell out the fastest, obviously, but the trick is to always keep them in stock and never run out. Running out of stock of your best-sellers means missing out on sales and lost revenue. According to Veeqo, 70% of shoppers would rather get an item from a competitor than wait for a back-ordered item – so even your most loyal customers may spend their money elsewhere. To prevent this, always set a reorder quantity, or a ‘par level’ for your best selling items. A par level is the lowest quantity of the item you need to have on hand at all times – once you reach your par level, or get close to it, it’s time to re-order before you’re completely sold out.
This strategy is better than waiting till the last possible moment to re-order, which could lead to running out of stock, running into delayed delivery, and missing out on sales. But it’s also smarter than simply ordering a ton of the item any chance you get – which many retailers do. While it may seem like a good idea to hoard on the items you sell, this also takes up a lot of storage, and in some cases, depending on the item, your stock may get spoiled or damaged or become outdated – especially if you sell perishable items like food, make up, or hygiene items. Plus, there’s also the chance that you overestimate how much you can sell, and you’re left with a bunch of dead stock once again.
There are a few different rules for how to prioritize your stock. 80/20 Rule states that 80% of your revenue comes from 20% of your stock – so you must figure out what that 20% is, and prioritize these items over the rest of your inventory. Similarly, there’s the ABC rules, which means you can categorize your stock into 3 separate categories: A is stock that is extremely valuable and drives the most sales, and C is stock that has the least impact on your revenue. B falls somewhere in between. If you categorize what items are the most valuable to your shop, it will be much easier to know what to reorder and what to pass on.
As mentioned, predicting what stock you’ll need is tricky but essential. It’s hard to say for sure what will sell and what won’t, but with the use of reporting tools and attention to your shop’s past performance, you can forecast pretty accurately. Look at what’s currently selling in your shop, but also look at reports from the past. Look at this time last year, and check out which items were selling. Chances are, what sold a year ago will sell again. With the right reporting tools, you can go back at any point in time to see your sales reports and make an informed decision about your purchase orders.
Another aspect to keep in mind when forecasting is upcoming holidays and seasons. Your stock may change depending on whether it’s summertime or Christmas, or if you’re expecting tourists or back to school traffic, for example. Take this into consideration while planning your stock.
Many small businesses manage their inventory manually, in spreadsheets or notebooks, which could work well enough if you’re a very small business. However, this kind of management is much more prone to human error, as you must manually update and adjust your inventory constantly. It’s much more work, and it’s much more susceptible to errors in your stock. You’re much more likely to run into issues with inventory, especially as your business grows.
There are a number of inventory management systems you can use on their own, or that you can integrate into your POS. However, many retailers prefer an inventory management system built into their POS, so everything is in one place and is easily accessible and adjustable. POS systems like Oliver POS let you keep track of your inventory, and adjust it directly in your POS register. If you sell both online and in-store, this POS is especially useful because it keeps your online and in-store inventory in-sync automatically.