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Best Practices for Effective Inventory Management

Written by Contributor, on 12th Oct 2020. Posted in General

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It’s easy for retail businesses to overlook the benefits of efficient stock control. There are tons of strategic and operational areas that feel more important. 

Better marketing gets shoppers into your store or eyes on your website. Trendier products are more likely to sell. Finding cheaper suppliers results in better profit margins. You get the idea – it’s easy to get distracted by tasks that seem like they have more value. What many retailers don’t realize, however, is that efficient inventory tracking has just as big an impact on your bottom line as all these other areas.

Surprisingly, 43% of US small businesses haven’t had this realization yet. If you find yourself among them and want to up your stock management game, here’s a list of best practices that are a great place to start.

1. Categorize Your Stock Based on Value

Often referred to as ABC analysis, this hierarchical approach to categorizing your inventory allows you to know, at a glance, the value that a particular item has for your business.

Essentially, each item in your inventory is analyzed according to their contribution to your company’s revenue. Those that make the biggest contribution are allocated a value of A, medium-value items are categorized as B, while those that have the smallest impact are labeled C.

This categorization enables you to make inventory management choices based on something tangible: monetary value. Storage space allocation, reordering priority, frequency of quality reviews, and even decisions regarding customer service are made much easier when you know the value a certain item represents to your business.

2. Safeguard Yourself Against Costly Recalls

While product quality is (mostly) out of your hands, the only way to create a safety net in the case of recalls is to minimize the impact it will have on your operations.

When manufacturers reveal that some of their goods are defective, they typically use LOT numbers or a selection of serial numbers, depending on the product.

Since the onus falls on the retailer to protect its customers, it is vital that each sale can be tracked to the unique identifier allocated by the manufacturer. For this reason, effective inventory management involves logging lot, batch, and serial numbers against each incoming item of stock.

This means that a recall can be limited to a particular sale rather than all sales of a specific stock item. The impact of the latter could spell disaster for a careless retailer.

3. Ensure You Have Safety Stock for High-Value Items

The risk of not having a particular item in stock hangs over any retailer – and the cost isn’t limited to simply losing a sale. Reputational damage and loss of customer confidence could be hard to bounce back from, especially if customers find another retailer carrying the item.

Based on your ABC analysis, always ensure that you have an “emergency” stash of high-value stock available. The exact composition of your safety stock can vary as your knowledge of inventory value matures, so don’t be afraid of over-ordering initially.

Also, avoid dipping into safety stock simply because you can’t be bothered to place a new order. Ideally, this stock should only be touched when there’s an unexpected spike in customer demand or a delay in restocking.

4. Invest in Inventory Management Software

There’s no shortage of fantastic tools that make stock control an absolute breeze compared to pen-and-paper or spreadsheet solutions. Many of them even offer their basic functionality for free.

Getting this aspect of your operations automated and into the cloud is critical. There’s no excuse for not taking this step as soon as possible.

5. Measure How Successful You Are at Inventory Management

Having KPIs in place for your stock control is crucial if you’re going to take it as seriously as you should. Here are the five most important areas that you should constantly be monitoring and aiming to improve:

Carrying costs
Write-off costs
Write-down costs
Order cycle time
Fill rate

Most Inventory Management software tools will either have this knowledge on-hand directly or offer you the raw data to compile it yourself. Either way, it’s essential that you set and strive to hit ambitious stock management goals.

Some Final Words

Acknowledging the importance of effective inventory management is the first step towards streamlining this vital, yet often overlooked aspect of retail operations.

Once a retailer grasps this, there’s a wealth of methods at their disposal towards maximizing profitability through diligence and smart decision making.

Get on this. The rewards are enormous.

 

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