The holiday season has officially come to an end, and inventory levels are probably at their lowest point of the year. This is the perfect time to review your inventory management process to ensure it is still doing everything it can to set your business up for success. With the ever-changing retail industry, competition continues to grow, and having what the customer wants when they want it has become the standard.
Listed below are 5 tips to help make your inventory management process as accurate and up to date as possible.
Use an accurate forecasting model and review it frequently.
When forecasting future sales, it’s critical to be as accurate as possible. If you underestimate your sales, you run the risk of selling out of key items, impacting your customers' satisfaction. If you overestimate your sales, you could end up stuck with unproductive inventory and the excess cost of extended storage. The best forecasting allows you to order inventory on a regular schedule to stay in stock with enough reserves to handle any unexpected shifts in demand. By ordering on a regular basis, you can keep your inventory levels just above demand and have the flexibility to change assortments if needed to quickly react to unexpected trends.
Rotate your stock and identify and manage the extremes.
Recommendations are to follow the first-in, first-out process. This keeps your product fresh and reduces the risk of having expired merchandise. Identify your top sellers and make sure you have a strong ordering schedule that ensures you don’t run out. Monitor your progress as things can change quickly and you will need to react. It’s also important to manage slow-selling inventory by changing its location, reducing its price, or returning it to the vendor. Every business should have a strong pricing and merchandising strategy to sell through seasonal or unpopular goods. Unproductive merchandise ties up funds that could be spent on top sellers or trending products.
Complete frequent physical counts to verify your information.
If your unit-tracking system is not accurate due to things like damaged product, shipping errors, or theft, you could run out of popular items before new shipments can be received. More importantly, if your system thinks you have product available to sell, then it may not trigger a reorder until those numbers change. If you have no product to sell, the numbers will never change, and an order will never be placed—at least not until you update the numbers to match what you have on the shelf. Items that are popular to your customers may also be popular to shoplifters, so know your key items and validate them regularly.
Work to become an intermediary between your product manufacturer or wholesaler and your customer.
This process is more commonly referred to as the drop shipping method, in which the manufacturer ships directly to your customer without you having to purchase and store the product. This process eliminates the need for back-stock space to house excess merchandise as well as the risk of being stuck with nonproductive or expired merchandise. Because you don’t need additional storage space, this process also allows you the ability to offer a wider selection of products without having to expand your overhead costs. Being an intermediary is also a great way to bring some of your business online to complement your brick and mortar location.
If you determine you need a new system, do your research, get some feedback, and select the software that best fits your needs.
To get started, I recommend completing a self-assessment to determine what is currently working well for you and what is not. Next, determine your current needs as well as any future needs. It is important to make sure the system you choose can do what you need it to do today and can easily be expanded to what you know you will need in the future. It’s also important to have a system that integrates directly into your POS system and has real-time sales analytics. This gives you the ability to receive things like daily low-stock alerts and immediate reordering functionality. Once you are ready to start reviewing solutions, seek out feedback from other small businesses. If possible, speak with a business that currently uses the software you are reviewing to get their thoughts about both pre- and post-implementation challenges. There are numerous inventory management system options and each one provides something a little different. The challenge will be to find the perfect one for your business.