Inventory management is the process of tracking your
products to ensure you have the right amount of each item at the right time. It
includes ordering, storing, tracking, and selling your goods.
Managing your inventory is important so you don’t miss out
on business because you’re out of a popular item or lose money because you have
too much of an item in stock. It can help maximize your sales and minimize your
costs of storing
1. Use data to make predictions
Track your sales so you can monitor spikes and slumps in
your business. By tracking your sales, you’ll be able to better predict when
your next spike will be, so you can order extra products to keep up with
demand. And, you won’t be as surprised by a slump and can decide if you need to
plan a special promotion to move some of your products out the door.
Keep an eye on market trends in your industry so you can
determine what the trendy items will be. That way, you won’t be stuck with last
year’s castaways, but can sell this year’s must-have items.
Finally, monitor your industry’s health. If the industry is
expected to grow, you might need to carry extra stock to keep up. Or, if your
industry is expected to stay stagnant, you can decide if you want to order
fewer items the next time around.
2. Pay attention to what’s not selling
While it’s important to keep your most popular products in
stock, make sure you also know what products are not selling well. If you’ve
had the same item for a year, you might consider trying different strategies to
move it out the door – like putting it on a sale or offering a special discount.
Then, when you’re starting to run low, don’t reorder it so you don’t get stuck
with it again.
3. Use the FIFO method
Consider selling and stocking your items using the first in, first out (FIFO)
method. This is especially important if your sell anything perishable. For
example, if you sell floral arrangements, sell the first ones you made first,
before the flowers start to wilt.
If you don’t sell perishable items, you can still use the
FIFO method. Keep your older items in the front of your racks and add newer
items to the back so customers are more likely to purchase the older items
first. Mimic that method in your stockroom so your team will grab the older
items first when it’s time to restock.
4. Do a physical count
Even if you think you always know the quantity of each item,
regularly do a physical count to doublecheck.
For your fast-moving products, consider having your staff do
Then, hold an annual inventory count. During a slow period
for your business, close your store for a day or two. Divide your store into
sections and assign each team member a section. Tell them to physically count
each item and consider asking them to visually inspect each piece, too. By
visually inspecting each item, you’ll be able to remove any damaged or broken
products and ensure that everything is labelled correctly.
Spot-checks and annual counts can help you find out if you
have a shrinkage problem. Shrinkage is a reduction of inventory. The average
retail business has a shrinkage
rate of 1.33% per year. It can be caused by shoplifting (36.5%), employee
theft (30%), administrative errors (21.3%), vendor fraud or error (5.4%), or
for unknown reasons (6.8%). Regular physical counts can help you investigate
the reason for your shrinkage to help prevent it in the future.
5. Think before buying in bulk
Your suppliers or vendors might offer a fantastic deal if
you buy in bulk. Before you take the deal, make sure you’ll be able to sell
that much product. Otherwise, you might end up with too much in hand, which
could lose you money. You don’t want your cash tied up in merchandise that
might not sell, and you’d have to find a way to store everything.
Look at your historical data and your predicted sales to
determine how much you can expect to sell. If you can’t sell enough to justify
bulk ordering, consider partnering with another business to take advantage of
the bulk discount.