Having the right products available — at the right time, in the right quantities — is what leads retailers to success. But it’s only possible if you oversee and control the flow of goods from suppliers to customers.
Keeping your finger on the pulse of your inventory’s movement is crucial for optimizing stock levels, and is also known as retail inventory management. It’s the key to preventing stockouts so your popular items are always ready for purchase while minimizing the need to hold on to extra stock, saving you money on carrying costs and freeing up valuable storage space.
With effective inventory management, you can improve your cash flow and avoid tying up capital in unsold goods. But the best byproduct of a good retail inventory management system is creating a seamless shopping experience for the people your profits depend on — your customers.
Understanding the different types of retail inventory
For manufacturers, inventory includes things like raw materials and work-in-progress items. Inventory looks different for retailers and eCommerce companies that only handle finished goods, but that doesn’t mean ready-to-sell products are the only items in a retailer’s inventory.
Here’s an overview of the different types of inventory you might need to manage.
Merchandise inventory
This is a retailer’s bread and butter — the finished goods purchased from suppliers for sale to customers. Merchandise inventory might include clothing, electronics, groceries, furniture, or any of the consumer goods your company sells.
Cycle stock
Your cycle stock is the inventory you maintain to meet regular customer demand between replenishment orders. It’s the stock that “cycles” through the store inventory on a regular basis.
Safety stock
The extra inventory you hold as a buffer is known as safety stock. Keeping extras on hand protects against unexpected fluctuations in demand or delays in supply, preventing stockouts and guaranteeing customer satisfaction.
Seasonal inventory
Many retailers sell products specific to certain times of year, like holiday decorations, summer clothing, or back-to-school supplies. It’s important to plan for these items well in advance to ensure there’s enough stock during peak demand.
Maintenance, repair, and operations (MRO) inventory
Although it’s not directly sold to consumers, MRO inventory is an essential part of your business operations. This category includes things like cleaning supplies, light bulbs, office supplies, and any tools or equipment needed for repairs and maintenance around an office or brick-and-mortar retail store.
Packing materials
If you ship products to customers, either through online orders or in-store purchases, packing materials and dunnage are a vital part of your inventory. The packing material inventory you’ll need to manage includes boxes, tape, bubble wrap, packing peanuts, labels, and anything else used to protect and ship your products.
Inventory management methods and techniques for retailers
You have lots of methods and techniques to choose from to help you manage inventory effectively. Here’s a quick breakdown.
Inventory costing methods
- First-in, First-out (FIFO): If you use the FIFO method, you’ll sell the oldest inventory first. It’s a great option because it’s straightforward and internationally recognized.
- Last-in, last-out (LIFO): LIFO is the opposite of FIFO — you’ll sell your newest inventory first. In some cases, LIFO can offer tax benefits or help combat rising costs.
- Weighted average cost: This method calculates the average cost of all units in your inventory. It’s a good option for businesses with a wide range of product costs.
- Specific identification: For retailers that sell high-value items with unique identifiers like jewelry or antiques, tracking the actual cost of individual items is a smart approach. This requires tracking serial/lot numbers or other criteria.
Inventory management techniques
- Inventory valuation: This technique assigns a monetary value to inventory, which helps with financial reporting and decision-making.
- Cycle counts: Comparing your physical inventory with your recorded data helps identify discrepancies and ensures accuracy.
- Physical inventory counts: Manually counting all items in your inventory on a regular basis helps you keep an accurate record of stock levels.
- Regular reconciliation: When receiving product, workers can confirm that they’ve actually received the amount listed on the purchase order. If there’s an error, they can request a correction.
- ABC analysis: Classifying inventory items based on their value and sales volume (“A” for high-value, “C” for low-value) helps prioritize your management efforts.
- Economic order quantity (EOQ): Using the EOQ formula to calculate the optimal order quantity balances the cost of holding inventory against the cost of placing orders.
- Just-in-time (JIT) inventory: You can minimize holding costs by receiving goods only as you need them for production or sale.
- Demand forecasting: Factors like historical sales data and market trends can help you predict future demand, allowing you to optimize inventory levels and save on storage.
- Spot checks: Randomly selecting items to count can help you quickly assess inventory accuracy without performing a full inventory count.
13 steps to elevate your retail inventory management
Ready to get a better handle on your retail inventory? No matter which methods and techniques you adopt, the following steps are central to establishing a strong inventory management system.
1. Create a centralized product database
A well-built product database goes beyond the basics of SKUs and item descriptions. Including supplier details, lead times, reorder points, and even images ensures everyone on your team has access to accurate and up-to-date information.
2. Record your inventory’s location
Implement a clear and organized store inventory management system to track inventory within your store or warehouse. Monitor your shop inventory with tools like bin locations and barcode scanning to quickly locate items, streamline picking and packing, and reduce errors.
3. Perform periodic stock counts
Don’t just rely on annual counts — do regular cycle counts or spot checks to identify discrepancies early on. Cross reference your physical inventory with your digital stock management data to maintain accuracy and prevent stockouts.
4. Leverage sales data
Analyze historical sales data, seasonality trends, and even external factors like weather or economic conditions to create accurate demand forecasts. This strategy will help you anticipate customer needs and optimize your inventory levels.
5. Practice strategic ordering and replenishment
Use your demand forecasts and inventory data to establish optimal reorder points and quantities. Consider factors like lead times, safety stock requirements, and carrying costs when making reordering decisions so you can avoid overstocking or understocking.
6. Plan ahead for promotions
Don’t wait until the last minute to prepare for promotions or seasonal events. Plan your inventory needs well in advance, taking into account expected demand increases and potential supply chain disruptions.
7. Streamline your receiving process
Efficient receiving minimizes errors and ensures that new stock is available for sale quickly, so establish a well-defined process for receiving inventory. A good workflow includes verifying quantities of the items received, inspecting for damage, and promptly updating your inventory records to reflect new stock. If any inventory needs reconciliation, you can build processes for that into your receiving workflows.
8. Commit to customer-centric returns management
Implement a hassle-free return policy and process to encourage customer satisfaction. Streamline the handling of returned items, whether they need to be restocked, repaired, or scrapped.
9. Define a dead stock process
Regularly review your inventory to identify slow-moving or obsolete items. Develop a plan to liquidate these items through discounts, promotions, or even donations to minimize losses and free up valuable storage space before they become truly unsellable.
10. Establish and track key performance indicators (KPIs)
Track KPIs like inventory turnover, sell-through rate, gross margin return on investment (GMROI), and days of inventory on hand (DOH). Analyze these metrics regularly to identify trends, assess the effectiveness of your inventory management strategies, and make data-driven improvements.
11. Build strong supplier relationships
Fostering open communication and collaboration with your suppliers can lead to better pricing, priority access to high-demand items, and faster resolution when supply chain issues arise.
12. Invest in a good inventory management system
An inventory management software solution like Fishbowl can automate many of your system’s tasks, saving you time and money while improving accuracy and efficiency. With the right inventory software, you can track inventory levels and product locations, automate reordering, generate reports, and gain valuable insights that will help take your retail business to the next level.
13. Build a well-trained team
An inventory management system is only as strong as the people using it. To maximize your ROI, offer regular training sessions on proper stock handling procedures, loss prevention measures, accurate recordkeeping, and the use of your software. Getting your employees involved with the company’s inventory management processes fosters a sense of responsibility and accountability, contributing to more effective operations.
Streamline your retail inventory management with Fishbowl
The best inventory software for retailers is a solution that seamlessly integrates with barcode scanners, POS systems, and other tools and platforms central to retail operations. Fishbowl is the all-in-one inventory management solution that does it all, helping you control stock, reduce shrinkage, and make more informed decisions for better retail management. Fishbowl even integrates with popular accounting platforms like QuickBooks to promote financial visibility.
Are you ready to achieve inventory control and gain end-to-end visibility over your retail operations? Schedule a demo of Fishbowl, the intuitive, scalable, and user-friendly inventory management platform.