Every retailer, no matter the size of their operation, must perform inventory management to successfully meet consumer demand without filling their storerooms with items they can’t sell.
And there’s an art to this process.
Here, learn why retail inventory management matters, and how you can practice the “art” of stock forecasting by leveraging a combination of manual and digital methods.
What is retail inventory management?
Retail inventory management encompasses ordering, stocking, and tracking sales to ensure you have enough inventory to fulfill customer demand without accumulating excess stock levels (overstocking).
Retail businesses must perform accurate demand forecasting to predict how much their customers will order and maintain the correct corresponding inventory levels. It’s all about stocking at the right time without tying up too much cash-on-hand in product sourcing.
This process involves monitoring and analyzing KPIs, and many companies use a combination of human- and software-driven methods to track inventory levels in real-time and forecast consumer trends. When performed correctly, retail inventory management helps businesses keep both customer satisfaction and profit margins high.
How to track inventory effectively
Successful retailers leverage a mix of manual and digital approaches to manage their supply chain. Here are a few common methods.
- Spreadsheets: Small brick-and-mortar stores or e-commerce sites can track inventory on spreadsheets. Include columns for product names, SKUs, stock levels, cost price, location or bin number, and reorder points. You can then generate reports on concepts like inventory turnover rates from these data points and make informed decisions on future orders.
- Use barcode scanning: If you have professional inventory management software for retail, use the barcode scanning feature to improve accuracy. Scan items at every transaction point: when you first tag them, when someone purchases them, and when you ship them for up-to-the-minute data on what stock you’re holding.
- Update stock counts after every sale: Scan out items or mark them as sold on your spreadsheet when people order them. If you use point-of-sale (POS) software to streamline your operations, this tool will automate the process, updating stock counts and suggesting reorders when stock levels get low.
- Perform regular cycle counts: Proactively count inventory subsets, like high-value or fast-selling items. Do this regularly (i.e., once a week) by cross-checking actual stock numbers against your spreadsheet or software. By performing physical inventory counts, you catch discrepancies quickly.
- Track SKU performance to spot trends: Track the performance of unique SKUs to determine how well items sell. This analysis will tell you which items are your top-sellers—products you need to replenish consistently to keep up with consumer demand. This sales data will also show you which items don’t sell well, and you can consider phasing out these products.
Why inventory control matters for retail operations
Keeping clear inventory records ensures that your operation hits that fine balance of neither understocking nor overstocking. Here’s how.
- Prevents stockouts: Inventory management helps you forecast consumer demand, so that you can always keep safety stock on hand for well-selling items.
- Reduces excess inventory: When you accurately predict demand, you order only what you need, never ending up with pallets of goods you can’t sell off. This is an especially important point if you stock perishable items, as you’ll have to toss them instead of offering a markdown to drive sales, like you could with non-perishables.
- Improves cash flow: Purchasing items from suppliers ties up cash that you won’t make back until a certain amount of product sells. By ordering the right amount of products, you avoid spending valuable cash-on-hand on items that wouldn’t sell out or drive profits.
- Helps retailers understand demand: Inventory management gives your retail store sales-channel-level information on what consumers want so that you can take advantage of trends.
- Supports smoother customer experiences: Improve consumer relationships by never making your audience wait for out-of-stock items. Not only will you lose a sale, but you might also lose a customer.
How to prevent stockouts and overstock
Ready to step up your inventory game, never understocking or overstocking again? Here’s how to optimize inventory management in retail.
- Set reorder points: Determine reorder points (the trigger moment for the next order) with the following calculation: (average daily demand x lead time) + safety stock, where lead time refers to the time between placing a purchase order for stock and receiving that order.
- Consider the Just-in-Time (JIT) method: In this method, you develop a strong relationship with a supplier who can get you items right when you need them to meet actual consumer demand, instead of selling you products in advance.
- Perform ABC analysis: ABC analysis is essential to effective retail inventory management, as it helps you prioritize purchases. Calculate the annual consumption value for each product, multiplying this figure by the unit cost. Then, rank the items from highest to lowest. For example, if you sell 100 high-end handbags at $300 per year, these account for $30,000 in sales, and would rank much higher than the sale of 50 keychains at $25, which only yield $1,250 in sales. Then, place items in A, B, and C groups based on their ranking, with the A group being the highest and the C group being the lowest. Leverage these metrics to create unique inventory management processes that meet the needs of each category.
- Reduce ordering on slow movers: Inventory data will uncover slow movers—items that don’t sell well, and you can stop ordering as much of these products.
How WholesaleCentral helps retailers restock smarter
WholesaleCentral is a B2B platform connecting retailers with vetted suppliers of quality products that respond to market trends.
By partnering with responsible distributors, manufacturers, or dropshippers on this platform, you can reliably meet demand, discover the hottest items, maintain stable margins, and lengthen the lifecycles of consumer relationships.
Manage your inventory intelligently
For retailers, achieving operational efficiency relies on accurate stock tracking and forecasting, as well as strong relationships with vendors.
Improve your ordering processes by combining manual stock checks with powerful POS systems or other retail inventory management software that automatically keeps tabs on real-time inventory and predicts sales trends.
FAQs
What causes overstock, and how do I avoid it?
Overstock is caused by poor forecasting and supply chain management. Consistently analyze historical sales data and store inventory trends to prevent excess stock, and consider moving to the Just-In-Time method if you regularly experience overstock issues.
How often should retailers count inventory?
Retailers should confirm accurate inventory numbers at least quarterly or monthly, and it’s a good stock management practice to check on high-value and fast-selling items weekly.
Why are supplier relationships important for inventory management?
With strong supplier relationships, you cut down on stock fluctuations that could ruin your reputation with consumers. Reliable suppliers deliver when you need items, preventing frustrating shortages. Plus, they ensure top-quality products and service.
What tools or systems help improve inventory accuracy?
Retail inventory management systems, like point of sale (POS) and enterprise resource planning (ERP) platforms, barcode scanning, radio frequency identification (RFID)technology, and AI-driven tools help retailers forecast demand, analyze trends and seasonality, optimize stock levels, and reduce carrying costs/holding costs.