It’s not easy to keep inventory in line. You analyze sales trends to make decisions. You review margins, sell-thru, and return on investment to evaluate profitability. You create buy plans, propose reorders and cancellations, and you suggest markdowns. All this just to keep your inventory in line. Inventory management is crucial to the
success of your business. Why? Because accurate purchase order planning is a necessary step towards optimal profit.
Inventory influences sales.
Sales drive business.
Business creates profit.
And profit measures success.
Having the right product at the right place at the right time is the reason why sales occur, making it crucial to use all the information at your disposal to make inventory management decisions. When you’re not selling merchandise, you’re losing money. Period. The longer you hold on to merchandise that isn’t moving out the door, the more money
you are losing.
In this article, we will share the 7 best practices on how best to manage your inventory, putting you in charge of you store’s success.
When you’re not selling merchandise, you’re losing money. Period.
Plan before you buy
Use your data to plan out your assortment rather than reordering using the same quantities you always have for convenience’s sake. In the long run, profits beat convenience. Take the time to analyze which items are profitable and use past numbers as a guide to forecast future demand. Only after thoughtful data-driven planning should you start writing purchase orders. If you’re in the process of ordering merchandise for a particular season, use historical data as a benchmark for pricing decisions and sell-thru rates. Too often, merchants get stuck pricing seasonal or trend-driven products too high or marking them down too quickly. In both scenarios you will lose sales and margin dollars. By reviewing data and making a plan before you buy, you will set yourself up for a successful season with appropriate inventory levels.
Leverage technology and automation
Your POS solution should be able to automate or assist in replenishments orders through Model Stocks. To save yourself time, avoid mistakes, and ensure that your store is well stocked. Be sure to create Model Stocks for products you consistently carry and sell, aka replenishment styles. These quantities, which should be based on past data and forecasted demand, represent the total number of a particular item that you would like to have available at your store at any time. Demand, however, can be different at various points of the year. Create Seasonal Models based on the trends you see in your store(s), so you always have the right merchandise at the right time. By doing so, you’ll miss fewer opportunities, enhance customer service loyalty, and increase sales. Once you have the model stocks created, enable automated purchase ordering for these replenishment items. If you know that you are going to repeatedly purchase an item or items over a certain period of time, save time by using this function.
Less wasted time + fewer errors = better business
Make sure to enter received POs into your inventory management system.
It’s important to make sure you account for the product that comes in a shipment through your back door as diligently as you do for the product that walks out the front door in the hands of a happy customer. Enter the purchase order in your system when you create the order and match the desired order quantity with the actual stock received. Account for differences in these numbers in your inventory management software. This keeps your data clean and organized, providing you with accurate reporting to make thoughtful, data-driven decisions.
Know how to manage inventory in multiple locations
Your POS solution should allow you to manage your inventory across all your selling channels. Work to equalize inventory in a multi-store / online environment by generating transfers from stores that are stocked above their Model Stocks to stores that are below model quantity of a particular product. This allows you to balance resources within your organization and prevents you from ordering unnecessary stock from a supplier and ending up stuck with a surplus of inventory.
Keep merchandise out of the backroom and on the sales floor while still making it shoppable
You lose money when you’re not selling product. By keeping items in the stock room rather than out on the sales floor, you’re essentially turning your warehouse or back room, which should be a temporary pit stop between the supplier and the store front, into a very expensive storage facility. Backstock is meant to supplement products that are displayed in the showroom, providing sizing options and preventing the store from looking too cluttered or crowded.
Measure and maximize inventory turns
In order to maximize product profit, it is imperative that products are swiftly transferred from the stockroom to the sales floor where they can be sold. The rate at which inventory is sold within a certain time frame, inventory turnover
(or turn), indicates how efficiently a product is moving through this sales cycle. The standard equation for calculating inventory turnover is:
Inventory turnover = cost of goods sold / average inventory
Calculating and analyzing turn shows which products sell quickly and make you the most money, as well as which products have slow inventory turnover and lead to lost opportunities. Reviewing your turn rates give you immediate
access to what’s making money and what’s losing money.
How do you speed up turn?
Sell more or carry less inventory. One keyway to carry less inventory but still showcase all the styles your customers want and expect is to implement Drop Ship. Drop shipping products lets customers order through your store / website directly to the manufacturer. Now you can keep available space open in your own inventory while still making the sale. Drop ship increases sales potential while decreasing inventory liability.
Liquidate non-moving items and account for items you can’t sell
Sometimes it’s better to just cut your losses and move on. Running promotions and offering discounts are good tactics for moving stagnant inventory through the product life cycle and create space for new, fresh styles. Another important classification of inventory are products that cannot be sold. Identify these as non-sellable within your retail management software to alert it’s necessary to replace. If the item is defective, damaged, or is not in a condition to be put back on the sales floor, the item should be declared non-sellable. Run reports on your non-sellable inventory to track what merchandise has not been reliable or caused problems with your customers and partner with your manufacturers on the best solution.
In conclusion, there are a couple overarching themes that encompass the majority of inventory management best practices. Use data to make decisions, count on your technology solution to automate processes, track your inventory from start to finish, and cut your losses to make room for more of the right products. Following these 7 steps will
substantially increase your store’s profitability and increasing profitability is why Inventory Management Matters.
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