Retail Inventory Management Best Practices – Forbes Advisor


To ensure your efforts set your retail business up for success, keep these best practices in retail inventory management on your radar.

1. Establish KPIs

Key performance indicators (KPIs) are designed to measure performance over specified time periods so you can meet certain goals. If you establish inventory KPIs, you’ll have a clear understanding of which milestones you’d like to hit on a weekly, monthly, quarterly or annually basis. KPIs will also give you the data you need to make smart business decisions. Some examples of KPIs you might want to set include inventory carrying costs, rate of inventory turnover, order status and tracking and fill rate.

2. Use ABC Analysis

ABC analysis is a method in which you arrange your inventory in order from the most important items to the least important items. While the A items are considered the highest priority stock and require frequent reordering, the B items are valuable but are medium in priority and ordered once a month. The C items are low-stock priority items that don’t need to be reordered very often because they’re usually carried in high volumes. By using ABC analysis to organize your stock, you can optimize your storage space and streamline fulfillment.

3. Create a Strategy to Record Stock Receipts

The reality is suppliers make mistakes. Unless you have a tried and true process to check and record received products and find errors and damage, you’ll run into issues, such as unrecorded stock, unexpected stock outages and payments for items you never ordered. To ensure the accuracy of your stock receipts, count products against purchase orders, follow up with suppliers about any errors, shortages or damages, unpack entire shipments completely and update stock counts in your inventory management system.

4. Invest in an Inventory Management System

While you can manage your inventory manually, doing so is tedious, time-consuming and risky. If you use a single, high-quality inventory management software or point-of-sale (POS) system, you’ll be able to automate many of your processes, understand how your inventory is moving and expand to other brick-and-mortar locations or onto the internet easily. This can lead to fewer errors, improved efficiency and increased productivity.

5. Build Strong Supplier Relationships

Your suppliers are some of your greatest assets. After all, without them, it would be difficult for you to produce or sell products and earn money. That’s why it’s a good idea to update them on what happens with their items after they leave their hands. By building strong relationships with them, you may be able to lock in discounts, reduce the risk of delays and quality issues and simplify your inventory management. Don’t be afraid to drop nonperforming or problematic suppliers and find new ones.

6. Calculate Minimum Stock Threshold Limits

The minimum stock threshold refers to the least amount of inventory you need in your warehouse at all times. If you figure out what this number is, you’ll have enough stock on hand to deal with an unexpected influx of sales. You’ll meet demand and reduce the risk of long fulfillment times, which can damage your reputation. To calculate your minimum stock threshold limits, use this formula:

(Average daily product sales ÷ number of working days in the month) x average product delivery time

7. Manage Residual Inventory

Residual inventory is inventory that remains at the end of one season. If you sell clothing, for example, you may have leftover shorts once summer comes to an end. To manage and reduce this type of inventory, you can create season codes with style numbers when you enter the items into your inventory management system. This can make it easier to analyze sales and seasonal inventory so you can better prepare for future seasons.

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Bottom Line

As a retailer, you know your inventory is the lifeline of your business. By following these best practices and ensuring you always have the right levels of products, you can meet demand, satisfy your customers and grow for years to come.



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