One of the most common sources of financial loss for businesses lies in poor inventory management.
According to statistical data, businesses lose about 1.3% of total sales due to inventory shrink, adding up to a total of 46.8 billion in 2017 in the U.S. alone. Moreover, it is estimated that 34% of businesses encounter shipping problems due to selling items, which are not in stock, and the average U.S. retailer only has an inventory accuracy of 63%.
Fortunately, although inadequate inventory management makes for a huge liability, it’s also relatively easy to improve. So, if you’re interested in avoiding financial losses and providing a better service, here are the top tips for successful inventory management.
Practice Consistency
One of the first things you have to do when looking to improve inventory management is to insist on consistency.
You see, strategies and procedures will always depend on the business in question. But, if just one person doesn’t stick to the plan, things can go wrong very quickly.
To avoid this from hurting your profits, make sure that you have readily available procedure checklists for all of your employees. For example, when receiving a new shipment, make it a point to track all product information, not just barcode data and quantities. That way, you’ll have everything you need should you run into any problems, like in the case of recalls or seasonal scarcity.
Use Automation, But Don’t Skip Audits
Another elementary way to improve your inventory management is to invest in a well-integrated inventory management system. That way, you’ll have constant insights into where you’re standing with your products.
Of course, using automation doesn’t mean you shouldn’t do a manual count every once in a while. But, it will allow you to make the inventory audits less frequent. This will give you plenty of time to focus on other tasks, like expanding your range of products or diversifying your supply chain.
Analyse Sales and Inventory Turnover Ratios
Another high-impact tactic you can implement in your retail business right away is to perform an insightful analysis that’ll allow you to strategize for more successful outcomes.
On the one hand, you can take a deep dive into your business’ performance by analysing sales. This won’t just allow you to improve your customer satisfaction. It will also reveal precious information about market trends, pipeline effectiveness, product potential, as well as marketing opportunities you can use to widen your reach.
Alternatively, you can use a formula to calculate your inventory turnover ratio. This stat should give you insights into how often you can expect to reorder certain items and whether you’re purchasing enough stock to satisfy demand. It can even tell you if you’re buying too much and losing precious funds on unnecessary storage.
Define Your Reorder Point
You’d be surprised by the number of business mishaps that happen because of poorly defined reorder points.
On the one hand, some leaders make the mistake of reordering too late. And, sure, it may seem like the logical thing to do when avoiding losses. But, data shows that it’s also one of the main causes that businesses lose money.
One report from 2018 found that worldwide retail sales missed almost $1 trillion due to out-of-stocks, a number that could have been easily lowered with proper inventory management practices.
On the other hand, overstocks can be problematic as well. According to Retail Wire, they’re to be blamed for as much as 3.2% in lost revenue.
With this in mind, defining an optimal reorder point is crucial for any business leader. But don’t think that the work stops once you’ve set a point. To ensure you’ve made the best possible choice, use sales data and market research. That way, all your decisions can be data-backed and have the highest chance of yielding positive results.
Step Up Your Warehouse Organization Game
Finally, a fulfilment service like FBA can offer benefits for those looking to spend less time worrying about inventory and wanting to speed up shipment processing. But if you’re not using FBA, you’ll want to make sure that your warehouse operates like a well-oiled machine. And that starts with organization.
In addition to keeping everything clean, look for ways to make it easier for your employees to locate items. For example, you can:
- Use categorization and labelling systems.
- Place high-turnover items on the most easy-to-reach shelves.
- Create a designated space for incoming inventory so that it doesn’t prevent your workers from getting items out.
Final Thoughts
As you can imagine, having a fail proof inventory management system can make your life a lot easier when trying to run a successful retail business. And, in that regard, having reliable software can do a lot to help.
But, that doesn’t mean that regular audits, physical organization, or employee education won’t matter. In fact, those are the things that’ll keep everything sailing smooth. Automation, on the other hand, is just there to make things a bit more manageable.