10 Quick Tips For Managing Your Inventory BetterOctober 10, 2017 - Rachel Jacobs
You’re probably doing a good job of managing your inventory. You have the Economic Order Quantity in mind, and you know your lead time as well as sales expectations in a given time period. And that’s great.
But you can use these ten quick tips to manage your inventory even better. Most of these tips can be put into action right now so that you won’t be caught in a tight spot when an emergency arises. Most components of inventory management are all about planning for what can go wrong and preventing it from happening.
1. Always Audit
In an ideal case scenario where you sell just one product on one sales channel, a stock audit is easy enough to conduct. However, in real life, you probably sell hundreds of varieties of products across a variety of marketplaces, stores, and outlets.
In this case, a stock audit is essential to reduce stock shrinkage – a term used to describe stock losses due to theft, spoilage and other reasons. You can read more about different methods of counting stock here. Choose a method that is most appropriate for your business. Most importantly, count your stock more often.
For example, you can use the ABC method to group products into categories based on sales volume and frequency. Products in category ‘A’ have high sales volume and frequency, so they tend to move around a lot.Therefore, you need to count these products more often than products grouped into subsequent sections.
2. Store Properly
The grocery industry loses hundreds of billions of dollars in shrinkage each year. This can be attributed in part to the fact that the temperature controls in a warehouse can sometimes cause trouble. In general, the lower the storage temperature and larger the warehouse, the lower the losses.
And this is just for grocery! Think of how many other products come with an expiration or directions for proper storage – supplements, packaged foods, medication, home and personal care products, and baby products are just some of the many out there.
This may sound obvious, but if a certain portion of your inventory needs to be stored in a cool, dry place, store it in a cool, dry place. In fact, you can take our stock audit one step further and account for how your products must be stored versus how they are currently being stored in addition to just how many there are.
Move products around if need be so that you lose as little as possible due to incorrect storage. Employ the First In First Out (FIFO) method for stocks with expiration dates to ensure no old products are left behind.
3. Evaluate More Than Once
Safety stock and reorder level calculations are the gold standard for inventory management. Your reorder level tells you when and how much of a certain product you need to procure to avoid going out of stock. The safety stock is essentially what you keep to account for fluctuations in lead time, seasonal variations in sales, etc.
As you can see, it is not enough to calculate these numbers once and just let them be. Every time you face a spell of spikes or dips in sales, you need to evaluate if they are indeed anomalies or the beginning of a new trend.
Based on this analysis, you need to readjust reorder levels and safety stock levels for one or more of your products. If you use a system to calculate these values and raise purchase orders, you may have to re-calibrate the inputs the system works with.
4. Build Vendor Relations
Unless you also manufacture the products you sell, you are dependent on vendors for receiving goods on time. A minor slip-up of a few days on the vendor’s end can eat into your safety stock, and quite dangerously so in sales spike periods.
However, you cannot always keep adding more safety stock to avoid stock outs when a vendor’s delivery is delayed. One way to work around this is to agree to pay only for those goods that you are able to sell in a given time period. In the event that more of your stock ends up dead, your vendor will take it back from you for a small fee.
In order to negotiate agreements such as these, you need to maintain good professional relationships with your vendors. You can do this by
- clearing their invoices on time,
- always accepting deliveries for shipments you order,
- auditing stock as soon as you receive a shipment,
- sending damaged goods back promptly, and
- making their life easier in general.
5. Understand Excess Stock
It is often not enough to know that you have excess stock. You also need to know why. Especially for retailers who make sales to the order of millions of dollars a year, excess stock is the huge elephant in the room that silently eats into your profits but that no one really talks about.
It is hard to evaluate why you have ended up with too much of a product, but it isn’t impossible. Here are a few reasons to consider:
Sometimes, calculations for safety stock are made on the assumption that a sales spike (event) is imminent. However, that spike may not have occurred after all. Now, you can correct this by re-calculating the safety stock level after the event and adjusting it to an earlier level. You can now add excess safety stock back to your inventory and proceed as always.
At other times, it could be that multiple purchase orders placed at different points in time arrive within a single time frame. You can prevent this from happening by calculating your average lead time for each vendor and avoiding ‘panic’ orders that may or may not come in time anyway.
6. Plan For Contingencies
Retail businesses run and thrive on contingencies. One retailer’s loss is another one’s gain. However, you don’t want to be on the receiving end of a rude shock.
Contingencies can take many forms. Perhaps you don’t have space in the warehouse to store all the excess stock you absolutely need for the holiday season. Maybe, your liquid cash levels are running low, and you cannot pay for all the purchase orders you have raised.
In each of these cases, the problem precipitates into the lack of enough stock or too many added expenses that will eventually eat into your profits.
Sit down today and make a list of all the variances that can affect your business. Make at least two contingency plans for each situation.
For example, one situation could be that your manufacturer suddenly discontinues a product’s supply. You have 3 options here:
- remove the product from your sales channels immediately, or
- sell the remaining stock in a clearance sale
- find a new vendor who is able to supply the same product with the same lead time.
Planning well for emergencies ensures that you are never caught off-guard.
7. Manage Returns Well
Oftentimes, we end up ignoring the smallest of things as being insignificant, and it’s that stock that gives us problems later.
Returns and replacements in the sales context aren’t just about replacing one product with another, although that is what it looks like. Whoever is making the transaction happen, be it a store representative or a warehouse employee, needs to
- evaluate the usability of the returned product,
- add it back to inventory or
- write it off as a loss and process a replacement by removing one new item from the inventory.
Now imagine multiple employees who do this on a daily basis, across multiple locations, and that is a recipe for chaos right there.
At the very outset, you need to set a policy for returns and replacements and train all of your staff in processing a return.
Every single one of them.
If you use a retail management system, the process can be considerably easier because, at the click of a few buttons, products can be added and removed from stock just as they are being added and removed in real-time.
8. Balance Stock And Service Expectations
Most retailers fumble with the same question, “Do I stock more and keep all customers happy, or do I stock just enough and keep most customers happy?”
There is indeed no single answer to this, and your answer probably reflects the values that you base your business on. Mathematical calculations can help to a great extent, but they too can never cover all bases.
In such situations, you need to find a way to balance consumer expectations and your own stock levels. A good store representative can help change a customer’s mind so they buy something else instead. In any case, your safety stock should be able to tide you through sudden spikes until your new shipment arrives from a vendor.
Remember, from a business perspective, it may be better to save on warehouse costs and satisfy most customers than overstock and satisfy every single one of them.
9. Review Continuously
By now, you would have surely noticed that inventory handling isn’t something that you set up once and forget forever. There are aspects of it that need continuous review. Ensure that you set up policies and practices for inventory review. Clearly assign roles to your employees so they can put the review into practice and report to you.
A good retail management system is the need of the hour for all retailers. Multichannel retail is more than just a buzzword, and consumers have demonstrated a preference for brands they can find on more than one channel.
As a result, you will often find yourself selling the same products across multiple channels. By automating inventory management, you will be able to
- dynamically track stock levels across all channels,
- raise automated purchase orders when the reorder level is reached,
- maintain transparency in the book and actual inventory values and
- even see how each of your products performs across channels over a period of time.
You can thus save a ton of time in calculating, updating and maintaining your stock levels just where you would like them. Primaseller can help with inventory management and purchase order automation.
There are also a few tools you can use to automate marketing for your eCommerce channels so that all of that inventory moves through the doors and makes you money. Bottom line – don’t be afraid to automate!
Mohammed Ali is the Founder and CEO of Primaseller, a MultiChannel Inventory Management software that also helps sellers build brand credibility by ensuring that accurate stock information is reflected across sales channels and orders are fulfilled on time. When not running a startup, Ali is often caught lapping up the latest book in fantasy fiction.