Inventory management in retail is filled with complexities. Retailers often sell products both online and in multiple physical locations while dealing with various suppliers shipping inventory at different times. One miscalculation in predicting future demand can lead to a stockout situation, while overestimating demand can result in excess inventory and increased carrying costs. With so many factors at play, it becomes essential for retailers to seek out effective strategies to optimize their inventory management processes. Below are ten steps retailers can take to enhance their inventory management practices and ensure a smoother, more efficient operation.
1. Consolidate your inventory information
A significant hurdle in inventory management is the fragmentation of stock information. When inventory data is stored in multiple places, it becomes difficult to have a clear, unified view of the entire stock. For example, your store’s point-of-sale (POS) system might show you have five units of a particular item available in-store, but this data might not be synchronized with other locations or warehouses. This disjointed information can lead to customer dissatisfaction if the product isn’t actually available when promised.
By consolidating your inventory data, you can aggregate e-commerce and POS information into a single platform. This integration minimizes data silos and offers a centralized source of truth for inventory data, customer details, and order information. For instance, Bared Footwear experienced frustrations with its previous system due to inconsistent inventory data across different channels. The company resolved this issue by migrating to Shopify, which unified its inventory data and prevented sellouts. By having a consolidated system, Bared Footwear also introduced an endless aisle fulfillment option, representing a seamless 4% increase in in-store orders.
2. Implement inventory management software
To optimize inventory levels and increase real-time visibility over stock, investing in inventory management software is crucial. Such software enables detailed tracking of stock quantities across multiple storage locations, including retail stores, fulfillment centers, and third-party logistics (3PL) warehouses.
For example, data might indicate that summer sandals sales surge in June and that size 9 is the most popular. With a supplier lead time of six weeks, a retailer can place a purchase order on April 5th, ensuring timely stock arrival to meet customer demand. Furthermore, tools like Shopify POS Pro and Stocky can assist in tracking inventory levels, forecasting needs, and managing stock adjustments seamlessly from the Shopify admin panel. These capabilities empower retailers to make informed decisions and maintain optimal stock levels.
3. Establish stock notifications
One effective way to prevent stockouts is by setting up stock alerts that notify you when specific products fall below predetermined minimum stock levels. These notifications give you ample time to replenish inventory before it runs out, helping maintain continuous product availability for customers.
To set up stock alerts, retailers can use inventory alert apps available on platforms like the Shopify App Store. Calculating the optimal reorder point for each SKU involves considering factors such as supplier lead time, maximum daily sales, and average daily sales. Additionally, it is advisable to set safety stock levels—reserve inventory that acts as a buffer against potential issues such as long supplier lead times or transportation delays. Safety stock ensures that there’s always some inventory on hand to sell, even if unexpected problems arise.
4. Organize inventory into categories
Categorizing inventory not only helps customers find products easily but also aids in effective inventory management. Well-organized categories provide insights into the best and worst-performing collections, enabling smarter restocking decisions. Retailers can prioritize products similar to their top-selling categories, reducing storage fees and carrying costs.
Effective category management highlights the most valuable suppliers based on sales data. For instance, if footwear is a top-performing category, the retailer can strengthen relationships with footwear suppliers, negotiating better prices and ensuring a steady supply of inventory. This proactive approach ensures consistency in product availability and positions the retailer to capitalize on new product launches.
5. Expand supplier base
Diversifying the supplier base minimizes risks associated with relying on a single vendor. Suppliers may exit the industry, face quality issues, or increase prices unexpectedly. By sourcing inventory from multiple suppliers, retailers can maintain a steady stock supply at controlled prices, even if issues arise with one supplier.
Inventory management tools allow retailers to monitor supplier performance objectively. This evaluation considers whether suppliers meet quality standards, deliver on time, and provide favorable economic order quantities. If a supplier consistently underperforms, retailers can discuss improvements or explore alternative options to ensure reliable inventory sources.
6. Perform regular inventory audits
Regular inventory counts are essential for verifying that the quantities recorded in the inventory management system match the actual stock on hand. This practice helps identify data entry errors, theft, or inventory shrinkage, all of which can lead to financial losses and stockouts. Conducting routine audits safeguards financial accuracy and assists in stock valuation for financial statements like tax returns and profit and loss accounts.
Accurate inventory counts combined with real-time tracking enable better analysis of past sales data to identify patterns and forecast future sales. This data-driven approach improves inventory management, ensuring that stock levels adequately meet customer demand while minimizing excess inventory.
7. Utilize mobile technology
Physical inventory counts can be time-consuming and prone to errors. Mobile technology, such as barcode and RFID scanners, addresses these challenges by streamlining the counting process. Retail associates can simply scan product labels, and quantities are automatically updated in the inventory management system.
Barcode and RFID technology also enhance the checkout process, allowing quick scanning of product labels to add items to customers’ carts without navigating the POS interface. This efficiency boost not only improves inventory accuracy but also enhances customer experience, making transactions faster and more seamless.
8. Invest in automation tools
Automated inventory management systems act as smart assistants for busy retail managers, reducing the manual effort required for inventory tracking. Automation increases operational efficiency by handling repetitive tasks, enabling managers to focus on sales and customer service.
Retailers can use automation tools to forecast demand for specific SKUs, update inventory quantities from multichannel orders, accept preorders, process returns and refunds, and generate detailed inventory reports. For example, Shopify Flow allows retailers to set up workflows that automate tasks such as hiding out-of-stock products or receiving notifications for low stock. This streamlined approach enhances inventory management and reduces the risk of human error.
9. Enhance your warehouse design
The layout of a warehouse significantly impacts its efficiency. Retailers can optimize warehouse design to maximize space utilization, reduce transportation time, and streamline order fulfillment processes. Proper organization within retail stockrooms is equally important. Placing bestsellers closest to the door and grouping categories logically simplifies the process for retail associates to locate and retrieve products quickly.
With tools like Shopify POS, retailers can process customer orders in-store and pass them to distribution centers or 3PL partners for fulfillment. This setup allows for efficient stock management even if certain items are not physically present in the store, providing flexibility and ensuring timely delivery to customers.
10. Refine your inventory receiving process
Inventory management in retail presents numerous complexities, especially as retailers juggle both e-commerce and multiple physical store locations. They often work with different suppliers who deliver inventory at varying times, adding another layer of complexity. A single mistake in forecasting future demand can spell trouble: underestimating could lead to stockouts, frustrating customers and losing sales, while overestimating results in surplus stock and higher carrying costs.
Given these challenges, it’s crucial for retailers to implement effective strategies to optimize their inventory management processes. Below are ten actionable steps retailers can take to improve inventory control, leading to smoother and more efficient operations. Implementing these steps can help strike a balance between meeting customer demand and managing costs, ultimately contributing to a more successful retail business. Whether it’s leveraging data analytics for better forecasts, adopting automated systems to track inventory in real-time, or establishing solid relationships with reliable suppliers, these strategies can significantly enhance overall inventory management in retail.
