Inventory management is an umbrella term covering the many processes and techniques to efficiently manage the raw, half-done, and fully done goods that a business deals with for manufacturing or sales (or both) purposes. 

It helps keep track of what items you have in stock, where they are located, and what quantities you possess at a particular time.

Businesses use different types of inventory management methods, such as just-in-time, FIFO, LIFO, ABC, and dropshipping. There is no best technique or formula you can hack or perfect. You have to make a choice depending on various factors, such as the type of product or service you sell, its demand patterns, and what your supply chain process is like.

For small businesses, effective inventory management is crucial for success. It can help block lesser capital (or smartly free it up), improve cash flow, and adapt to changing consumer demand. It can also reduce stock issues, improve customer satisfaction, lower costs, and provide valuable insights into consumer behavior.

In this article, we will explore five industry best practices for retail inventory management that can help you achieve these benefits and optimize your inventory management process.

What Is Retail Inventory Management?

Inventory management in retail is the management, tracking, and monitoring of items that a business purchases from manufacturers or other intermediaries and sells to customers. At its core, it is about keeping track of what you have in stock, what is selling well (or isn’t), and what you need to order more of.

There are several different types of inventory, such as raw materials, WIP (work in progress), and finished goods. Retailers generally only deal with finished goods since they don’t make their own products – they buy ready-to-use products from manufacturers and get them to the intended end user or customer.

5 Key Strategies To Excel At Inventory Management In Retail

Here are five practices that can help retailers optimize inventory management for their business and achieve the many benefits it promises.

1. Use the right inventory management and planning techniques

Effective inventory management is crucial to the success of any retail business. Using the best-suited strategies, retailers can maximize profits, reduce waste, and ensure customer satisfaction.

One crucial practice for retail inventory management is demand forecasting. This involves analyzing historical sales data to predict future demand. With an accurate forecast, retailers can ensure they have the ideal quantity of stock to fulfill demand without tying up capital and incurring avoidable storage costs.

Another technique commonly employed by retailers is just-in-time inventory management, widely known as JIT, which involves ordering products only when needed instead of stocking up on large quantities in advance. JIT works wonders for products such as custom-built items, luxury goods, or products with a short shelf life, e.g., luxury handcrafted furniture or foods that spoil quickly. It helps reduce waste and storage costs, but its success greatly hinges on the robustness of your supply chain process and close coordination with your suppliers.

A notable example of JIT’s effectiveness is seen in Toyota’s manufacturing process, where it revolutionized efficiency by producing only what is needed when it’s needed, significantly reducing waste and improving operational efficiency. This case exemplifies the potential benefits of JIT in minimizing inventory levels and storage costs while ensuring product availability.

On the other hand, if you can store products for a longer time, it can be good to rely on safety stock. This is a suitable amount of inventory that can be used as a buffer to prevent total stockouts in case of an unexpected increase in demand or disruptions in the supply chain. Safety stock ensures that you always have enough items on hand to meet customer demand, even despite sudden or unexpected changes.

With time and effort, you can find the correct method – or combination of methods – that works for your retail business.

2. Be regular with inventory counts

Regular inventory counting is a key component of inventory management in retail.

There are several different methods for carrying out inventory counts, such as perpetual inventory management, periodic or cycle methods, ABC analysis, barcode scanning, manual counts, and so on. Each method, including those offered by Uniqode, has its pros and cons, depending on the type of product you sell, how often you want to do a count, and what knowledge you expect to gain from the count.

Performing regular inventory counts helps to avoid dead stock, stockouts, shrinkage, overordering and overstocking, and spoilage. You can identify any problems by matching physically obtained data against computerized records. If you find discrepancies, you must investigate and address the root cause to prevent issues that could seriously hurt your business’s bottom line.

Regular inventory counts are critical if a business wants to meet customer expectations and maintain high levels of satisfaction and loyalty, all while keeping costs low. By minimizing inventory holding costs and improving cash flow, a business can better manage its financial resources and invest in growth opportunities.

By ensuring accurate tracking of inventory levels, businesses can make informed decisions about ordering, stocking, and pricing, leading to increased profitability and customer satisfaction.

3. Form lasting partnerships

From suppliers to logistics partners, retail businesses rely heavily on their relationships with external parties to keep their operations running smoothly. A strong partnership with third-party providers can sometimes make or break a business.

The key to developing successful partnerships is open communication. By keeping the lines of communication open, you and your partners can work together to solve problems and ensure that operations run seamlessly. In the retail context, this means being transparent about inventory needs, timelines, and potential roadblocks. In addition, effective supplier relationship management can help businesses build trust and foster long-term partnerships, leading to more flexibility and reliability when facing urgent needs.

A good relationship with suppliers can mean they are more willing to accommodate your needs in times of urgency. For instance, if you need an urgent order, a strong relationship with a supplier can mean the difference between meeting a customer’s needs and losing their business.

Similarly, maintaining a good relationship with logistics partners is essential. If deliveries or pickups are mishandled, it could result in dissatisfied customers and lost business. Thus, all stakeholders must work to foster a partnership built on trust and transparency.

4. Leverage the power of technology

Technology has made effective retail inventory management easier than ever before. By leveraging the power of advanced software and other robust technologies, retail businesses can significantly improve their inventory management processes and streamline operations.

MRP, ERP, WMS, IMS, OMS, and POS software can improve inventory management processes in retail by leaps and bounds. These digital solutions provide features such as live inventory management, real-time master planning, shop floor management and coordination, accurate costing, supplier management, procurement automation, and several cross-functional integrations. The visibility and control they provide over your inventory help reduce errors, save time, and increase profitability.

Additionally, technologies like RFID, dynamic QR code generator, IoT and SMS alert integration can be used for accurate tracking in real-time in the truest sense of the word. These tools can provide instant updates on inventory stocks, allowing retailers to respond quickly to changes in demand or supply. Customizable QR codes can streamline inventory management by allowing rapid scanning and updating of stock levels, enabling staff to quickly access product information and adjust inventory as needed. This level of accuracy and responsiveness is essential for making informed decisions, increasing efficiency, and providing excellent customer service.

A good practical example of implementing technology in inventory management is how Lombard24 effectively uses alerts and real-time tracking to optimize its pawnshop operations.

Another key benefit of adopting tech for retail inventory management is the automation and streamlining opportunities it opens up. Replacing repetitive manual tasks with accurate automated processes can lower costs, save time, improve efficiency, and ultimately increase profitability.

By embracing technology, retailers can stay ahead of the competition and provide their customers with the best possible experience.

5. Extract useful information from collected data

Whether you use tech-based tools or not, there’s a high chance that you have to handle vast amounts of data from various business processes every day. This data needs to be organized so you can analyze it effectively to generate actionable insights. You can achieve this by setting up information systems that ensure accurate and timely data collection, storage, and retrieval.

For gaining insights into critical stock-related decision points, it is a good idea to study sales data, purchase history, demand planning, and other important aspects of your retail business. By analyzing all this data, you can make informed decisions about inventory management, such as when and how much to order and where to focus your marketing and sales efforts. You should be able to track inventory movement, identify trends, and adjust your strategies on the fly to match changes in demand.

Other sources of data are the supply chain and logistics operations. They can help you identify areas for improvement and make adjustments to achieve efficiency, reduce costs, and improve customer satisfaction. This might involve adjusting delivery schedules, optimizing stock replenishment processes, and more.

Holistic data analytics will help you optimize demand forecasting, make better purchase decisions, avoid stock shortages or overstocking, and cut costs, among other benefits.

Conclusion

Effective inventory management can be a significant contributor to the success of any retail business, be it a brick-and-mortar store, a pawnshop website, or an e-commerce platform. The process involves timely and accurate tracking of products to be sold to customers.

You can optimize your inventory management process by implementing five best practices: choosing the right combination of inventory management techniques, conducting consistent inventory counts, adopting modern tech, utilizing data to gather actionable insights, and building lasting connections with suppliers and logistics partners.

Improving inventory management for your retail business will ensure that you can meet customer needs while minimizing excess inventory that can result in capital being tied up, wastage, high holding costs, and much worse. It will empower you to make informed decisions about ordering, stocking, and pricing, leading to increased profitability and customer satisfaction.