Many companies in the retail category still dread the word “inventory”. They consider inventory management a herculean task due to the sheer effort involved in managing it. However, it possesses the potential to make or break any business. Companies can’t sell anything unless they know where the product is, where it’s supposed to go, and how much they have. Holding inventory ties up a lot of cash for companies. That’s why good retail inventory management becomes crucial for growing a company. With proper inventory management techniques, companies can control inventory, avoid spoilage, and save on storage costs.
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Top Inventory Management Techniques
Inventory management techniques #1: FIFO strategy
First-in, first-out is one of the most important inventory management techniques for companies in the retail category. In this technique, companies move out their oldest stock first and then the newest stock. This strategy is especially important to reduce unsellable spoilage for companies selling perishable products.
Practicing FIFO is also a good idea for non-perishable products. If the same boxes keep on sitting at the back, they become obsolete. Moreover, packaging design and features also change over time making them look worn out.
Inventory management techniques #2: Determine inventory levels
Setting par levels make it easier for companies to manage inventory. Par levels are the minimum number of products that companies need to have at any point in time. If the stock dips below a predetermined level, companies know it’s time to order more.
Usually, companies order the minimum quantity and get back above par. However, it requires companies to do some research and make decisions upfront to systemize the process of ordering. Improving inventory management system makes it easier for companies to adjust par levels.
Inventory management techniques #3: Effective contingency planning
Companies face a lot of issues such as sales spike and cashflow shortfall while managing inventory. Also, there can be instances when manufacturers run out of products or discontinue a product without warning. Such issues can cripple businesses if not managed well.
Determine where risks are and develop a robust contingency plan. Devise strategies that can prove helpful during such as a situation. Also, know-how will it impact different parts of the business.
Anticipating contingencies requires companies to analyze different factors impacting the retail inventory management. Give SpendEdge a try by subscribing for a demo to gain insights for improving the inventory management process.
Inventory management techniques #4: Perform regular auditing
Regular reconciliation is one of the key inventory management techniques that help companies keep a check on products in the stock. Companies can either do it manually by counting all the inventory at once or start spot checking throughout the year.
Companies can also use cycle counting to audit their inventory rather than doing a full physical inventory. Cycle counting spreads reconciliation throughout the year and helps companies to check products on a rotating schedule by improving the inventory management system.
Process of inventory management
Here’s a simplified 5-step process for inventory management:
Demand Forecasting:
Predict future demand based on historical data and market trends. Use tools like sales data analysis and market research to estimate how much of each product you’ll need.
Reorder Point Calculation:
Determine when to reorder items by setting a reorder point. Consider factors like lead time (time between ordering and receiving) and safety stock (buffer for unexpected demand changes).
Order Placement and Monitoring:
Place orders for items when their stock reaches the reorder point. Monitor order status and delivery times closely to ensure timely replenishment.
Inventory Tracking and Organization:
Keep real-time track of inventory levels using tools like barcodes or RFID. Organize storage to facilitate easy access and prevent damage. Use techniques like FIFO to manage stock rotation.
Regular Review and Adjustment:
Continuously review inventory performance. Adjust reorder points and forecasts based on actual demand. Identify slow-moving or excess items and take corrective actions, such as promotions or discounts.
