Inventory management is essential for a successful business, but careful planning is needed to ensure you’re not left with too little or too much.
Stock management is crucial for retailers to stay in business. After all, your products are what you’re there to provide for your customers, so you need to get it right.
Having the right stock helps keep customers happy and your profit margins growing. It can also improve cash flow as you don’t have significant sums of money tied up in stock that’s just ‘sitting’ there.
But having too much, too little, or the wrong stock is a problem. Sales will drop if you can’t meet customer demand and you risk tying up or even losing your capital if don’t move your stock before it spoils or goes out of style.
So exactly how do you get the formula right?
Here are some tips to help smaller retailers improve inventory management:
1. Be careful about buying in bulk
Bulk orders will likely result in a discount from the supplier, but caution needs to be exercised for smaller retailers. You need enough inventory to meet customer demand, but smaller retailers shouldn’t have too much money tied up in stock. While you might benefit from a discount at first, you may pay extra to store and or insure your goods – effectively cancelling out any savings.
2. Understand the ebb and flow of your business
The more you can learn what your customers want and when they want it, the better you can manage your stock. It’s much easier these days to forecast future demand and determine your inventory needs. E-commerce and social listening tools can provide insights into customer preferences and seasonal trends, says Steve de Mamiel, director of web hosting business Hostopia and author of The Mongrel Method; Sales and Marketing for the new Breed of Buyer.
You should also track and review data from the previous year or conduct surveys to get a better idea of demand. Another great way to gauge demand is to ask suppliers where they’re seeing success.
“Don’t ask them what the initial orders are from other retailers, but where they’re seeing repeat orders,” advises de Mamiel.
Your forecasting should be reviewed regularly to make sure you’re still on track.
3. Narrow your focus
Retailers shouldn’t try to please everyone – customers and manufacturers included, says de Mamiel. Rather than buying from a wide range of suppliers or trying to appeal to every market with a wide range of products, focus on your target market and what sells. Once you know what your customers want, stock the inventory they will buy – ie. the bestsellers, rather than the underperformers.
Aim for depth of stock in a narrow range as opposed to thin stock for a wide range, says de Mamiel. In fashion, for example, retailers should determine which particular ranges sell heavily and in which sizes, and go “all in on it”, he advises.
Otherwise, you may end up with a surplus of stock you can’t move, and are forced to drop prices to get rid of it, de Mamiel explains.
“Decide which brands represent your customer (and) go into business with three or four of them,” he says. Customers get very frustrated, he explains, when their size isn’t available and there’s no option to get more in.
4. Negotiate with manufacturers
Smaller retailers should negotiate with the few suppliers they’ve decided to partner with, advises de Mamiel.
“Tell them you’ll partner with the brand but you want certain things in return. For example, you need some support in depth requirements, including that the brand will work with you to swap sizes.”
Negotiations with suppliers might also involve getting a range of products before big retailers, or having some unique stock to give you a competitive edge. It also involves being able to order less than the usual minimum or being able to restock a bestseller fast – that is, reducing the lead time.
The relationship between manufacturers and retailers should be mutually beneficial, not adversarial. Manufacturers have been operating in a very competitive environment too, says de Mamiel, losing business to overseas suppliers, and under pressure to deliver stock in a shorter time frame.
“They’re looking for retailers to say ‘We’re not going to be everybody’s friend; you represent our brand, but we want this in return’.
5. Invest in your stock management systems and processes
For successful inventory management, you need to have a good system in place to keep track of your stock levels. This will help you to know how much has sold, how much is left, when you’ll run out and what you need to replace, and when – all of which helps your sales, revenue and cash flow.
A good system will include inventory management software that will enable you to monitor stock levels in real time, as well as doing regular physical audits for reconciliation.
You should also have an inventory budget, which should take into account all the costs, including buying stock, storing it, insurance and possible redistribution, as well as potential price reductions.
A contingency plan for unforeseen circumstances is a must have too, including if you undersell or oversell, you don’t have the cash to pay for more stock to meet demand or you run out of storage room.
What are some of the actions you have implemented to improve inventory management? Is it still a challenge for you? Share your tips for keeping track of your products and forecasting demand in your business.