Good inventory management forms the muscle of any retail business, and the importance of inventory management for retailers cannot be emphasized enough.
When inventory moves fast and is maintained at optimal levels, it frees up working capital. This allows the business to move onward and upward. Non-selling inventory can be a huge stressor.
Inventory management is the handling of inventory from sourcing to order fulfillment. It is the science of purchasing, supervising, controlling and dispensing of stock for sale which is stored in a facility.
Why is good inventory management important?
Good inventory management is a set of globally established practices to manage, store and sell products. It helps ensure that you have the right stock, at the right levels, in the right place, at the right time, and at the right price.
To put it simply, good inventory management is one big optimization problem. You need to take a bunch of variables into account and maintain all of them at optimal levels for success.
In this age of globalization, many retail businesses are not just omnichannel but also international. Therefore, managing a multi-location supply chain and inventory requires a blend of logistics, technology, and processes that meet a global standard.
This is where systems and automation come in. Applying automation to inventory management removes human error and adopting an inventory management software early on helps you scale without worry.
The Importance Of Inventory Management
Good inventory management helps you achieve a few different objectives, with relatively more ease if you use an inventory management system. In fact, we would go so far as to say that using an inventory management software product is the backbone of good inventory management today.
Here are a few results one can expect to achieve with good inventory management practices:
Good inventory management makes scaling up easier
In a store, order fulfillment usually ends at checkout unless people bring the product back for a return or replacement.
But for online sales, the process begins when an online order is placed. The right products have to be located in the store or the warehouse, packed, shipped and delivered to the customer. Bring in a large inventory and no automated system, and disasters are just waiting to happen.
By knowing the various locations of your SKUs, you can acquire the ordered item(s) from wherever it is in stock, or the location closest to the order point.
Ship From Store is a fast, convenient way to use existing inventory and space. You can turn every store or warehouse into an order fulfillment hub with an inventory management system. You can also transfer your stock from one location to another, with the transaction documented in the system. If you are a retail store looking to grow via an omnichannel growth strategy, this operational setup can help.
Ensures optimal stock levels and frees up working capital
When your inventory management practices are sound, you will rarely ever experience understocking or overstocking issues. Using past sales data and forecasting, you can easily determine optimal stock levels. By setting reorder points for each product, you can receive alerts for when to order more.
If you add a software product to this equation, you can automate the raising of purchase orders. This way, every time a product falls to its reorder point, an automated purchase order is sent to the vendor and stock is replenished.
As discussed earlier, maintaining just the right amount of inventory allows you to free up as much working capital as possible. You can also track fast vs. slow-moving items, stock them accordingly to ensure maximum utilization of warehouse space.
Managing Inventory Well Results In Reduced Stock Loss
While your inventory management software will give you the system figures, it is important to check them against actual stock figures (which could vary due to damage and pilferage).
Good inventory management involves auditing your stock frequently. You can follow the ABC method of counting where the fastest moving items that contribute most to revenues are counted most often.
Suggested Reading: Learn How To Become A Stock Reconciliation Ninja!
Stock audits are an important aspect of good inventory management. With an inventory management system, you have the added advantage of being able to track every single product. This way, you can find out where the losses, if any, are coming from. As a natural consequence, you can expect to lose less stock to damage, theft or even simple expiry of usage.
Good Inventory Management Leads To Faster Order Fulfillment
In eCommerce, order fulfillment is everything and not delivering products on time is the surest path to retail demise.
However, things don’t have to be so bad!
While it is difficult to fulfill orders within hours like Amazon, it is possible to fulfill them on the promised dates.
How does good inventory management help? It ensures that you always know how much stock you have in hand so you don’t go selling products you don’t actually have. Some retailers do accept backorders. However, if that isn’t your business model, selling out-of-stock products is a sure way to disappoint customers.
The problem gets worse when you have too many SKUs to handle. How will you track product movement when you don’t even know which ones you have on hand? good inventory management, then, is all about tracking every product’s inventory accurately, thus resulting in orders that reach people sooner.
Good inventory management paints an accurate picture of business health
The health of a retail business is measured in terms of its revenues and cash flow. You may be selling well but have a mountain of dead stock. Or, you may have too little stock and end up losing out on sales.
In both cases, you’re losing out!
One aspect of good inventory management is accurate reporting which shows you just how well you’re doing. You might have predicted high-volume sales for a product, but the reports tell you they’re gathering dust. In such a situation, you can quickly sell the product and free up space, and money.
Reports also show you how much you’ve earned and how much you owe, so you can quickly see whether you’re afloat or in the red. In retail, the product is the most important thing, and tracking its movement all through the value chain is the only way to see how well you’re doing.
Good Inventory Management Equals A Great Buying Experience
Let’s discuss the most common model of selling today- omnichannel retail. It is safe to say that omnichannel retail would be impossible without good inventory management.
Assume that a customer walks into your store, likes a product but needs a different size. Now, this size is unavailable in the store, so you offer to procure it from elsewhere.
For one, how will you fulfill an order from other places if you don’t know what exists there?
Or, consider this- you offer to place an order for the product online. Here too, if you don’t know your warehouse status, you cannot place an order and fulfill it within a reasonable time.
But, from the customer’s perspective, these things should be possible. Indeed, they are basic expectations today. That’s where good inventory management helps- when you use a system to track and consolidate inventory, you know exactly what you have and where.
In turn, you can make omnichannel retail work for you and your customers. This invariably leads to a positive buying experience and keeps them coming back.
Good inventory management helps you prevent stockouts and keep accurate records. It also comes in super-handy when you want to scale to other channels and locations. Adding in a good inventory management system makes the process that much more effective. If you’d like more details on how that works, scroll up!