Stockouts – what are the causes and how to avoid them22 January 2020
Retail Analytics-Why it is important?22 January 2020
No business has ever become successful with ineffective retail stock management. Take the biggest of names in the industry and the statement holds true. Walmart lost a whopping $3 billion because its retail stock management went wrong and the most in-demand inventory went out of stock. This was more than two years ago and a lot has changed since then. Businesses are paying close attention to the empty shelf problem now. They don’t just have a focus on supply chain optimization, but also the retail stock management techniques they make use of to keep up with the market and at the same time be able to maximize their profits while holding the inventory. In this article, we’re sharing retail inventory optimization techniques that new-age retailers need to know of.
What is [retail](https://www.bluepiit.com/blog/retail-stock-management-for-new-retailers/) stock management?
Imagine having to stock up on hundreds of products based on what’s trending in the market. You have to set aside the holding costs until you make the sales. But what if the sales you estimated while stocking up don’t happen? You lose a lot of money to inventory that is basically not selling. With proper retail stock management, you can:
1. Avoid inventory spoilage If your business sells products that come with an expiry date, you need to ensure avoiding inventory spoilage. Take, for instance, food or makeup. With the right retail inventory management techniques in place, you can avoid overstocking inventory that might get spoiled
2. Avoid deadstock Deadstock refers to inventory that can no longer be sold. It could be because the product has expired, is no longer trending in the target market or become irrelevant for some reason. With effective retail stock optimization, you can predict market trends and plan your inventory better to avoid deadstock.
3. Save on inventory storage costs Warehousing costs fluctuate based on how much inventory business is storing. If you’re stocking up too many products at once or are not making enough sales out of the inventory you have, your storage costs go up. With proper retail stock management, you can predict the right amount of inventory required and avoid unnecessary storage costs.
4. Improves cash flow Inventory is basically the products that you’ve already paid for in cash. But until you make sales or until it’s lying in your warehouse, you’re not recovering the cash you’ve spent. That’s where retail stock optimization helps. You’re only spending as much as you can actually make sales on to be able to have a free cash flow. So how do you ensure effective retail stock management?
Retail stock management techniques
1. First-In-First-Out (FIFO) This is one of the simples retail inventory management techniques. It simply means that your oldest stock gets sold first and only then you progress towards selling your most recently stocked items. The FIFO retail stock optimization technique works best for businesses selling perishable products. It helps prevent spoilage and deadstock, and that’s why it has been used for non-perishable items as well to ensure they don’t become obsolete in the market. But to be able for FIFO to be effective, you need to ensure that your warehousing company understands inventory arrangement as per the method.
2. Inventory par levels Another one of the retail stock management techniques that have proven to be effective, is setting ‘par levels’. This basically refers to setting a minimum number of products that your business must have in inventory at all times. So basically whenever your inventory stock drops below the predetermined level, you know it’s time to order a restock. Par levels can vary by product and are usually set based on how the items sell and how long does it take to get them back in stock. But remember to continually monitor your par levels as the market conditions change over time.
3. ABC Analysis Always Better Control Analysis (ABC Analysis) refers to the retail stock management technique where items are classified into defined categories – A, B, and C. Inventory in category A is closely controlled because they’re high-priced products. They may be lesser in number but are expensive for the business to hold in stock. Products in category B from the inventory are lesser expensive and the number of items is moderate. So the control level of this category of inventory is also moderate. Category C in this retail stock optimization technique consists of high inventory items. These are products that cost the business lesser and so the control level is a minimum too.
4. Just-in-time (JIT) method In this retail inventory management technique, the company only keeps as much inventory as it requires during the production process. By doing so, the company ensures that there is no excess inventory in the warehouse, saving on the cost of storage and its insurance. But for this retail inventory optimization method to be effective, you need to take into account the time it takes for new inventory to come in. To avoid stockouts, you need to bring everyone in your supply chain to follow a planned process.
5. Inventory forecasting The one technique that every modern retailer needs to make use of for retail stock management, is using data. Businesses need to accurately predict market demand to be able to manage their inventory better. This includes taking into account a number of variables like market trends, previous year’s sales during the same period, current year’s growth rate, sales from subscriptions, upcoming promotions, ad spend, overall economy and more. But the retail industry reports that the average accuracy of inventory is only 63%. That’s where having solutions like BluePi in your retail inventory management process comes in. The platform processes your business data alongside market trends in real-time to help you accurate forecasts.
6. Regular inventory auditing There are a number of retail inventory optimization techniques that businesses can use. There is no one technique that suits all. That’s why you need to invest in regular inventory auditing to understand if your processes are working effectively.
Here are three methods for conducting an inventory audit:
- Physical inventory audit: The practice of counting all inventory at once and most businesses conduct such an audit at their year-end. This helps them tie their inventory with accounting and filing income tax.
- Spot checking: Instead of counting all the inventory in one go, which is prone to error, spot-checking through the year is a good auditing method. This includes choosing a product, taking count and then comparing it to the expected inventory it is supposed to be. It is a good practice to follow this for fast-moving/ fast-selling products.
- Cycle counting: In this auditing technique, different products are checked on a rotating schedule – day, week or month. To make this more effective, businesses audit higher-value items more frequently.
Maximize profits with better retail inventory management
In times when market trends are continually changing, it is becoming important for businesses to focus on inventory management. With proper retail inventory optimization, you can help reduce your storage or warehousing costs, analyze sales patterns better, predict future sales, plan your inventory better and double your profitability.
So take stock of your business, its performance and then choose the retail inventory management technique that suits you the best. Stop losing money to mismanaged inventory, overstocks or stock-outs!
Want to achieve retail nirvana? Make better inventory forecasts with BluePi.