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Inventory Management Best Practices for Retailers 2019 (Guide)

By Ruthie Bowles logiwa-blog-author | Tags: Inventory Management eCommerce

Inventory management best practices change with technology innovations. Innovation is a key differentiating characteristic among retail businesses that stand the test of time. “Good” isn’t good enough anymore. When retail operations invest in their people and technology, they greatly increase their chances of success. We studied what these companies do right and created an in-depth guide.

1) Optimizing Your Inventory Management Processes Matters

If you can’t deliver products to your customers then you undermine the very purpose for your business. For the customer, there are few things more frustrating than spending time shopping only to discover the item they want is out of stock.

Whether it’s a problem with inventory management or a hiccup with a supplier, forcing a customer to find a product elsewhere, or wait, hurts your reputation. It creates a disappointing experience the customer is likely to recall the next time they consider shopping with you.

The Grocery Manufacturers of America published a report that concluded consumer response to products out of stock online is a bit different from those who shop in physical stores.

When consumers are faced with an out-of-stock message online, they won’t waste time looking for an alternative or switching brands. 70% of online shoppers would switch to a competitor if a product is unavailable rather than wait for backordered inventory.

While customers might stay on your site and try an alternate product, you will still experience losses associated with running out of stock. Especially if you don’t offer an alternative.

According to the report, potential online sales losses run as high as $17 billion annually due to out-of-stock messages that force customers to shop elsewhere.

To maintain customer retention and avoid losses follow these tips and best practices for eCommerce inventory management.

BONUS: Before you read further, download our Inventory Management Software Whitepaper to see how Logiwa uses real-time tracking to help customers get up to 100% inventory accuracy and increase shipments by 2.5x.

2) Identify a Backup Supplier

Every retailer relies on suppliers for products sold and components used in manufacturing what they sell. Finding good suppliers isn’t always easy, especially when you need a quality supplier that:

  • Consistently delivers on time

  • Knows the industry

  • Maintains a strong relationship with its customers

Loyalty can mean a lot of things for businesses. You may receive discounts based on order volume, but you shouldn’t bet the success of your business on a single supplier.

If you rely on a single supplier for many (or all) of your products then a single catastrophic event – even a labor dispute or weather event – can shut down your business for an indeterminate amount of time.

Make it a point to have a backup supplier that can deliver goods through another channel, or another port. Bonus points if they source from a different region. This way you can maintain the health of your supply chain should anything happen to one of your suppliers.

3) Put Someone in Charge of Inventory Management

When you sell more products, your inventory management processes get complicated. This results in stock problems. As early as possible, you should designate one person to be in charge of inventory levels.

A dedicated inventory controller can save you hundreds of thousands of dollars over time. They’ll help you avoid customer losses due to out-of-stock incidents. Not to mention, they can implement effective inventory management and control stock levels. They’ll help ensure you don’t have company revenue tied up in too much inventory that’s left unsold.

Having a person dedicated to inventory management in addition to using a central inventory tracking system will put you ahead of many businesses. In fact, 43% of small businesses don’t track inventory at all, or use a manual process to track inventory.

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4) Perform Regular Inventory Audits

Inventory reconciliation is a necessary part of eCommerce when you’re stocking inventory. You can’t get complacent when using a real-time inventory tracking system. Those systems are only as accurate as the amount of inventory the system thinks is on hand.

When the data doesn’t match due to things like improperly tracked purchase orders, theft, or a glitch in communication, you can wind up with a lot of customer orders placed for a product that’s out of stock.

There are a few ways inventory can and should be tracked:

Full inventory counts – these counts are tedious, especially if you have a lot of product on hand. They’re typically done annually for the purpose of accounting and taxes. If you deal with a lot product passing through numerous hands in your business it may be a good idea to perform regular counts in order to mitigate loss from theft or product damages.

Inventory cycle counting – some businesses perform cyclical inventory counts where products are counted on a rotating basis throughout the year rather than counting everything at the end of the year. Products that move faster, or high-end items, tend to get counted more often

Spot check counts – spot check inventory works like a full inventory count but instead of counting everything in your warehouse you choose one or two products. These can be any random product from your inventory or a high-value product more likely to be mishandled or suffer loss. The product is counted in full and the on-hand number is compared to the number of products you should have in your inventory.

You can ease the pain of performing inventory audits by using an inventory management system that focuses on accuracy.

5) Use Data to Accurately Forecast Your Inventory

It’s uncommon for businesses to remain steady each day throughout the year. Your business will fluctuate. With busier seasons and mad rushes around promotions, you must carefully manage your inventory.

It’s even more important to understand which products your customers love and when those products will sell.

Unfortunately, 60% of retailers report that their forecasting accuracy is below 80%. Forecasting accuracy this low severely impedes your ability to make decisions about the future of your business.

Forecasting your inventory needs requires data. So if you’re using any kind of modern ecommerce platform, you should have all the data you need to use basic and some advanced demand forecasting methods.

Even if you don’t use an ecommerce platform (you sell exclusively through marketplaces), a data-focused IMS can give you the information you need for accurate forecasts.

Your sales data over the last year will let you track individual product sales. From those numbers, you can see how market conditions, promotions, and seasonality impacted product demand.

Things to consider when projecting sales and inventory needs include:

  • Market trends and conditions

  • New product version releases

  • Guaranteed sales from subscriptions and reorder contracts

  • Tracked growth rate over previous periods

  • Prior year’s sales during the same period, cycle, week

  • Planned promotions and marketing such as online ads and email campaigns

  • Seasonal changes including upcoming holidays

Use that data to forecast how much inventory you’ll need on hand. Having too little can force customers to shop elsewhere if you run out of stock. Having too much eats will rack up carrying costs.

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Real-Time Inventory Updates

eCommerce platforms have made it easier than ever to launch and run an online store. While inventory management is a breeze, you can create a lot of chaos if you don’t set it up properly ahead of time.

These platforms offer a few ways to track inventory:

  • API integration to an inventory or warehouse tracking system so inventory stock is always in real-time and levels replenish in the system as products are checked in/restocked

  • Established stock numbers that will change based on sales and returns, but the number of product on hand is adjusted manually when new stock is received

  • No inventory tracking; the product is essentially “always available”

You can oversell product if your inventory numbers don’t update in real-time. Manual updates are subject to human error, like forgetting to update stock quantities. And “always available” doesn’t necessarily mean you always have it.

It just means the customer can order it and pay whether you actually have the product or not.

Even for small businesses and startups, it’s best to use real-time inventory updates. It might be easy to track inventory manually, but this isn’t a scalable solution. It will quickly lead to inventory errors and leave customers waiting for backordered items. Or worse, requesting a refund.

This is another best practice where an integrated IMS can help you. When your IMS pushes real-time inventory updates to marketplaces and shopping carts, you avoid overselling and unhappy customers.

Don't Let Your Inventory Become a Liability: Poor inventory accuracy leads to a host of issues that cut into your margins. Learn how Logiwa integrates all your sales channels and provides real-time inventory tracking.

Set Periodic Automatic Replenishment Levels

A Periodic Automatic Replenishment (PAR) level is used in inventory management to determine the minimum quantity of products on hand necessary to always meet customer demand. Even if you use a real-time inventory tracking system, you still need to establish a PAR level for your business.

When inventory levels drop to, or just below, your PAR level, your IMS should trigger a reorder in so you can keep the product in stock.

Your PAR level for each product shouldn’t be an arbitrary number. Instead, base it on inventory turnover rate and customer demand.

Also, your PAR level won’t stay the same throughout the year. Forecasting inventory will help you stay aware of events that could impact customer demand as well as stock maintenance.

For example, upcoming holiday seasons could require PAR levels to increase.

First In, First Out Inventory Rules

First In, First Out (FIFO) is more common in eCommerce businesses that deal with perishable products with expiration dates. This process ensures that the first products received in your warehouse inventory are the first products pulled to send to the customer.

Even if you don’t deal with perishable goods, this is a good practice. With FIFO, you avoid products sitting in your inventory for too long. Customers are likely to notice if a product they receive has been ignored or neglected when they receive:

  • an over-handled, scuffed, or faded product

  • one that’s covered in dust

  • has obvious out-of-date packaging compared to recently released versions

Just-In Time Inventory Management

Some small businesses use the Just-In Time (JIT) inventory management technique to lessen the cost of managed inventory. When a small business wants to control overhead or has limited warehouse space for some or all products, they’ll use this order fulfillment method.

When using this approach to inventory management, you will only stock a product when a customer orders it. The volume of inventory on hand is only equal to the number of orders you have to fill for a product.

While this has its advantages, it requires careful management of suppliers and keeping a close eye on the logistics of each order. This is true even if you use an automated system to place JIT orders with suppliers when your customers place orders on your store.

Track Purchase Order Data and Supplier Performance

Do you know how long it takes for your supplier to fill a normal purchase order? What about an abnormally large order? Do your suppliers offer expedited orders or alternate carriers if there’s a problem with a certain carrier?

As you develop relationships with suppliers make a point to ask extra questions. Get familiar with the amount of time it takes to fulfill an order based on the volume of that order. Especially when you’re placing larger reorders.

A single day added to fulfillment and delivery is an entire day that you might be out of stock. You can lose tens of thousands of dollars and do permanent damage to a customer’s perception of your brand.

6) Choose the Right Inventory Management Software

Choose a scalable inventory management solution as early as possible in the life of your business, and do so with future-planning in mind. If you anticipate selling products through multiple channels (physical store, social media, Amazon marketplace, your website) then you want to use an eCommerce platform and software with real-time inventory management across all those channels. Ideally choose a platform that includes:

  • Programmable PAR levels (minimum and maximum)

  • Low inventory and reorder alerts

  • Automated reordering based on PAR levels

  • Cross-channel inventory synchronization

  • Automated order routing

  • Just-In time inventory management

  • Interfaces with point of sale and mobile scanning

  • BIN IDs and pick lists

  • Multi-warehouse/multi-site inventory tracking

Inventory management is essential to the success of your business. While manual tracking may be easy when you’re only dealing with a handful of orders when a store launches, it will quickly overwhelm you.

Use these best practices and tips to steer you toward a more structured process for inventory management to minimize losses and retain more customers.

If you need an inventory management system to help you implement these advanced inventory management practices, then schedule a Logiwa demo. See why thousands of companies choose Logiwa as their IMS solution.

Ruthie Bowles

Written by Ruthie Bowles

Ruthie is a content marketing consultant for Logiwa. Her specialties include small business development and inventory management.