Perfecting Your Retail Inventory Management: Where Should You Start?
Perfecting your retail inventory management requires an attitude of continuous improvement. Otherwise, customers and profits could go to your competitors, particularly if they’re better at assessing inventory demand.
Looking for a place to start making improvements? Consider these three tips to boost inventory management at your store.
Strike a balance between just-in-time (JIT) replenishment and safety stock: JIT is often used in the manufacturing industry. It’s all about minimizing inventory carrying costs by making products available exactly when and where they’re needed.
However, to make a JIT strategy work in a retail environment, stores must immediately replace products on shelves after they’re sold. Retailers would need to know the exact number of customers who are entering the store and buying products during a specific time.
The closest JIT strategy in retail is sales projection. But if you project your stores will sell 100 units of a product, and then run out due to higher than anticipated demand, you’ll end up with unhappy customers. That’s why you must carefully decide safety stock levels for products.
Optimal safety stock levels vary from retailer to retailer and from product to product. Convenience stores, for example, might want to keep hundreds of staple or seasonal items stocked so customers know that they’ll always be available. If customers can’t rely on certain products being in stock at your store (i.e. aspirin at a pharmacy retailer), they’re likely to go elsewhere.
Keep in mind that running out of stock isn’t always a bad thing. With a limited-edition item, customers purchase the product knowing that it’s available on a first-come, first-served basis.
Safety stock levels boil down to how comfortable you are with potentially running out of a product. If you have a product that sells consistently each week, you can probably confidently rely on those sales figures in determining your safety stock.
Use sales or discounts as a strategy for moving stock: For items with expiration or spoilage dates, retailers should use sale promotions to move inventory.
Let’s say you’re selling prepackaged goods like milk. You normally sell 300 gallons of milk a day, but your retail ERP system sends an alert that you have 500 gallons of milk per day for the next week in stock. Instead of letting that excess inventory go to waste, you can discount the inventory in the days leading up to the expiration date.
While it’s possible that you’re not making a profit on the discounted product, at least you’re earning some money and moving it off the shelves without needing to throw it away. And people who came into the store to buy the discounted milk might purchase other items.
Apply analytics to better predict the peak of the product sale: Another aspect to consider about seasonal products or items with sell-by dates is that peak demand eventually goes down. In the apparel industry, for example, as the weather warms up, most customers stop purchasing winter clothes. This might require discounting winter items in order to make room for spring apparel on the shelves.
How do you track the start of a product’s downward sales slope? Use analytics that show when you have more seasonal items or products that are about to expire compared with customer demand for a certain period of time.
The dynamic nature of the retail marketplace calls for continuous improvement of business processes. These tips highlight how you can perfect your inventory management in a changing retail landscape.
Author: Wm. Matthew Street, Solutions Consultant/Retail Product Lead at ArcherPoint
To learn more about improving your retail inventory management, schedule a demo of ArcherPoint's Retail Management Solutions.