Ultimate Guide to Inventory Management for the Retail Business

We know that no business is complete without inventory. When there is inventory, the management of inventory is also important. So, in this blog, we will learn what inventory management is, why it is considered very crucial for business, and what are the famous business inventory management techniques effective for businesses. Let us begin!

What Is Inventory Management?

Inventory management is the systematic approach to managing, selling, and storing inventory (both raw materials and final products).

For effective business inventory management, it is important to maintain inventory at the right level, in the right place, at the right time, and at the right cost.

Inventory management is important for all industries, regardless of the sector they are in. Inventory plays an important role in all businesses, specifically in manufacturing, retail, e-commerce, etc.

What Are the Techniques You Can Use for Business Inventory Management?

Techniques you can use for business inventory management are as follows:

Techniques For Retail Business Inventory System

- Prioritizing with ABC Analysis

A shopping mart contains a variety of products; some of them are expensive, while others are not. Obviously, anyone would want to finish their expensive stock first. In this technique, the stock is divided into three categories such as:

High-expensive products - These types of products have a slow-selling tendency.

Semi-expensive products - These types of products have a moderate selling tendency.

Low-expensive products - These types of products have a fast-selling tendency.

Note: High-expensive products need regular care and should be placed where customers can see them. Many businesses find this technique effective.

- Regular Count & Audit

Regular inventory count is vital; it can assist you better in knowing the exact number through which you can conclude how much quantity should be increased or decreased in the next order. Regular counting can save your business from overstocking or understocking. According to the website Retail Wire, “Overstocks and out-of-stocks cost retailers $1.1 trillion globally in lost revenue. Overstocks are responsible for 3.2 percent of lost revenue for the average retailer, and out-of-stocks, 4.1 percent."

It is estimated that just in North America, $123.4 billion is lost annually due to overstocking.

- First In, First Out (FIFO)‍

This technique is one of the oldest techniques for managing inventory. The FIFO approach works on a simple chronology: whichever comes first, goes out first! It should be implemented strictly with products that can expire or become obsolete, such as food and vegetables.

- Set Re-Order Level

For each product, you can set the re-order level as per the industry. For setting a re-order level, you can take a specific number; whenever the stock goes below that defined number, you will have to re-order. However, you will have to keep checking proactively.

Some products finish quickly; some take time. But you need to figure out when the team demands more stock and how much time it takes to get back in stock. You will have to do some research to execute this technique efficiently.

Or you can implement inventory tracking software that will simplify the process, and you will not have to keep track manually.

Why Is Inventory Important?

Inventory is important in business in many ways; it can be your end product or a necessary ingredient of the end product. It has a direct connection with your business's bottom line. There should be a perfect balance in your stock. In clear words, inventory should neither be overstocked nor low on stock because these situations are not good for business.

Here is an example: suppose a clothing company buys too many dresses (inventory) that are in current fashion, but after a few months, winter comes, and all these dresses will not be useful in winter, so nobody will buy anymore.

As a result, there's a loss in the company's bottom line. Furthermore, when you have excess inventory, it will take up more space. Your product may have an expiry date or get damaged.

Here is another example:

A company bought a very limited number of dresses; then the customer purchased quickly, and all stock is finished. By the time the manager of the company comes to know, many of his customers are already lost, and more will be lost until stock arrives. As a result, there's potential customer loss and overall business loss.

That is why it is required to maintain a perfect balance between overstock and low stock in your warehouse. For this purpose, business inventory management or inventory control is very important. It will provide you control over your inventory; you will not lose any customers due to product unavailability issues. You will also be able to figure out which inventory is selling quickly and which is not selling!

How to Control Inventory?

Controlling inventory means getting greater visibility over your inventory stock. You can control inventory by two methods:

- Manually - The manual process has its pitfalls, such as human error, complex information sharing, and every transaction accounted for. There are more chances of inaccuracy, which will only decrease productivity.

- Automatically - By automatic, we mean using inventory management software. It will be more effective as there is less human involvement. Besides, you can utilize a barcode scanner, which will be more effective, especially in managing inventory. It can assist you in location tracking of inventory. When you have inventory management software in place, you do not have to worry about when inventory refilling orders shall be given. Because whenever the stock goes below a defined level, it will alert the team, and they will order for refilling stock process.

Concluding Thoughts

Inventory is crucial to managing a business successfully. If the inventory is not taken care of properly or managed inefficiently, it can affect the business in a bad way. That is why business inventory management is important. However, you can do it manually or automated. We recommend you use inventory management software. It will be more effective when managing inventory techniques.

Frequently Asked Questions (FAQs)

How can inventory management in business help your business save money?

It can minimize expenses, better stock handling, increase customer satisfaction, and avoid loss from theft, and spoilage. Inventory management can also provide statistics that can help you make better and more effective financial decisions. Data and analytics can also help you figure out future trends, and customer behaviors that can help your business.

What are the different types of inventory there?

There are many types of inventory, such as finished goods, raw materials, work-in-progress, MRO (maintenance, repair operation), etc.

What is inventory loss?

When a product is bought for the selling purpose but the product is not sold, that is inventory loss. Inventory loss can also happen due to theft, misplacement, or damaged inventory, etc.