7 Inventory Management Techniques for Modern Merchants
Only 18% of small- and medium-sized businesses utilize inventory management techniques and systems, yet these are the foundation of a well-functioning retail business.
To succeed as a retailer of any kind—ecommerce, brick-and-mortar, multichannel, omnichannel—you must have strategic inventory management processes in place.
If you don’t have a handle on your inventory activity—or worse, track it with outdated data entry methods and spreadsheets—the other pieces of your business can’t fall into place. Inventory management software tracks your inventory’s lifecycle, which helps you make smarter decisions related to your business’s inventory and stock levels.
Keep reading as we look at the most common inventory management techniques to assist in your business’s accuracy and efficiency.
What Are Inventory Management Techniques?
Thoughtful inventory management allows you to track stock from manufacturing to fulfillment.
Countless techniques help your brand control inventory and operate more efficiently—while offering higher levels of control and visibility. In the past, businesses accomplished this through old-school spreadsheet systems, but modern systems are far more robust.
With the right automation software, you can see how much inventory you or your supplier has left at any given time across all of your platforms. At the same time, you can utilize reporting functionality that provides detailed insight into your business and customer behavior.
Today’s inventory management tools can automate the inventory control process by integrating with other platforms such as your website, fulfillment, accounting, and other retail applications you use. In traditional retail, these tools are typically married to point-of-sale (POS) systems.
Popular Inventory Management Techniques
There are several inventory management methods that you can use to identify the reasoning behind lost or missing inventory, which is critical to your business’s success. Let’s look at seven of these popular methods.
1. Stock Auditing
Inventory management issues commonly arise when an item isn’t labeled clearly, and teams work with multiple disparate systems. You can significantly reduce these errors with inventory management systems that work as a whole with automated functionality.
Regularly auditing inventory is essential to sustaining accurate stock levels. You stand a better chance of achieving a precise level of data and making your KPIs and other targets when you connect all of your systems.
You can audit inventory in several ways. Aside from implementing an inventory management solution, you’ll still need to reconcile stock at times.
- Cycle counting is performed every couple of months. This is an excellent way to close the gap between what inventory you think you have versus what’s actually there.
- Physical inventory is typically audited once at the end of the year. These numbers are compared alongside the amount of stock you speculate to have on hand.
- Spot checking is performed various times throughout the year. This method isn’t completed on a schedule and is meant to help keep track of fast-moving inventory.
Regardless of the method you choose, stock auditing is a process that should take place at least once a year.
2. Inventory Reporting
Your inventory management software will generate reports based on the data it receives from your connected systems and platforms. Detailed reports produce insights into your warehouses, inventory, marketing, purchasing, and consumer behavior.
By allocating inventory based on categories and consumer behavior, businesses can better understand how products move in specific geographical locations, which items are moving, and more. Taking a good look at these reports helps you make more informed inventory decisions in the future.
For example, through reporting, Target figured out that 15% of their online sales were in-store pickups in 2015—many of the company’s brick-and-mortar stores were doubling as fulfillment centers.
You can also inform your suppliers of inventory trends to help them prepare properly. Suppliers are essential partners, so it’s ideal to give them a proper notice whenever possible.
The data you receive from inventory control methods means nothing if you don’t do something with it. Many businesses face inventory management issues that they connect to a lack of information sharing between systems and throughout the company.
With inventory reporting methods, you can more accurately set low-stock thresholds and calculate reorder quantities. This way, you’re suitably stocked with no aging inventory and no overselling.
Inventory forecasting is difficult even without an inventory management method in place. You can end up purchasing too much of an item even when you take precautions.
Dead stock can kill your bottom line, but there are inventory management techniques to assist with this, too. While product kitting and bundling is a technique often used to upsell, it can also help as a promotional tactic to move stale inventory.
You can bundle products effectively by adding a surprise free gift to orders. By keeping the “free item” a secret, you can switch the item out as needed depending on availability. Not only does this move aging inventory, but it delights your customer base as well. They’ll feel special when they feel they’re getting an exclusive offer, and you can avoid forecasting future demand for this product.
You can also make your customers feel like they’re getting a deal by bundling a product to an order at a reduced cost—without heavily discounting the item.
First-in-first-out (FIFO) means exactly what it sounds like: an inventory management method in which the first items that enter your warehouse are the first to leave.
The first items you receive are the products you’ve held onto the longest, making them closest to expiry. When implementing a FIFO strategy, you move these first products before they become items that you can’t sell.
The idea behind this technique is that you sell items when they’re of optimal quality, which keeps happy customers coming back—and your inventory moving.
5. Bulk Shipments
If you’re forecasting inventory correctly, you can successfully ship evergreen items in bulk. Bulk shipments are those that are loaded loosely and unpackaged. The transportation method becomes the cargo container, and mass measurements quantify the cargo.
Through bulk shipping, you can access vast amounts of products and supply them to an extensive network. Without bulk shipping, access to such a large supply wouldn’t be possible. This provides you with the means to fulfill every order on time completely. However, you should only bulk ship high-demand items so that they’ll sell quickly.
The just-in-time inventory technique allows you to decrease your amount of on-hand inventory by keeping low stock and only replenishing as needed. You order products that will be delivered only s few days before you’re expected to run out of stock.
If you tend to get stuck with aging inventory, using this method helps you make more informed decisions to keep stock levels low. You can then avoid the cost of having dead stock in your warehouse. You can master this method using real-time analytics to optimize inventory operations. Inventory management tools give you clear visibility into your inventory—across all channels and at any time.
7. Tracking KPIs
Through tracking KPIs, you can identify your business’s pain points and figure out what to do about them.
If stockouts are a frequent occurrence, customer experience suffers. Likewise, if you’re experiencing shrinkage, you’re losing money, and you’ll want a solution for that. It’s vital to think of both short- and long-term goals when developing KPIs:
- Sell-through rate will help you retain customers as you compare received stock to how much is sold (sales/beginning of month (BOM) stock on hand x 100)
- Stock-to-sales ratio helps you forecast inventory (BOM stock/month’s sales)
- Forward weeks of supply enables you to understand how long inventory will sit on your shelves, when to re-order to avoid out-of-stock items, and when products need to be repriced
- Average inventory helps you know how much inventory you store over specific periods (current inventory + previous inventory/2)
Keeping track of all of these inventory management variables can be confusing and time-consuming. Most businesses need support in these areas—especially when certain operation areas are lean. There’s no question that issues will arise, and having the proper inventory management tools in your back pocket can help you stay competitive.
Putting Inventory Management Techniques into Action
As your business grows, scaling through multi or omnichannel methods is now crucial. It becomes harder and harder to control inventory efficiently when selling across multiple channels and platforms. An essential factor in inventory management is the ability to automate manual tasks and sync inventory effectively.
You may be using some or all of these techniques already. In that case, an inventory management platform that integrates with your current systems would be beneficial. With a fully connected system, you’ll have access to eye-opening insights into your business. You’ll also have new checkpoints to recognize discrepancies and ensure accuracy across your organization.
Research will play a significant role in figuring out what works best in your industry and for your brand. Once you’ve decided which inventory management techniques make sense for your business, try them.
Achieving inventory visibility helps you sell more flexibly while avoiding issues such as unfulfilled orders and stockouts. Implementing the right inventory management and ecommerce operations software can improve your bottom line and customer experience. Talk with an expert to discover how Flxpoint can help you get there.