Unorganized inventory is a burden. You can’t sell your stock optimally if you’re not keeping track of it—without the visibility that a well thought out inventory management process can give you, you’re lost. With one, however, you can unlock retail profits by simply having enough information to be proactive.
What is an inventory management process?
An inventory management process is the system by which your store handles its stock. Some stores keep track of their inventory with spreadsheets, while others utilize cloud-based inventory management systems.
Cloud-based systems include tools to purchase, track, sell and count your inventory from the same place. That puts all your operations at your fingertips from one system, which means you can manage your purchasing, sales trends and inventory counts from the same place.
Why is an inventory management process important?
If you’re not tracking your inventory with a unified inventory management process, you’re setting yourself up to be surprised by shrinkage, such as loss and even theft. Loss costs your business—you want to be on top of what’s going on with your inventory. When Goodwill stores switched to using a cloud-based inventory management system powered by Lightspeed, they were able to track and identify employee theft that they had missed for five years.
Good inventory management plans also help prevent stock-outs while ensuring you’re not keeping inventory on the shelf for too long. They help hit the sweet spot—well-stocked shelves with enough fresh inventory that customers have a reason to visit often.
Effective inventory management goes beyond simply knowing when to send off the next purchase order to your vendors. If you’re not keeping track of your stock’s movement with an air-tight inventory management system, you risk being weighed down by dusty inventory that you’re not even aware of—stock that sits on your shelves, unsold, for months.
Because the inventory isn’t selling, you can’t purchase more, so customers have no reason to keep coming back—they’ll just see the same items again and again. If you’re not planning for enough lead time in your inventory purchasing process to keep popular items in stock, you run into the same problem: you can’t sell merchandise you don’t have, which means less revenue, and customers see the same thing—in this case, empty shelves—and don’t have a reason to come back.
What does an ideal inventory management process look like?
However you set it up, your inventory management process should give you clear visibility on your stock’s movement. You should have a plan for proactive purchasing and counting, and you should keep an eye on your sales trends so you know how and when to move an item.
While you can keep track of things manually, it takes a lot of time, and there’s an exponentially increased chance that you’re going to lose track of something—you’re only human, and you’re busy. In 2019, Lightspeed POS users in the US grew their retail businesses four times faster than the industry average, due in part to a digital inventory management system.
Purchasing inventory
Retail purchasing 101: you need a purchase order, and you need to know what to put on it. Purchase orders are the documents you send your suppliers to order more inventory; they’re how you keep your store stocked. Knowing what to order is the trickier part—you need sales data to know what products to stock and which to snip.
While you can make purchases for your store without a purchase order, you’ll quickly run into problems due to a lack of visibility. It’s a lot easier to keep track of exactly what you’ve ordered through a record of purchase orders than it is through a credit card statement. A purchase order will include more information about what you bought and how much. This is crucial data you’ll need when optimizing your stock—you don’t want to have to make big decisions based on guesswork.
Work with a cloud-based inventory management system makes this easier. Setting reorder points will help you keep your stock at optimal levels—you’ll always be prepared to send off a purchase order before your stock hits zero. While you can keep track of your reorder points manually, an inventory management system with programmable reorder points will ensure you never miss when something needs to be restocked; the system will alert you.
Selling inventory
This is a crucial part of the inventory management process. Selling inventory is, after all, the reason why retail stores exist. However, selling inventory is less straightforward than it seems. Sometimes customers simply don’t respond to a product, or their spending habits change.
A cloud-based inventory management system will track sales data. By keeping an eye on what products are selling, how fast they’re selling and when, you can optimize your sales strategy.
Having sales data at your fingertips means you can experiment with your visual merchandising to tweak how you’re displaying products to customers with concrete results instead of guesses. Try adjusting how you display new inventory and comparing the performance of different product categories—do you sell inventory faster when you put impulse purchases at the front counter? Does equipping your sales associates with an iPad POS move more inventory as customers get service on the sales floor?
Liquidating inventory
Sometimes, stock ends up being a dud. Maybe you ordered too much, or your customers felt the products weren’t their taste. You want to liquidate as little inventory as possible—that’s where using data to optimize your sales strategy comes into play. You’ll still need a plan to liquidate inventory if you end with inventory that still isn’t selling.
First, define how long inventory can sit on your shelves before it starts to hurt your sales. Dusty inventory that’s been unsold for at least six months is usually not going to sell at its current price.
Next, decide how you want to liquidate your inventory. You can hold a sale, use the unsold items as gifts, or donate the items to a local charity.
Finally, make a note—next time you’re back at the purchasing step of your inventory management process to cut those items and examine any related products that have started to slow down.
Counting inventory
You’ve stocked, you’ve sold… have you counted?
Counting inventory is a vital step in your ideal inventory management process. There are two kinds of counts you should be performing: full physical inventory counts and cycle counts.
Full physical inventory counts involve counting every single item you have in stock in your store. You should perform a thorough inventory count at least once a year, though ideally, you’ll perform them quarterly.
Cycle counts involve counting a selected portion of your inventory—typically picked randomly—and should be performed more often than physical inventory counts.
Counting your inventory helps you keep on top of shrinkage. If your counts are not reconciling the way they should, you need to look at how you manage and track your stock, and perhaps invest in theft-prevention measures.
Doing your counts with a cloud-based inventory system will put all your counting data in one place, which helps you identify any trends in shrinkage—and any dusty inventory. If you find the stock levels of a particular product are not changing at all between counts, it’s time to think about liquidating that stock.
Unlock your retail profits
Until you implement an air-tight inventory management system, you don’t know what you might be missing.
For maximum return on your inventory investment, think about the technology that could help with your inventory management process—a cloud-based system will tighten up your workflow.
Alix Fraser is a Product Content Specialist at Lightspeed. She delights in finding ways to deliver actionable insights to retailers and restaurateurs. When she’s not cooking up data-driven blogs with valuable tricks and tips, Alix is on the hunt for new ways Lightspeed can help entrepreneurs bring their cities to life.
