Retailvisory home  >  Optimize

How inventory management is a retail game changer

Tips and tricks to manage small business inventory

Owning a retail business often comes with a lot of unexpected challenges and hurdles. One of the trickier hurdles to get through is managing inventory. Having an organized supply chain and well-thought-out inventory process are vital components for your business’s success. Using expertise from Kathey Porter, a small business specialist with over two decades of experience in business development, let’s explore not only the basics of inventory and supply chain management, but the power both can give you as a retail business owner.

All about inventory

At its simplest definition, inventory management is the method of tracking your product supply. This means looking at how much product you have in stock and comparing that to how much you sell on average. Tracking inventory helps you understand seasonal trends and how promotions impact your sales. It ensures that you have enough product to fill your store and that you are reordering stock with enough lead time for manufacturers. All this drives consumer conversion and engagement — no one wants to visit a store or café that is out of product!

It's a tricky balancing act, especially if you work in food and beverage, where product has a shorter shelf life. You don’t want to run out of anything you sell, and you don’t want overstock or deadstock, which are products you aren’t able to turn without major discounts. Porter notes that inventory management comes in handy, as it measures not only what you have in stock, but your “fixture fill” — the product you have on the floor for customers to browse. It also examines the time your product will last in-store by looking at your business’s weeks of supply and the average turn for each product.

Be sure to know your inventory like the back of your hand. Establish a way to track everything you have with a system that is easy for you to understand and simple enough for other staff members to complete. Spreadsheets are great for this and make it simple to study your numbers at a quick glance.

Ultimately, inventory management helps you understand your gross margin return on investment, or how much you are making as a result of what you have in stock now without having to discount it to get returns.

Let’s sweeten the deal

Inventory management is also beneficial, as it enhances other aspects of your business like sales, store presentation, and consumer engagement. By managing your inventory well, you are better equipped to track your business’s revenue plan, seasonality, customer traffic, level of success for promotions, and economic events. For example, if you run a food and beverage business, seasonality is extra important as certain ingredients become pricier at different times of the year.

Well-managed inventory means well-stocked shelves, racks, and window displays. You also need to consider how much product you can realistically hold in back or in storage for your business. A well-stocked store with backstock that’s easily accessible is key for success here. Porter mentions that this will increase your consumer engagement, as inventory management helps you determine what consumers want most and at what times. If you own a retail business, you also need to consider e-commerce. Do you have enough product in-store to display on the floor and to fulfill online orders?

How much is too much?

So you’re tracking your inventory and it’s time to reorder something. How much should you get? It’s one of those tricky questions that can only be answered with more questions. How much inventory do you need to properly fill all displays in your storefront? How much inventory do you need as backstock to properly replenish any goods you sell out of? If you have a warehouse, you need to consider what you might keep there and the lead time it will take to transport that material. The more you track and manage your inventory, the better you will get at understanding which products turn faster and which you will need to reorder and restock more frequently.

Power the whole operation

Now that you understand the basics of inventory management, let’s discuss how supply chain management fits into the equation. Effective inventory management is essential for a properly run supply chain operation. When you grasp how much product you have flowing in and out of your store or warehouse, you can manage your supply chain more efficiently and mathematically. By observing the data from inventory management, you can understand trends and predict consumer behaviors. This is the heart of supply chain management — using what you know about inventory and consumer engagement and allowing that to inform business decisions such as what products consumers want, what price points they’re willing to accept, and how seasonality impacts your business.

Dos and don’ts

Here are a few tips and tricks to help you with supply chain management.

Porter states, “Retail is probably one of the most challenging environments in entrepreneurship and the key to probability, in addition to having a great product and offering a great experience for your customers when they’re in your store, is strong inventory management.” Proper inventory management is the backbone of your business and informs well-thought-out supply chain management. By implementing processes for both, you will be able to make wiser business decisions and more efficiently manage your time, money, and products.