When running a successful small business, effective inventory management techniques can keep your business prosperous and healthy.
Making sure that customers have access to the goods that make your business great is key to staying in business. The simple act of knowing what items are in stock and which items to keep in stock, make proper inventory management one of the most beneficial tools.
Inventory Management Basics
There are many different inventory management techniques out there. Let’s discuss some of the most common, effective inventory management techniques, to give you a better understanding of the tools you can use at your small business.
Employing proper inventory management techniques gives you valuable insight into sales and how your business is running. Manage the reason your company exists: the amazing products you are selling. Stay informed about the supply of inventory you have at hand, and that you have the items that your customers want when they’re ready to make a purchase. What your business sells, is your bread and butter, and the way to stay in business is to make sure that those items are always available.
Monitoring inventory levels correctly helps with high inventory turnover. Imbalanced order quantities can be detrimental to your business. Orders containing too little of a product could mean that you run out of stock, sending your customers to other stores to find the item. On the other hand, ordering excess goods can result in obsolete inventory, raising carrying costs.
Business owners who don’t practice proper inventory management techniques and even those that do, experience ‘dead inventory.’ These are items that have gone bad or have become out of date. Depending on your business type, you could be more at risk than others if you sell products that use raw materials that may spoil or have a limited lifespan. Coffee shops, flower shops, bakeries, etc. all gamble with this because of the nature of the business. It is extremely valuable to understand how much is in stock, which items are performing well to get a clear understanding of the best way to manage your inventory. This is what makes applying inventory management techniques so essential.
To make matters worse, unsold items take up room on sales displays which could otherwise be utilized by better selling items. This is valuable floor space that could be used by newer or a more extensive range of best selling items that could benefit from being prominently displayed in your store.
Now that you know the importance and benefits of practicing proper inventory management techniques let’s get into some of the standard methods practiced in the retail industry.
Organize and Catalog Inventory
The first action when employing proper inventory management techniques is keeping your items organized and cataloged. Start by inputting and tracking all of your inventory. ShopKeep makes this easy and can be done right from BackOffice. Entering your items and item details will help you accurately keep track of inventory par levels. When things are sold at the register, they are automatically removed from your list of stock items in the BackOffice.
Using a point of sale system to input inventory details enables you to view item lists at a glance to quickly determine your quantity on hand. This simplifies the process of staying in the loop about stock levels, making you aware of any variances between the supply on hand and actual stock count.
An important step to remember when adding inventory is making sure that the inventory tracking feature is on when the item is entered into BackOffice. This is a vital tool for ensuring you have the correct quantity on hand when things are sold at the register. Within that feature is the option for setting up Reorder Triggers and Recommended Orders. This feature notifies you when you are low on particular items. As restocking is an essential part of inventory management techniques, it is useful to know when things are low. Use the information in the report to make decisions about when and how many items to order.
Another important tip when applying proper inventory management techniques, it is the advantage of using the SKU and UPC fields. The SKU number is a code that is automatically generated by your ShopKeep BackOffice when a new product is added. This code is used for organizational purposes (giving items a unique identifier) as well as giving you the ability to print labels with a barcode to scan at the register. For pre-packaged products, the UPC sticker that comes from the manufacturer can be used and scanned at the ShopKeep register. Most UPCs that come on packaging will easily scan into BackOffice, but because UPCs are broad and not beholden to a specific numbering convention, you might come across some that don’t easily scan into ShopKeep. For those items, use the ShopKeep SKU number, in conjunction with ShopKeep Label Printing.
Just make sure that the UPC number is entered or scanned into the item page in BackOffice. Once at the register, ShopKeep, add items to the transaction by scanning the UPC or SKU barcode. This ensures that the correct item is sold to the customer, rather than entering the item manually. Manual inventory management is one of the main culprits responsible for inaccurate inventory levels since it opens up room for human error. Using an automated system helps reduce the likelihood of small errors that can cost you big time.
Keeping Track of What’s in Stock
With your inventory cataloged and organized, let’s move to one of the simplest and most straightforward inventory management techniques, let’s talk stock count. Stock Counting is the practice of physically counting all inventory items at your small business. Counting all stock items is the easiest and most accurate way of knowing how much or how many items are in stock and available to be sold. Knowing that information can help you make decisions about your inventory, such as what products to keep or let go, how you are merchandising, preventing shrink, etc. Items that are not selling as well take up space on the sales floor as well as your stockroom, making less room for better selling items and raising carrying costs. Entice customers to buy by moving those goods to a more prominent location at your business. If shrink is an issue with specific products, moving them closer to the register can help to help prevent it from occurring. Analyze the data to determine the products that are worth keeping and others that should be reconsidered. Interpreting stock count data is a useful inventory management technique.
While completing full stock counts is a useful and accurate method of the inventory management techniques, it may not be a practical technique for all businesses, particularly businesses with large inventories. It can take a lot of time as well as tax resources for an employee to count every single good all around your store. Utilizing other count methods such as Cycle Counting are worth exploring. Cycle counting is a method that involves counting different samples of items daily, rather than counting each item. Cycle counts don’t count every single item, but they give you a good sense of what is in your inventory. Deciding which items and when those items are calculated can be determined by the business owner and largely depends on the type of business you are running.
There are three conventional methods for cycle counting your inventory. The first method we’ll examine within cycle counting is the control group method. This method involves counting one sample of items regularly over a period. The idea around the control group method is that by targeting a specific group of items, you are more able to notice variances. The control group is used as a guide to help you perfect the counting method.
Random sampling completes the next approach to consider. As a business owner, you can select arbitrary groupings of products and count them periodically. There isn’t a rule that dictates which items should be selected in this method, you just pick groups of products that you find work best.
The last and most common method of cycle counting is an ABC analysis. ABC analysis is accomplished by completing counts on particular groups of items. These item groups are set by their level of importance to the business. There are no strict guidelines regarding what ‘value’ means to your business. It can mean items that are more expensive, items that are sold more often, etc. Also, there are no rules to decide which of these items fall into which buckets, but generally these can be your top margin items, your businesses bread and butter or items that are more valuable as far as costs are concerned.
It is your choice as a business owner to find the groupings that work best for your store. After their values to your store are calculated, they are organized into three groups (A level, B level, C level) from most important to least important, respectively, with the ‘A’ group is the group of items that are considered the most valuable. The ‘A’ grouping is the group of items that should be counted more often.
After organizing inventory and completing counts, it might be necessary to adjust stock item levels to match the counts to ensure it matches the true quantities on hand. With ShopKeep, you can use the Adjust Inventory feature to update stock item levels.
Inventory Management Techniques at the Register
While the previously mentioned inventory management techniques take place behind the scenes, there are some that take place at the register. When selling goods at the register, a best practice method that should be utilized by you and your employees is making sure that the correct items, from an administrative view, are added to transactions. An easy to make but a crucial error is ringing up the wrong item at the register. If this happens, customers can be over or undercharged, and the incorrect item will be removed from your inventory. While using ShopKeep, there are checks in place to make sure that this does not happen.
With all inventory items cataloged, barcode scanning is an easy way to make sure that the correct products are added to transactions. As discussed at the beginning of the post, prepare your inventory items by entering each item’s UPC or the SKU number on the Items List in BackOffice. Once those items are added to BackOffice, they can be scanned at the register. The exact item you scanned appears at the register. Scanning items will help ensure the correct products are removed from the order quantity on hand.
If a customer orders an item and you are attempting to ring the item but are having trouble with the barcode label, SKUs and UPCs can also be entered at the register. Enter the SKU or UPC number to find the product to add it to the transaction. It is essential that this number is entered correctly to ensure that the wrong item isn’t sold. Using the search bar on the register, you can see the item’s SKU number and compare it to the label. If the labels match, go ahead and add it to the transaction.
Scanning or entering SKUs or UPC at the register can reduce variances in inventory counts that come from administrative errors such as ringing the wrong product at the register. This especially useful if your business sells items with variants.
After putting these inventory management techniques into action, use reporting in ShopKeep BackOffice to monitor how your business is doing. In BackOffice, there are multiple reports in the Analytics tab to get a measure of how things are going. The Sales by Item report is a neatly packaged way to view a list of the items that have been sold over the timeframe that you select. Select a period that coincides with when the inventory management techniques were implemented. Use this report against your counts to account for the products there were sold from inventory. This report can also be used when deciding how many items to add when restocking inventory. Another report to utilize is the Reorder report. Run the Reorder Report to know when item quantities are low. Use this report to assess the order quantity to restock.
Now that you know some useful inventory management techniques choose the tools that work best for your business and put them into action!