Inventory control is a tightrope that everyone in retail walks.
From warehouse to supply chain management and small businesses on Main Street, the objective is to minimize investment and maximize profits without compromising customer satisfaction. A balancing act that when swayed one way or the other can have a negative impact on your business. Excess inventory can put a dent in your cash flow, and too little can cause you to lose business.
Although a somewhat onerous task and not one most retailers enjoy, proper inventory management is essential to the success of your business. No matter how great your marketing efforts or how friendly your staff is, if you fail to stock products customers want or are always out of the ones they do, they’ll find it somewhere else.
Here are some expert tips on how to control inventory in a small business.
A Point of Sale System
Before you can get serious about inventory control, you need to have the proper tools for the job. In this case, for retailers and restaurateurs, you’ll need Point of Sale (POS) software with inventory management capabilities.
You can’t build a house without a hammer and nails, right? Therefore, you can’t expect to control inventory if you aren’t using the right tools to track it in the first place. With POS software like ShopKeep, you can track inventory costs and quantity on-hand and set order triggers (reorder point), so you never run out of your most popular items. You can also track raw materials (raw goods), and you can even see reports on best and worst selling products.
This powerful inventory management software connects directly to your iPad POS, so stock levels automatically adjust everytime you make a sale — real-time inventory. Whether you sell t-shirts or t-bone steaks, a POS system will serve as the touchpoint and intersection where business logic and real-time business transactions meet.
Proper Inventory Management Techniques
Besides having the right tools for the job, you’ll also need to implement some inventory management techniques and best practices to optimize stock control. Your POS system is going to be an invaluable pool of data that you can leverage to apply some of these inventory control techniques.
Let’s take a look at a few ways to keep your inventory in check.
Lead time is the amount of time that elapses from the beginning of a process until the arrival of the result. When you place a purchase order with a vendor or supplier (beginning), lead time is the amount of time it takes to receive (end) those stock items in your store.
Since your vendors are responsible for the delivery of products, it’s essential that you have a solid understanding of lead time from PO to delivery. It’s also important to note that different products from the same vendor may have varying lead times so plan accordingly; don’t make your lack of planning a vendor’s emergency.
Know what you need when you need it is essential for controlling inventory levels. If you’ve been in business for a few years, the best way to forecast your product needs is using inventory records and historical data from your POS system.
For instance, let’s say you’re about to make your first summer inventory purchase of the season. You can pull up a sales by item report in your POS back office to see what your top selling items were from last summer, and that can serve as a starting point for your current purchase order.
First-in First-out or FIFO approach is especially important for business owners dealing with perishable products such as food and beverage, flowers, makeup, and even pharmaceuticals. Items that spoil or decay before you can sell them will shrink your profit margins.
Whether you manage a retail store or a restaurant, the best way to apply FIFO is to put new items behind the older ones to ensure the latter is sold first.
Hire an Inventory Control Manager
Another inventory management technique that goes hand-in-hand with first-in-first-out is quality control. According to a 2017 National Retail Federation (NRF) survey, 5.4 percent of retail shrinkage is due to vendor fraud or error. So, whether you want to believe it or not, there’s a chance your suppliers are ‘stealing’ from you either unintentionally or deliberately.
The best way to resolve this problem is to hire an inventory control manager. If you can’t afford to bring on someone for the sole purpose of inventory control, you can assign one or two of your employees as the inventory control clerk. This person or people are responsible for intake and product inspection during the receiving process to ensure the vendor is delivering quality, undamaged, and correct quantities.
Physical Inventory Audit
You must have known this was coming. The most painful and tedious task of inventory management — the physical inventory count. A necessary evil that all business owners or managers must endure.
Since you can’t sell what you don’t physically have on hand, it’s essential to conduct a physical inventory count once or twice a year. The good news is that you can use the data from your POS system to compare the inventories your POS says you have on hand versus your actual inventory count. The difference between these figures leads us to our next point.
Control Inventory Shrinkage
When it comes to managing inventory and stock control, you can’t talk about them without mentioning shrinkage — a more delicate term for theft. When items walk out of your store without being paid for or go missing altogether, it’s called inventory shrinkage. In that same NRF survey, the top two reasons for retail shrinkage were external theft (shoplifting) and internal theft (employee theft); coming in at 36.5 percent and 30 percent respectively.
Inventory shrinkage is a real problem that can have a severe impact on your bottom line if you don’t take measures to nip it in the bud. For internal controls, POS inventory management software will not only help you keep tight inventory controls, but it will also help track every single transaction and function that occurs at the point of sale during an employee’s shift. Shift reports will help simplify inventory tracking by making it easier to spot any red flags such as a plethora of orders with discounts or if the no-sale function occurs too many times in a shift.
From an external perspective, there are steps you can take to make sure your business isn’t a hotspot for shoplifting. Loss prevention tactics in retail such as Electronic Article Surveillance (EAS) or radio-frequency identification, or RFID tags for short.
For more tips and tricks on protecting your business, check out these 25 Ways to Prevent Shoplifting in Your Retail Store.
To Wrap Up
No matter what industry your small business is in, the first steps towards inventory control and management are to have the right tools for the job and implementing best practices to optimize your efforts. The most successful companies take inventory management seriously because it can have such a profound impact on the bottom line.