How retailers can manage their inventory levels more effectively
Have you ever had one of those days where you need a particular item or product, and you rush to your local store that sells it, but to your dismay and annoyance find that there is nothing on the shelf? And when you ask the store owner if they have any in their store room they say they are totally out. You then leave the store in a huff, annoyed and thinking who else would stock the item.
Stockouts are a retailer’s worst nightmare, not only do they lead to lost sales, but also unhappy and unsatisfied customers who end up being less loyal to their store (Vendhq, Jan 2020).
Lost sales due to insufficient stock is frustrating for customers and store owners alike. However, for many store owners, their risk aversion and fear of overstocking leads them to under order key stock items. According to many store owners, they are unable to reliably predict sales and thus tend to take a conservative approach to ordering. This is especially true for retailers of fresh produce with a limited shelf life. They tend to under order so that they can sell out rather than deal with losses due to expired or spoilt goods. Learning how to stock adequately so as not to lose sales, yet not lose money over spoilt or obsolete goods is a common problem faced by retailers. Particularly small retailers who have limited capital and tight cash-flows.
Understanding one’s inventory is a key factor to any business’s success. It’s not only about having stock in your store, but rather ensuring you have the right stock, in the right quantities, understanding which one’s sell and which one’s don’t. Retailers need a system that allows them to understand customer trends and prevent over and understocking in a reliable manner (Entrepreneur South Africa, 2013).
Cash flow problems are set to arise for small businesses who tie up most of their cash in inventory, when not managing their inventory levels well. Most inventory management gurus suggest small businesses follow the 80-20 rule, where 80% of a business’s revenue comes from only 20% of the products they sell. In order to manage this effectively, retailers can divide their products into an ABC grouping, where group A are all the fast moving items they sell that generate most of their sales. B and C groups could be categories of less popular items that move slower, and could be stocked in lower quantities. This helps the retailer know which products to always have on hand (Entrepreneur South Africa, 2013; Vendhq, Jan 2020; Easy Stocks 2020).
Experts in inventory management state there are solutions to prevent under or overstocking, simply by looking at the common causes and how to prevent them (Manufacturing Business Technology, 2018; Vendhq Jan,2020; Info Entrepreneurs,2013):
- Use an inventory management system
To avoid stock discrepancies use an inventory management system, there are many available for small businesses online at low costs. Else, even an Excel spreadsheet will do, as it is easy, and simple to allow you to track stock discrepancies.
- Ensure you are organised and vigilant
As a vendor you need to know what stock you have and what you are receiving. If you are experiencing shrinkage ensure the relevant measures are put in place to monitor this by putting in a security system or rearranging your store.
- Conduct regular stock counts
Ensure regular full stock counts of your stock to keep track of it, as no modern system can track your stock as well as you do by doing regular physical stock counts.
- Understand customer buying trends to order in time
It is key to record and track out of stock patterns i.e. which days of the week certain items are purchased (or requested by customers and not found) to determine when you must order before it stocks out. Thus by anticipating demand, one can order in advance. Pay attention to customer demand patterns, to avoid overstocking on items that may be seasonal.
- Ensure you manage your people to ensure your shelves are stocked properly and in time.
If your staff help to ensure items are on the shelf and not in the store room, it ensures customer satisfaction and sales occurring when they should. Try to assign responsibility to one staff member to check shelves periodically and top up if needed. This can only be done reliably if a system is set in place.
- Good communication with your suppliers
Ensure you maintain a good relationship with your suppliers so that you receive deliveries timeously. Understand delivery times and track product availability for delivery on your faster turnover products especially.
- Manage your cash flows so you don’t run out
Cash flow is an indicator of how efficient a business’ operations are. Tight cash flows mean you are overstocking on some or maybe even all your products. For emergencies, a remedy could be to sell your stock quickly at a reduced price to get more cash in hand. Collect unpaid invoices and look into alternative ways to increase sales such as selling online to increase your customer base and reach.
Inventory management is a key pain point for most retailers. However, effective inventory management can also become a retailer’s competitive advantage in a crowded market.
This is where hoodgoods comes in. Our mission is to build, support and ultimately transform small businesses. One of the key ways we do this is by helping small businesses better manage their inventory through the data we collect and insights we provide to help better understand consumer behaviour and market trends. Optimised inventory management in turn ensures increased sales, happier customers and a growing customer base, and improved revenue and cash flow. The overall result is a successful business providing the customer with what they need when they need it. What more can you ask for as a retailer? Sign up for free with hoodgoods to help take your business to the next level!
Asmitha is a cyber security expert with an MBA and vast experience with FMCG multinationals as well as first hand experience working with her family in retail. She brings her diverse skill set to hoodgoods as a co-founder.