So, you want to learn more about inventory management.
Maybe you’re a retailer who wants to have a better handle on your stock. Or perhaps you’re thinking of getting into retail and want to learn how to find, track, and manage your merchandise.
If so, you’ve come to the right place.
Think of this post as your go-to page for all things stock control. You’ll find tons of info and tips for inventory management, as well as easy access to articles, ebooks, videos, and other relevant resources.
Just be warned, though: there’s a TON of information in this piece. We highly recommend bookmarking this page for future reference.
With that said, go ahead and dive in or feel free to jump to a section using the menu below.
- What is inventory management?
- Why is inventory management important?
- How to source products for retail
- Product sourcing links and resources
- Inventory management best practices
- Demand forecasting
- Inventory management tools
- Ebooks about staying on top of products and data
- General articles about inventory management
- Resources on counting your products
- Inventory tips from other retailers and experts
- Common problems with inventory management
- Resources for dealing with stock control issues
What is inventory management?
Inventory management pertains to the things you do track and manage your retail products. Also known as stock control, it encompasses the tasks you carry out to keep your inventory in check. Activities like ordering products, storing your merchandise, counting items, and forecasting demand are all components of inventory management.
Why is inventory management important?
Because the retail landscape is super competitive. With today’s shoppers having tons of choices when it comes to what to buy and which retailers to support, having the right products at the right time is critical.
To accomplish this, you need to be great at sourcing, managing, marketing, and selling your inventory. On top of that you, need to forecast demand so you can make the right stock decisions going forward.
So, how do you do all that? Let’s explore….
How to source products for retail
Managing products successfully starts with having the right merchandise. That’s why it’s vital that you work with the best makers and suppliers. In this section, we’ll tackle the steps and tools to help you do just that.
Use product insights from your customers, staff, and sales
Before going “out there” to find products and suppliers, you must first look internally, and tune into your customers, staff, and business data. Taking this step will help you figure out the best products to stock up on.
Business data – Let’s start with sales and product reports. Always keep an eye on what’s selling. Get a solid handle on what products are moving and use that info when you’re looking for new items to carry in your store.
That’s what Cat Socrates, a beautiful design shop in Singapore, is doing. According to owner Hellen Jiang, Cat Socrates has a lot of regular customers, so keeping their product assortment fresh is a must. “We’re always trying to find new brands and items, and we look at sales reports to determine the quantity and type of goods,” she said. On top of that, “we listen to feedback from our customers.”
Listen to your customers – It also helps to get sales and product insights straight from your customers. The next time you’re chatting up a shopper on the sales floor or checkout counter, pay close attention to what they’re saying about your products and store. Their feedback and comments are like golden nuggets that you can use when you’re making product sourcing decisions.
Talk to your staff – Finally, have a conversation with your employees. People in sales, marketing, and customer service can provide you with valuable info as well.
As Kurt Kendall, a partner at Kurt Salmon’s Retail and Consumer Products Group wrote, “Many retailers possess a treasure trove of customer insight, but it’s too often siloed within departments.”
That’s why he recommends merchants gather data across all their departments. Your marketing team, for instance, can help you “understand buying patterns and common item combinations,” while those in charge of ecommerce and web analytics “can provide an understanding of what items consumers search for, items they consider instead and which products receive minimal attention.”
How to find wholesalers and manufacturers
If you’ve already taken the steps above, then you should have a pretty clear notion of what type of products to stock up on. The next step is to find vendors who can supply what you need.
Here are some of the ways to do that:
Go online – The beauty of living in this century is you can find (almost) anything online. There are plenty of retail vendor directories you look into when researching suppliers.
There are big and general supplier sites such as Alibaba or ThomasNet, but there are also online sources that are a bit more industry-specific. For example, there’s Central Closeout for beauty and cosmetics retailers, while there’s FashionGo for apparel.
Attend trade shows – Online directories are convenient, but sometimes, there’s nothing like heading to an actual trade show to see suppliers in the flesh. In-person events let you meet vendors face-to-face as well as touch and feel their samples.
Some examples of these trade shows include ASD Market Week and Las Vegas Market, but you’ll find a lot more of these (particularly industry-specific ones) by Googling something like “trade shows for [insert store type here]”
Check out trade publications and organizations – Trade publications and groups often have supplier directories that list vendor names, contact details, and descriptions. If you’re looking for additional suppliers who can freshen up your inventory, consider picking up a trade magazine or look up your industry’s top trade orgs.
There are trade magazines for just about any topic, so if you’re not subscribed to any publications yet, you may want to check out TradePub.com to see if you can get your hands on relevant publications.
Product sourcing links and resources
Product sourcing books and articles
- Keeping Your Inventory Fresh: 4 Excellent Product and Supplier Sources Retailers Can Tap Into
- How to Find Product Sources
- Finding Products for Your Business
- How to Buy Wholesale Merchandise
- Mathematics for Retail Buying
- Retail Buying: From Basics to Fashion
Retail trade shows
- ASD Market Week (general merchandise)
- NY NOW (home and lifestyle)
- MAGIC (fashion)
- Global Pet Expo (pets)
- Las Vegas Market (gift and homeware)
Trade show resources and directories
Retail trade publications
Trade publication resources and directories
- Trade Magazines for Retailers and Wholesalers
- Trade Publications (by the University of Florida)
Inventory management best practices
Now that we’ve talked about product sourcing, it’s time to discuss how to track and sell your items. In other words, it’s time to review the “management” side of “inventory management.”
Start with the right tools and capabilities
You can’t manage your inventory efficiently if you don’t have the proper devices, platforms, and systems (and no, pen and paper doesn’t count).
Product catalog – Your product catalog is your master list of items. It should contain the product name, SKU, description, key attributes, and the number of units in stock, among other things. If you’re running multiple stores, opt for a centralized product catalog that syncs your inventory data across all your locations.
Variant capabilities – Product variants are essential if you sell merchandise that comes in various sizes or colors. Great inventory systems allow you to quickly create multiple product sizes, colors or any variations you need and edit them all in one view.
Composites – Composites, on the other hand, are bundles of individual products. If you sell gift baskets or sets of multiple products, get yourself an inventory system that supports composites.
Reporting – Reporting and analytics are critical to stock control. You need a good handle on inventory performance to order the right products, determine pricing and promotions, and forecast demand.
Stock ordering – It’s best to have a system that streamlines stock ordering. Vend, for example, lets you create stock orders quickly with CSV uploads or by scanning product barcodes. Email orders directly to your suppliers through Vend, then easily receive, modify, and bulk print labels when orders arrive.
Stock counts – Regularly counting your products helps immensely with inventory accuracy. So, get yourself a system that has inventory counting features so you can conduct partial and full counts with ease.
Figure out the best inventory techniques for your store
As we mentioned in our post on inventory management techniques, there are various stock control methods out there, and some approaches may be better for you than others. The key is to study these techniques and then determine which ones would make sense for your store.
Here’s a quick overview of the conventional stock control methods in retail:
First-in, first-out (FIFO) – The FIFO stock control method is when a retailer fulfills an order with the item that has been sitting on the shelf the longest. Basically, the products that were acquired first will also be the first products you sell.
This method is commonly implemented in food retail as many of these merchants sell perishable goods.
Last in, last out (LIFO) – LIFO is the complete opposite. It’s when you sell your most recently acquired products first. It entails that the most recent pricing is used to determine the value of the stock that has been sold.
Just In Time (JIT) – With JIT, retailers receive goods as the need arises. So, rather than ordering in bulk, you’ll work with your manufacturers and agree to acquire products or supplies on an “as needed” basis.
JIT helps keep inventory lean and eliminates waste, but it does require a bit of work especially when you’re dealing with your suppliers. JIT entails dealing closely with them and sharing information with vendors so they can make small and frequent deliveries.
Economic order quantity (EOQ) – This method factors in customer demand, ordering cost, and holding cost to figure out the right inventory levels. It uses the following equation:
A is the total customer demand over the course of the year, Cp is your ordering cost, and Ch is the carrying cost.
Open-to-buy (OTB) inventory planning – OTB inventory planning, also known as merchandise management, helps you understand how much stock you can purchase without major risk. OTB accounts for inventory planning considerations such as sales and promotions, normal customer demand, and current and planned stock levels.
It uses the formula:
Planned sales + sales and markdowns + planned end-of-month inventory – beginning-of-month inventory
Know your metrics
Get yourself up to speed with the right inventory metrics and track them regularly. Most modern inventory platforms will allow you to monitor and report on some key metrics, but just in case your stock control system doesn’t have sufficient reporting, here are the top measures you should look at:
Gross Margin Return on Investment (GMROI) – GMROI is calculated using the following equation:
Gross Margin / Average Inventory Cost
It lets you figure out the amount of money you gained (i.e., ROI) from your inventory costs. In other words, it answers the question “How much money did I earn for every dollar I spend on stock?”
Shrinkage – Shrinkage is a discrepancy in your stock records. This is a loss of inventory that wasn’t a result of legit sales. You can calculate it using the formula:
Ending Inventory Value – Physically Counted Inventory Value
Shrinkage can also be expressed as a percentage — i.e., Shrinkage % = Shrinkage / Sales x 100
Inventory turnover (aka stock turn) – This metric measures the number of times merchandise has sold out in a given time period. Use the formula:
Cost of Goods Sold / Average Inventory
Lost sales – According to Chris Petersen of IMS Results Count, lost sales “can be estimated by the days a SKU is out of stock X the average or expected sales rate.”
Lost sales estimates is a good “counterbalance” metric to gauge if you are trying to run too lean on inventory, especially for top-selling SKUs.
Safety stock level – According to Matt Warren, Founder & CEO, Veeqo, safety stock level “is effectively the backup stock needed to meet unexpected occurrences and sudden changes in demand.
There are a number of ways to calculate it, but Warren suggests taking the following steps:
- Take an average of your top three days’ sales volume over the previous month/quarter/year…
- …then subtract the average daily sales volume for the same period.
The formula is:
Safety stock = (Sales volume of top 3 days/3) – Ave daily sales volume
Reorder point – Warren also suggests calculating your reorder points. In essence, an item’s reorder point needs to be as soon as its safety stock levels are hit. But the lead time between ordering and receiving the order needs to be taken into account as well.
He recommends the formula:
Reorder point = (Lead time in days x Ave daily sales volume) + Safety stock
Vend’s Excel inventory and sales template helps you stay on top of your inventory and sales by putting vital retail data at your fingertips.
We compiled some of the most important metrics that you should track in your retail business, and put them into easy-to-use spreadsheets that automatically calculate metrics such as GMROI, conversion rate, stock turn, margins, and more.Learn More
Conduct physical inventory counts
To maintain inventory accuracy, you need to ensure that the inventory numbers you have in your system match up with the physical stock you have in your store or warehouse.
That’s where physical inventory counts come in.
The specific steps for physically counting merchandise may vary from one store to the next, but here’s a general overview of what the process would look like:
Step 1: Schedule and prep – Decide on a date to count your products, then mark your calendar. Be sure to notify your staff to get them on board. If you’re closing your store temporarily, don’t forget to notify your customers.
Step 2: Physically count your products – Count the items and record the number of units you have for each SKU.
Step 3: Check and recheck – Compare the numbers with what you have in your system. Identify and take note of any discrepancies.
Step 4: Address any discrepancies – If some numbers don’t match up, do your best to get to the bottom of it.
This requires going through sales paperwork to see whether certain sales have been overlooked. Often, when a simple math error doesn’t explain an inventory discrepancy, a missing sales receipt can. If there is no missing sales receipt, then you are left with theft or supplier fraud.
Step 5: Update your records – Regardless of the motive for inventory loss, you need to reconcile your inventory records to match the actual number of items you have in your inventory. Doing this requires creating a stock reconciliation statement that overrides your previous figures and represents your current stock accurately.
Consider cycle counting
If you’re not keen on closing your store or staying after hours to count your entire catalog, then consider cycle counting instead.
Cycle counting is the process of partially counting merchandise on a continuous basis. This method entails counting just certain portions of inventory on a daily or weekly basis so you won’t have to do a full inventory count anymore.
What’s the best way to cycle count? Inventory expert Jordan Lewis recommends factoring in things like sell-through and size when determining what merchandise to count and how often to do it.
“My advice is to focus on the items that you sell more of or that are smaller or easier to misplace. For low volume items, you could afford to count them less frequently,” he says.
How do you cycle count your inventory?
There are various ways to go about cycle counting. Here are some of the most common methods:
1. The ABC technique
As Jordan says, you could consider turnover and sales volume when deciding how frequently a SKU should be counted. You’ll want to group your products based on their sales volume and come up with a cycle count schedule for each group.
So, Group A would be your top 20% best products, Group B would be the next 60%, and Group C would be the bottom 20%. Items on Group A should be counted more often, while those in Group C would be counted less frequently.
Here’s an example of what your count schedule would look like using the ABC method:
2. Consider seasonality
Alternatively, you could decide to count items based on whether or not they’re in season. So if it’s summertime, then you’ll want to count your summer dresses more frequently than your sweaters.
3. Arbitrary method
If seasonality or the ABC technique isn’t right for you, then you can arbitrarily decide how to count merchandise. Just be systematic about it. For example, you could decide to cycle count according to the item’s size, location in the store or product type.
The bottom line: do what works best for you.
How often should you count your inventory?
Regardless of whether you choose to do full or cycle counts, frequency and consistency are key. According to Lewis, you should ensure “that everything is counted at least once a month.” At the very least, he says retailers should aim to cycle through all their products every quarter.
If you need more advice on counting and reconciling your inventory, check out Vend’s Complete Guide to Retail Inventory Management. This handy resource offers advice and action steps to help you:
- Set up your products and inventory system correctly
- Get the right people and processes in place so you can stay on top of stock
- Figure out which of issues are causing shrink in your business so you can prevent them
Forecasting demand is an important component of inventory management. It lets you be more forward-thinking with your stock, so you can carry more of the right products at the right time.
But like anything that requires anticipations or predictions, it’s a tricky task. That said, if you have the right data and insights, you’ll be able to forecast demand with a fair level of accuracy.
How do you forecast demand?
Retailers can forecast demand by combining historical data, customer sentiment, current trends, seasons, and maybe a little bit of intuition.
There are several ways to approach demand forecasting. There are qualitative methods, which include conducting market research and surveying customers, experts, and key people in the company.
There are also quantitative methods, which include causal models (i.e., projecting outcomes based on a set of variables) and time-series models (i.e., attempting to predict the future based on past data).
Some retailers use a combination of both to forecast demand, while others use applications that can run for the numbers for them.
Using your product and sales reports
If you’re an SMB looking to predict demand, the first place to look is in your retail analytics. Dig into your sales and product reports to figure out what’s selling and how fast products are moving. This will give you a better idea of what items to orders, the quantities you need, and the dates that you need them by.
Christmas Elves, a retailer that sells holiday merchandise, does this really well. According to store owner Jason McIntyre, he and his team look closely at their sales velocity to figure out their orders.
“I have to place my Christmas orders in January or February each year, so we pretty much get one shot at purchasing. If I under-purchase and sell out, then I lose sales opportunities. But if I buy too many or the wrong types of products then I’ll have to look into discounts and promotions,” he says.
To do that, he looks at how many trees sold per week and then tracks their sales trends overtime.
Jason says he runs these sales velocity reports both at a category and product level. Doing so allows him to identify trends and opportunities, which then influences his product orders.
Tools, articles, and ebooks that can help keep your merch in check
Inventory management tools
- Free Excel Inventory and Sales Template for Retailers
- Scanner (free barcode scanning app for inventory)
- Vend’s inventory management software
Ebooks about staying on top of products and data
- Retail Inventory Management Guide: Set up a Winning Inventory System for Your Store
- Retail KPIs Guide: 10 Key Performance Indicators Every Retailer Should Track
General articles about inventory management
- 8 Inventory Management Techniques to Help You Stay on Top of Stock Control
- What is Inventory Reconciliation and How Will It Help You Save Time and Money?
- How to Optimize Your Inventory: A Guide to Getting Stock Levels “Just Right”
- Choosing an Inventory Management System for Your Retail Business: A Buyer’s Guide
- 6 Inventory Metrics You Should Track (and How to Do It)
- 5 Tips to Help Retail Employees Stay on Top of Inventory
Resources on counting your products
- Cycle Counting 101: A Retailer’s Guide to Partial Stock-Takes and Inventory Accuracy
- Taking a Physical Count of Your Inventory? Here are 10 Tips to Make the Task a Whole Lot Easier
Inventory management tips from other retailers and experts
- 3 Clever Inventory Tips That Helped This Retailer Achieve 30% Year over Year Growth
- 9 Action Steps That Helped This Retailer Grow 250% in Three Years
- 12 Retail Experts Share Their Top Tips for Effective Inventory Management
Common problems with inventory management
Inventory management comes with a lot of challenges. As a retailer, you need to be aware of any potential mishaps so you can prepare for them. In this section, we’ll look at some of the common issues retailers face when dealing with inventory management.
Having excess inventory can be problematic. It ties up your capital and takes up space. Fortunately, you have a number of options on who to deal with surplus stock. They include:
- Remerchandising the products by moving them around the store or freshening up their displays.
- Discounting them through enticing promotions.
- Bundling them with faster-moving products.
- Offering them as promotional freebies.
- Seeing if you can return or exchange them.
- Selling them on online marketplaces.
- Selling them to liquidation companies.
- Donating them and reaping the tax benefits.
Out of stocks
Running out of in-demand products and dealing with out of stocks may be the opposite of having surplus inventory, but it’s just as bad. Out of stocks can diminish customer satisfaction and send them to your competitors.
Here’s how you can avoid and address stockouts in your store:
- Have an inventory management system with stock level alerts, accurate reporting, and effective product ordering features.
- If necessary, tweak your stock ordering process and schedule so orders arrive promptly.
- Cultivate strong relationships with your suppliers and communicate with them often.
- Always have enough working capital so you’ll never be short of funds when it’s time to order products.
As we mentioned earlier, shrinkage is the difference between the amount of stock that you have on paper and the actual stock you have available. In other words, it’s a reduction in inventory that isn’t caused by legit sales. The common causes of shrinkage include employee theft, shoplifting, administrative errors, and supplier fraud.
You can prevent shrinkage by beefing up security in your store. Monitor customers, employees, and vendors/suppliers for suspicious behavior. Have accountability policies to reduce human error. Also, do inventory counts regularly especially when it comes to high-theft items.
Inventory discrepancies between channels or stores
If you sell products on multiple locations or channels (i.e. physical retail + ecommerce), you may find that inventory levels don’t match up.
You have two options for dealing with this issue. The first is to use a single view inventory management system in which you manage all your sales channels on one platform. That way, when you sell something in-store or online, your stock levels across the entire system are all synced up.
The second option is to use platforms that can integrate with each other. So, if you’re using a point of sale system in-store, you need to make sure that it can “talk” to your ecommerce platform.
By connecting the two solutions, data can flow from one app to the other and your stock levels remain synced.
Resources for dealing with stock control issues
- Liquidating Surplus Inventory: 7 Smart Ways to Get Rid of Excess Stock
- Avoiding Stockouts: 5 Preventable Causes of Out-of-Stocks and What to Do About Them
- Retail Merchandising: How Do You Sell Slow-Moving Stock? (A Chat with Christine Guillot)
- Reducing Retail Shrinkage: How to Beef Up Security and Prevent Loss in Your Store
- 3 Big Inventory Management Mistakes You Could Be Making (and How to Fix Them)
- 5 proven tips for maintaining inventory accuracy and reducing shrinkage
Whew! We just went through the A to Z of retail inventory management. We certainly hope you found what you were looking for! We’ll be adding more info and resources going forward, so if you want to keep learning about stock control, be sure to bookmark this page.
By the way, if you know of any inventory management resources that weren’t mentioned in this post, be sure to let us know! Share the knowledge by reaching out to email@example.com!
About Francesca Nicasio
Francesca Nicasio is Vend's Retail Expert and Content Strategist. She writes about trends, tips, and other cool things that enable retailers to increase sales, serve customers better, and be more awesome overall. She's also the author of Retail Survival of the Fittest, a free eBook to help retailers future-proof their stores. Connect with her on LinkedIn, Twitter, or Google+.