Inventory Management

Inventory management is crucial for retail businesses. Statistics show that 43% of small business either don’t track their inventory at all or apply an antiquated manual method.

Effective inventory management is so important that without it, a business can be affected by costly stock outs and related issue. If we listen to the customers, they have experienced out-of-stock 1 in 3 of their shopping trips that is not only enough to take a customer away but also costs businesses around $984 billion worldwide every year. Now that is a big number! Surely, you would not like to get counted among such businesses, right? Scroll through the list below and check out the best inventory management tips.

1. Start By Setting Up Par Levels

Keeping a tab on the inventory is easy when we set “par levels” for each product. In case you don’t know, par levels are the minimum amount of a product that a retailer must have in hands at all times. So whenever the inventory level dips below the predetermined levels, you will know that it is time to order more.

When You Are Setting Up Par Levels, There Are Two Things That You Should Keep In Mind:

  • Know how quickly every item sells, and
  • How long it will take to get it back in stock.

When you will set par levels according to the above-mentioned points, you will realize that par levels will vary according to the product. You need to do some research to systematize the process of ordering. This way you will be able to make a decision quick and whenever you are not around, your staff can make the right decision on your behalf. Isn’t that so convenient?

Remember, that conditions change over time so it is crucial to change the par levels of the products a few times throughout the year and confirm if they still are the same or have faced fluctuation. If things have changed, don’t be afraid to alter the par levels, either up or down.

2. Build strong relationships

Successful management comes when we are able to adapt quickly. So whether you need to return a slow selling product, make room for new products, restock a fast selling product, troubleshoot manufacturing issues, or temporarily expand your storage space, for all this you need to have a really strong relationship with your supplier. That way they will love to help you in your time of need.

A good relationship with the supplier goes a long way as you can negotiate with him/her for minimum order quantities. If you already have a good relationship, don’t be afraid to ask for a lower minimum so you don’t have to carry a lot of inventory.

3. Plan For The Unforeseen Future

Every business should always keep itself prepared for the unforeseeable future as a lot of issues can pop up at any time. If you are not well prepared, it can cripple the business. For example:

  • An unexpected spike in the sales and you oversell the stock
  • You find yourself in cash flow shortage and you can’t pay for the product you desperately need.
  • Your warehouse doesn’t have enough space to accommodate your seasonal sales spike
  • A miscalculation in inventory meaning you have less amount of a particular product than needed
  • A slow moving product is taking up a lot of storage space
  • Your manufacturer runs out of a particular product that you need to fill the orders
  • Manufacturer discontinuing a product without prior notice or warning

There are a lot of problems that can put you into hot water. So instead of counting ‘ifs’, focus on ‘when’ in case of business related issues. Figure out the risks and prepare a contingency plan. Remember that a solid relationship might help you in such a situation.

While you are at it, learn how you can boost online and offline sales.

4. Regular Auditing

Regular reconciliation of accounting records is vital for the business. In most cases, a businessman relies on software and reports from the warehouse to know how much stock is left and how many needs to be ordered. However, one should not blindly trust on those reports but make sure that the figures and facts match. There are several methods via which this could be done.

  • Physical Inventory

Physical inventory is counting the entire inventory at once. It is mostly done by the businesses at the end of financial year because it ties with the accounting and helps while filing income tax. As this method is applied only once a year, it results to be quite disruptive and tedious for the business. If a discrepancy rises, it becomes difficult to pinpoint the issue as you are looking back at an entire year.

  • Spot Checking

A full inventory check at the end of the year comes with many problems. If you have a lot of products, you would rather prefer spot checking it throughout the year. Wondering how to do that? Simply choose a product, count it and compare it the number to what it is supposed to be. This isn’t done on a schedule or a supplement to physical inventory. You should probably want to spot check problematic or fast-moving products.

  • Cycle Counting

Some businesses choose cycle counting instead of doing a full physical inventory. Instead of a full counting at the end of the year, cycle counting spreads reconciliation throughout the year. Day, week or month – different products are checked on a rotating schedule. Retailers choose a variety of methods of determining which items to count and when but usually the higher-value items are counted more frequently.

5. Forecasting The Demand

A lot of business moves forward by already forecasting the demand, meaning what customer will buy, how much and when. It helps in preparing the retailer for the future and creating an estimate of how much the inventory they need to stock. Demand forecasting is usually done by guesses, or via quantitative methods like analyzing past sales data.

Listed Below Are A Few Things That You Could Do To Forecast The Demand:

  • Make it a monthly process
  • Decide what items need to be measured and how often
  • Collect data from your sales channel
  • Be practical, focus on facts and up-to-date data

Demand forecasting not only proves fruitful in inventory management but also helps the retailer who is trying to enter into a new market and for those looking to grow their business.

You can also send promotional SMSs to your customers to sell your products faster.

6. Make Use Of Technology

Bar-codes have been originally designed to help big and small retailers in keeping track of their inventory. But most of them are not making use of this technology. If you are one such retailer, start by training your staff to use mobile devices such as i Pads or bar-code scanner to track the movement of the stock. With this, the financial records will also be updated in real time. Could there be anything more quick and convenient? You are practically free from updating paper reports and making mistakes. While you are using the technology, make sure that the mobile devices are always charged and ready to use. Put security measures in place to avoid theft of devices.

7. Figure Out The Carrying Cost

Companies and retailers have to pay money on top of the inventory purchase price for things like storage, tax, insurance, extra equipment and personnel. In this, other costs also add up such as damage, depreciation, processing and borrowing, making the total cost at 18 to 25% above the value of the inventory. Some businesses afraid of being under-stocked tend to spend too much money on the inventory which eats up the capital and erodes profits. For obvious reasons, moving old inventory is hard and one may end up selling it at a discount price.

So, how retailers fix this issue along with carrying cost? Start by deciding how much product you will need and when. You can take a look at your old log books to know how much you have sold in the past. But don’t forget to count seasonality like month end or holiday sales.

You can also increase brand loyalty through effective ways to move your inventory faster.

8. Prioritize The Products

Every retailer realizes the fact that some products need more attention than others. So, it is vital to prioritize the inventory by separating out products that requires more attention from those that don’t.

Go Through Each Product And Add It One Of Three Categories Mentioned Below:

  • High-value product
  • Moderate value products
  • Low-value products

Items that come under category ‘A’ will need more of your attention as their financial impact is significant for the business but sales are unpredictable. Items falling under category ‘C’ will require less oversight because their financial impact on the business is less. Items in category ‘B’ fall somewhere in-between.

9. Drop Shipping

Drop shipping is the most ideal scenario from an inventory management perspective. In this method, there’s direct delivery of the goods from the manufacturer to the retailer or customer. So instead of carrying the inventory yourself and shipping it the customers, the manufacturer or wholesaler takes care of it for you. In simple words, you are completely removing the inventory from the process.

You earn money through the difference amount between the wholesale price and retail price. Once this process starts working, retailers add more products, leading to an increase in the sale from drop shippers.

While you are at it, don’t forget to use these strategies to retain your customers and give boost to your sales.

10. First-In First-Out (FIFO)

Another important principal of inventory management is “First-In First-Out”. It simply means that your oldest product (first-in) should be sold first (first-out), not your newest stock. This is especially important for perishable goods because definitely you don’t want to end up with unsellable, spoiled products.

Though, it doesn’t mean that same rule should be applied to non-perishable goods. If the same products keep sitting at the back they will get worn out or out of trend. Plus, companies are always changing the packaging designs and features, so you really won’t like selling old and unwanted products to the customer. If you do that it will lead to a bad name in the market. So, before you end up with obsolete products, it’s better to sell it off as soon as you can.

In order to make this system work, you will need an organized warehouse. The system should be such that whenever new products are added, you existing stock must take the front seat. You can also train your staff to do this so that no old product keeps lying in the back and is the first one to be sold.


If you want your inventory to give you profits and no loss, then it is important to follow the above-mentioned factors. An efficient inventory management system will not only save your money but will also save your time as well as efforts. Choose the right technique that best suits your type of business and start implementing them as soon as possible.

The Author

Abhijeet Guha

Abhijeet Guha

Abhijeet is an active blogger with vast experience in developing content for Telecom, IT Security, VoIP and several other industries. He researches on various topics related to the telecom sector and pens down his research in the form of articles & blogs. You can reach him at
Abhijeet Guha