Inventory management has many moving parts, and for retailers, it can be quite a challenging task to handle. You sell products both online and in multiple retail stores, with new suppliers shipping inventory at different times of the month. Just one miscalculation in predicting future demand can lead to a stockout, while overestimating demand can result in excess inventory and inflated carrying costs. With so many variables to contend with, it’s no wonder why many retailers seek advice on improving their inventory management processes. This guide outlines ten strategies for retailers to optimize their inventory management practices, improve data accuracy, and enhance overall efficiency by 2025.
1. Consolidate Your Inventory Information
Managing inventory becomes increasingly difficult when stock sits in different places. It can be frustrating when your store’s POS system shows five units of a particular item in-store, but you can’t confidently tell a customer that it’s in stock at another location or have it shipped from your warehouse. Unifying your inventory data allows you to bring all stock data together, combining eCommerce and POS on the same platform to minimize data silos. This creates a single source of truth not just for inventory data but also for critical information about your customers and orders.
Retailers like Bared Footwear have benefitted significantly from a unified inventory data model. Previously relying on Lightspeed POS to process in-store transactions, the disjointed inventory data became problematic as their eCommerce business grew. By migrating to a unified system like Shopify, Bared Footwear has prevented sellouts and enhanced their customer experience by unifying inventory data across all sales channels. This transition has also allowed for the introduction of endless aisle fulfillment, representing a significant portion of in-store orders.
2. Implement Inventory Management Software
Inventory management software is essential for optimizing inventory levels and increasing real-time visibility over stock. Such software shows the quantities of each SKU across all storage locations, including retail stores, fulfillment centers, and third-party logistics (3PL) partners’ warehouses. Advanced systems provide granular data about stock and generate inventory reports that reveal best and worst-performing SKUs, items with the highest sell-through rates, top-selling products by sales channel or store, and inventory with the slowest lead times. This data is invaluable for informing your open-to-buy (OTB) budget and making smarter purchasing decisions.
For example, market trends may indicate that sales for summer sandals pick up in June. Your POS data shows that the size 9 variant is the most popular among all footwear categories. Given a six-week supplier lead time, you submit a purchase order by April 5th, ensuring you have enough time to meet customer demand while wisely spending your OTB budget. Retailers can utilize Stocky in Shopify POS Pro to manage inventory effectively, tracking levels, forecasting necessary inventory, suggesting reorder quantities, and managing stock adjustments all from one platform.
3. Establish Stock Notifications
Stock notifications are critical for preventing stockouts and ensuring timely replenishment of products. These alerts notify you when quantities of a particular product fall below your minimum stock levels. Installing an inventory alert app can automate this process, allowing for real-time notifications when inventory needs attention. Calculating the optimal reorder point for each SKU involves taking into account supplier lead time, maximum daily sales, and average daily sales.
Additionally, setting safety stock levels ensures you have buffer inventory in case of unexpected issues like prolonged supplier lead times or transportation problems. This extra inventory acts as a safety net, ensuring you have products on hand to sell to customers during any interim issues. Establishing stock notifications and safety stock levels is a proactive approach that significantly reduces the risk of running out of popular items and can improve customer satisfaction.
4. Classify Inventory
Effectively categorizing inventory goes beyond just helping customers find products they want. It plays a crucial role in showing your best and worst-performing collections, enabling smarter restocking decisions. Focusing on expanding similar top-selling categories can help avoid unnecessary inventory storage fees and carrying costs. Category performance reports also help identify your most valuable suppliers. If footwear is your top-selling category, strengthening relationships with those vendors becomes crucial. Good supplier relationships can lead to better negotiations on prices, maintaining a consistent supply, and being first in line for new product launches.
Classifying inventory also helps streamline operations and improve overall inventory management. Knowing which products generate the most revenue allows retailers to prioritize procurement and storage based on sales patterns. This process ultimately aids in enhancing profitability, preventing stockouts, and ensuring that the most sought-after items are always available for customers.
5. Broaden Supplier Base
Diversifying suppliers is a strategic approach to minimize risk in your supply chain. Relying on a single supplier can be risky if they encounter business challenges, quality issues, or unexpected price hikes. Being able to source inventory from multiple vendors ensures a continuous supply of stock at controlled prices, even if something goes wrong with one supplier. Most inventory management tools allow you to monitor supplier performance, evaluating whether they meet quality expectations, deliver inventory promptly, and fulfill their economic order quantities.
Routine evaluations of supplier performance can reveal those who fall short. Engaging in conversations with underperforming suppliers and setting improvement plans can maintain quality standards. If gaps persist, having a diverse supplier base allows you to swiftly transition to more reliable vendors, ensuring your inventory remains consistent and of high quality.
6. Perform Regular Inventory Audits
Regular inventory audits are essential for verifying that the quantities listed in your inventory management system match actual stock. This process highlights data entry mistakes, theft, or inventory shrinkage that could lead to financial loss and stockouts. Regular audits ensure financial accuracy, especially when valuing stock on financial statements such as tax returns and profit and loss accounts.
Moreover, consistent inventory audits help maintain a clearer understanding of stock levels, enabling better inventory planning and demand forecasting. Accurate counts and real-time tracking allow retailers to spot historical sales patterns, forecast future sales more accurately, and manage inventory effectively based on actual data. With a reliable picture of actual stock levels, retailers can make informed decisions, avoid overstocking, and prevent stockouts that could harm customer satisfaction.
7. Utilize Mobile Technology
Traditional inventory counts are often time-consuming and prone to human error. Mobile technologies like barcode and RFID scanners address these issues by allowing quick, accurate physical inventory counts. These tools automatically update the inventory management system when you scan a product label, reducing the chance of miscounts and saving time.
Mobile technology also enhances customer service by speeding up the checkout process. Retail associates no longer need to search the POS system for the right SKU—they can simply scan the barcode or RFID tag to add items to a customer’s cart. This streamlined process boosts customer satisfaction and operational efficiency, which is essential for maintaining competitiveness in the retail industry.
8. Invest in Automation Tools
Automated inventory management systems act as smart assistants for retail managers, handling repetitive tasks and freeing them to focus on selling. These systems forecast future demand, update inventory quantities in real-time, manage preorders and returns, and even generate detailed inventory reports. Automation tools like Shopify Flow enable further customization by creating workflows that automate various inventory management tasks.
With workflows set up for hiding out-of-stock products, receiving low stock notifications, and managing inventory levels, automation streamlines processes, reduces the chances of human error, and enhances overall operational efficiency. Insight-driven decisions and forecast accuracy improve when manual labor is kept to a minimum, allowing retailers to stay ahead of the curve.
9. Streamline Your Warehouse Design
A well-organized warehouse layout is crucial for operational efficiency. An optimized layout maximizes space, reduces transport time within the warehouse, and streamlines fulfillment processes. Whether it’s a large distribution center or a small retail stockroom, strategic placement of inventory can significantly impact productivity. Position best-sellers near the entrance for quick access and group similar categories together to ease product location for retail associates.
This effectively reduces the time taken to fulfill orders and restock shelves, enhancing customer experience by facilitating quicker service. For retailers using Shopify POS, sales aren’t confined to in-store inventory. The ship-to-customer feature allows in-store orders to be fulfilled from the warehouse or a 3PL partner, offering next-day delivery even if larger items aren’t immediately available on-site.
10. Enhance Your Inventory Receiving Process
Streamlining your inventory receiving process is vital for efficient inventory management. When products are received quickly and accurately, it reduces the time they spend in transit and helps maintain accurate inventory levels. Implementing efficient receiving procedures, such as barcode scanning and automated data entry, can significantly improve the speed and accuracy of inventory updates. This ensures that your inventory records are current and helps avoid discrepancies between actual stock and system records. Efficient receiving processes also facilitate faster restocking, enabling you to meet customer demand more effectively and enhancing overall operational efficiency.