Why Proper Inventory Management Practices are Essential to a Successful Retail and e-Commerce Business
Inventory management can be a source of many retailers’ woes. It can feel like a trial and error process of finding that sweet spot to ensure your business is stocked with the in-demand products, in the optimal quantities and at the best time.
When inventory mistakes happen, it can lead to missed opportunities and lost revenue – as well as impact customer experience and even brand loyalty. In a market that’s flooded with many options for consumers, successful retailers and e-commerce businesses know that solid retail inventory management is a prime ingredient for sustainable revenue and growth.
Implementing sound inventory management practices will help better ensure you can track your inventory in real time, plan accordingly and avoid being out of stock, or having costs tied up in excess stock, products becoming spoiled or obsolete, and potentially spending unnecessary funds on extra storage space.
If you’re faced with difficulties in managing your inventory in your retail and e-commerce business, here are some important factors to consider.
4 Best Practices for Inventory Management
Invest in an Inventory Management System
You may be wanting to save costs by opting to do manual entries in Excel rather than using high-quality inventory management software, but in the long run, you may actually lose more money due to inevitable human error as well as valuable time trying to manage the impact of those mistakes. Inventory management systems that integrate with systems like Quickbooks and Shopify are invaluable for retail and e-commerce businesses in automating inventory processes, providing real time information as well as peace of mind.
Level up your Forecasting
With a solid inventory management software in place, you now have a good overview of your products coming in and out. With all the busyness and tasks that come with running a retail or e-commerce business, owners can easily fall into the trap of simply reacting to consumer demands in the short-term rather than proactively forecasting projected sales and delving into more fine-tuned planning. Inventory forecasting, or demand planning, involves looking at historical sales figures and past trends to determine what inventory may be needed in a future period. This analysis can feel cumbersome to retailers who don’t have the time or experience to dive deep – a skilled virtual accountant with an expertise in retail accounting can help analyze sales and provide customized guidance.
Consider first in, first out Principle
For many retail and e-commerce businesses, the first in, first out (FIFO) method is a guiding principle for inventory management. This is particularly important for products that have a shorter shelf life like food and flowers so that the oldest stock gets sold first so you’re not at risk of losing revenue due to products that have spoiled. Using the FIFO approach, products are displayed, marketed and sold in the chronological order in which they were purchased or produced.
Set time aside for Inventory Checks
Even with the best inventory management software in place, it’s still vital to check your inventory with a physical count on what’s on the shelves or in the warehouse. Situations of theft, damaged goods, or human errors – such as mislabeled or misplaced stock – can be identified by doing a physical count of your inventory and getting a true and accurate picture of your inventory.
Proper inventory management can be a complex process that can affect the integrity of your financial reporting, the financial position of the business, the ability to secure business financing, as well as profitability and cash flow.
If you need support with inventory management solutions, your accounting team at Finatics Accounting can help. Book a consultation today.