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Here’s the Story on Inventory

There is simply nothing less exciting to think about that inventory management. Trust me: I’ve been thinking about it for …

By Dave Eagle

Photo by Lasse Christensen (Flickr)
Photo by Lasse Christensen (Flickr)

There is simply nothing less exciting to think about that inventory management. Trust me: I’ve been thinking about it for a few days as I’ve researched this post and I am so bored with the topic that I actually was excited when a couple people showed up at my door to sell me a vacuum cleaner. Or was it salvation? I didn’t pay much attention, to be honest, but it was nice to have the distraction. The fact is, though, that inventory management is pretty important. How important? A competitor of ours recently tackled this question on their blog, and they offered a pretty insightful answer: “Extremely.” I only hope I can do this topic justice, because it’s hard to top analysis like that.

Ultimately, though, inventory management—especially in retail—boils down to two golden rules.

She does not want what she hasn't got.
She does not want what she hasn’t got
  • You cannot sell what you do not have.
  • You should not have what you do not sell.

These are pretty clear cut goals, and with the right tools you can adhere to them fairly easily. Even if you’re a small shop without the resources to link your own databases with your supplier’s for an automated Just-in-Time inventory system, you can get pretty close to it these days. Follow these best practices, and you’ll find that you can stay ahead of the game with little effort. Note that I didn’t say “no effort”—anything that can be done with no effort is something that will end up being a bad idea, insanely fun, or both.

  • Your inventory needs to be tied in to your point of sale. This is 2015, and I shouldn’t have to say this, but you can’t go on keeping paper records and taking manual stock counts for the rest of your life. I mean, you could go on for the rest of your life, because it takes so long to do it all manually, but why would you want to. It used to be that this sort of incoming and outgoing counting was done with expensive software and was the domain of only the largest companies. But POS has come a long way in the last decade, and big business tools have become very affordable. It’s not exactly fancy anymore for software to act as a “receiving” station for new merchandise, where shipments are recorded right in the POS. Once an item is loaded in, the POS takes care of counting them for you, deducting one from your inventory every time one of that item is sold.
  • Your point of sale needs to be tied in to your purchasing. There’s probably nothing worse in retail than sending a customer away—one who was ready to hand over her money for that thing she wanted—because you don’t have items in stock. You can mimic a Just-in-Time strategy with a POS that has advanced inventory functions beyond simply counting. Many feature low stock thresholds, where you set a number which—when reached—the point of sale alerts you to this fact. A subset of those that can do this can also automatically generate a purchase order for replenishment.
    Photo by bark (Flickr)
    Photo by bark (Flickr)

    Perhaps you set it so that every time your inventory of Magic 8-Balls reaches five, a purchase order is created for another ten from your supplier. At that point you need only print it or export it as a file and send it off to get things moving. Does this make it easier to keep a constant stock of Magic 8-Balls? Signs point to yes.

  • You don’t always sell what you buy. It sounds like a paradox, but really it’s just about the quantity of things. You might buy t-shirts as a lot and only order 1 at a time, but 1 lot could mean 50 t-shirts. Or, if you own a bar, you might buy a keg of beer, but you’re selling them one pint at a time. Make sure the inventory can account for these discrepancies in purchasing formats by deducting the right fraction of the amount you purchased. This keeps things simpler than if you had to receive, say, 50 t-shirts one at at time.
  • Use reporting features to see your purchasing efficiency. If you find yourself having to sell off seasonal items to make room for new stuff, the reporting out of your POS can give you an easy view into what you’re getting too much of. Sure, you might still make a little profit on the items you had to sell off at reduced prices, but ultimately those items are just cash that’s sitting on a shelf but can’t be spent elsewhere. The longer you’re in business the smarter these purchasing decisions become, because you’ll be able to identify long term trends and start purchasing accordingly. But even after one year you’ll be able to buy less of what didn’t sell during the first 12 months, freeing up the money you would have spent for other, better uses. For hospitality, something that allows you calculate waste—food or ingredients that didn’t sell or get used before they went bad—gives you the same sort of insight.
  • Don’t put all your trust in a computer. HALThis feels like something I say a lot, but that’s because it’s true: the data you get out of software is only as good as the data you’re putting in. Things get stolen, or destroyed, or lost in a backroom somewhere. When that happens, the POS has no way of knowing this until you let it in on the secret. Don’t worry: it won’t judge you for it. It just wants to give you accurate information and you need to help it along in this regard. Doing a manual stocktake seasonally, monthly, biannually—you should know what’s appropriate for your business—helps to keep you and your digital helper on the same page.