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4 Steps to Create a Successful Inventory Management Process

07/13/2022 | 04:30 PM | 10 Min Read

two women looking through clothing rack

Everyone who’s worked in the retail industry has dealt with this situation. A customer comes in looking for a specific product that is unfortunately out of stock. They'll ask if it's in the back, if you have any left, or if there's any available in a nearby store. Answering "no" to any of these questions will cause friction, and not knowing the answer can feel even worse. When you consider both e-commerce and in-store transactions, keeping track of what products you really have available can become overwhelming.

Retail Dive projects that 72% of retail will take place offline by 2024, meaning omnichannel retail sales aren't going away anytime soon, further highlighting the importance of a reliable omnichannel inventory management process.

Let’s take a look at the steps needed to adopt a successful inventory management process.

Step 1: Define Inventory Data Reference

Retail companies have multiple options to choose from for building out their data. Some of the most commonly used inventory data references are:

  • SKU numbers: Stock-keeping units (SKUs) are internal reference numbers made up of alphanumeric figures. Often they include style, size, color, and option information specific to the item. Every product gets its own unique SKU so retailers can track each product and manage inventory costs faster. Sometimes brands will assign a SKU to an item, but since SKUs are solely for internal use, two different retailers may have different SKUs for the same product. Depending on the brand, products may also have a common numeric reference, usually a UPC or GTIN. 
  • UPCs: UPCs, or universal product codes, are standard 12-digit numeric codes that are used as a common reference by retailers. A UPC is one of the many different Global Trade Item Numbers that organizations around the globe use to track products throughout the supply chain.
  • Barcodes: In addition to using a UPC or GTIN as the barcode, many POS systems will automatically create barcodes for products rather than assigning them a reference number. 

Retail shop owners can choose what data references and codes they use to refer to specific products in their preferred inventory system. Some SKUs, for example, can be descriptive: if you sell multiple colors of the same base product, the SKUs might be 123-45-BLU, 123-45-GRN, and 123-45-RED. Ultimately, it's important to pick data references that are easy for your teams to understand and allow them to maintain high-quality records with minimal errors, train new users with little downtime, and easily determine the status of your available inventory.

Because data quality is so important, it's necessary to look for errors within your data. Ask yourself questions like, is your team creating and maintaining high-quality data? Are errors coming from other sources? Are there patterns in the errors that allow you to resolve the source of the problem? For example, errors may be coming from manual data entry, a specific vendor, or from automated translations across a POS system to your inventory software.

Step 2: Use Inventory Transactions to Manage Your Inventory

Once you've determined the data references — the building blocks — for your records, it's time to establish best practices for inventory management across your business. No business will survive without an accurate inventory record. Some of the different transactions organizations can track to adjust, modify, and manage their inventory over time include:

  • Purchase orders: Establishing records of products ordered from vendors and suppliers allows you to set costs and margins effectively and analyze purchase trends over time. Purchase order transactions also record initial quantities for new products.
  • Transfer orders: If you have multiple inventory locations, your inventory will likely be received in a primary location and then distributed to other stores based on demand and availability. Transfer orders are used to establish quantities and costs so this inventory has a clear chain of ownership throughout the organization.
  • Inventory counts: Inventory counts or stock counts establish inventory in a snapshot for a particular date. They are powerful controls for your inventory and should be used regularly to ensure accuracy in each location. Whether performing full counts or periodic partial or “cycle” counts, whatever you do, be sure to create a clear, trainable process.
  • Inventory adjustments: Inventory adjustments are often abused. It is easy to forego the more precise inventory tools and adjust inventory in and out rather than expend the effort. But there is no hope of understanding your margins or effectively demand planning without using purchase orders, transfer orders, and inventory counts. That said, inventory adjustments do have a purpose, they should be used to track damaged goods, known missing items, demo items, etc. 

Goods enter and leave your commercial property or virtual inventory for various reasons; your management processes need to track not only the in-and-out movement of those goods but also the reasons and methods of their movement. With this detail, you can better see:

  • What products are immediately available at your location
  • The burn rate or sales velocity of each product type
  • Trends in inventory that allow you to place orders more efficiently
  • The entirety of your supply chain, especially in-progress purchase orders and transfers

Step 3: Decide How Much Inventory to Order

With all of the insights you'll develop once you are generating quality inventory data, you can more accurately gauge how much inventory to order so you can maintain the right internal stock levels. Some of the considerations that should guide your process include:

  • Sales trends: Do you see high demand for a specific product or category? Are there seasonal ebbs and flows to purchases? Are there specific days of peak demand? Understanding the sales velocity of your catalog gives you the ability to plan based on actual demand, not guesses. 
  • Reorder points: Most inventory management systems allow you to set reorder points to help guide your restock process. If inventory hits the reorder point, a set quantity can be added for purchasing. This strategy isn’t terribly accurate but can get you started by creating a queue of products for purchase. You can then tune the list and the quantities using trend data so you don’t end up ordering slow-moving products just because inventory got low. 
  • The 80/20 rule: The 80/20 rule describes the general trend that 80% of your profits come from 20% of your products — does this model apply to your business? By reporting on sell-through and margins, you can identify those core goods that are essential to your bottom line so your inventory processes ensure you keep them available.
  • Vendor Lead Time: Ordering too little can jeopardize your business. But ordering too much can hurt your cash flow, take up space, and force you to discount items later on. Decide if you can handle excess stock before placing each order. What is the lead time if you need to get more? 

All of these factors will determine when you order, how much you order, and how you will need to protect your business from over-and understocking.

Step 4: Determine How You Will Keep Your Processes Successful

Most retail inventory systems fall into two buckets: the old way and the new way.

The "Old Way"

If your current inventory methods are inconsistent, entirely manual, or only account for inventory in and inventory out. This is extremely inefficient and prone to error, even with the most diligent staff. And it won't give you the actionable insights, that purchase history, cost averaging, or sell-through reporting needed to understand the core of your business. These factors are even more important in the omnichannel world we sell in now. It’s easy to “just go with it” when some sales platforms do not include native inventory management tools that allow you to master your process but you could have it so much better.

The New Way

A robust inventory management software that integrates with your physical and online retail systems gives you deeper insights into your stock, inventory processes, and sales trends. A tool like Accumula can help keep your inventory processes streamlined and accurate across channels while leveraging inventory management tools across your business.

Adopting an omnichannel inventory management solution allows you to focus on growing and streamlining your business. It can also drive higher customer satisfaction rates, reduce overhead, and minimize the risk of human error.

While online platforms like Shopify don't have in-built inventory management tools that give you this level of functionality, Accumula can help you bridge the gap between Shopify and your POS and ERP platforms. Our solution can:

  • Provide clear inventory insights across different platforms
  • Let you track inventory changes in real-time
  • Reduce oversells with a "Safety Stock" tool
  • Help you trust your store's inventory records and product management efforts
  • Reduce time spent on manual inventory efforts
  • Increase customer satisfaction by eliminating oversells and helping you keep in-demand items in stock.

Build Your New Inventory Management Process With Accumula

Managing omnichannel retail operations is challenging, and opaque inventory records make it even harder. Switch to a robust inventory management system you can trust to provide accurate inventory counts, real-time sales records across different selling channels, and inventory trends that help you make more efficient decisions. Schedule a demo today to see how Accumula can improve your inventory management process.

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