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How Do You Manage Retail Stock?

July 2, 2019

What’s the Best Way to Manage Retail Stock?

Does your business manage retail stock well?

It can be hard to decide on the best way to manage retail stock for your business. One of the most common mistakes for a new retailer is to attempt to copy the system from any business the manager had worked at before. Usually, what made that work for the other business isn’t present in the new one.

  • Your new business probably doesn’t have a close relationship with your suppliers.
  • You aren’t likely to have the same amount of storage space.
  • You may not be selling the same products, or getting the same prices if you are.
  • Your storage costs will be different.

This essentially means that you’d be basing your calculations off information that’s just not accurate.

Modern stock management systems are data-driven, which means that the longer you’ve been trading, the more information you have to work with – so a start-up is using best-guess assumptions to begin with.

On the plus side, start-ups don’t need much stock. That keeps costs from mistakes limited. On the other hand, every pound counts for a typical start-up.

It’s important to keep an accurate, up-to-date record of your sales and inventory. The quicker you gather new data, the faster you’ll home in on the right stock rules for you.

Making Retail Inventory Management Work

Like any kind of management, responsibility is key. What happens if no one person (or job role) is responsible for ordering new stock?

There are three possibilities. Perhaps nobody orders new stock and you run out. Perhaps, if you’re lucky, the amount ordered is ‘right’ or close to right. And perhaps five different people order stock separately.

Each stage in stock control should be the responsibility of one person or team. Booking in stock, processing orders, updating available stock counts, checking for shrinkage, restocking – these are all important processes.

Some can be automated. For example, an end-to-end order management system will update stock count automatically when orders are taken or when stock is booked in. But others must be done manually.

It’s crucial that the information you get on your sale rate, shrinkage, and how often your supplier delivers defective stock is accurate. Even if warehouse management has to be done manually, having the right tools can increase accuracy. Warehouse barcoding has become the standard for a reason.

Stock Management for New Businesses

Assuming you’re prepared to collect data and put in the work to develop stock control best practices, there’s a simple process to fine-tune your stock management techniques.

Track Sales & Shrinkage Product by Product

We’ve already covered how important it is to collect useful data fast. Only by going down to the product level can you be sure you’ve got the full picture.

As well as sales and shrinkage rates, you should track product costs, reorder lead times, and anything that affects reorder sizes. That includes minimum order values, but could also mean how many items are in each wholesale case.

This information is essential to determine how often and how much to re-order.

You can calculate your shrinkage rate by regular stock counts; your shrinkage will be the difference between the amount of stock you should have, given purchases and sales, and the amount you actually have.

Compare Rates Against Purchasing Costs and Lead Times

If your system can’t automate the raising of purchase orders, you’re likely to use rates more than the actual current numbers.

As a new business, you may wand to formalise a purchasing procedure for each product. Faster moving products, where you might risk being out of stock if you’re not ordering regularly, may be better off with a simple rule like “Order 2 cases of 10 each Tuesday” – but be sure you check the sale rates regularly.

If demand trails off, you could quickly end up buying far too much stock and creating a dead stock issue. If word of mouth leads to faster sales, you could be understocked without knowing it.

Slow moving higher margin products, on the other hand, might have a policy more like ‘check stock levels every Thursday and order 1 case if stock is at or below 4 items’.

Keep a running tally of everything you purchase in a cycle – and its costs – and check this regularly to make sure you can afford it. If not, you may need to focus on certain key lines and deliberately understock or discontinue others.

Promotion Scheduling

Review your slow-moving products regularly. If a regular rule doesn’t work for them, consider using deals to attract customers and get ride of excess stock – it might not be a good idea, but the numbers might add up to make it worthwhile.

Upcoming promotions should also be taken into account when you’re purchasing. Sales will be higher with special offers, so you should bring in more stock to account for that.

Book in Stock Accurately

What’s your stock receiving procedure? Is it clearly laid out in writing?

Why not?

Some suppliers cut corners. Others might feel they have to ship product that’s not up to standard to make a deadline. But even if you’ve got a supplier who would never deliberately mess with you, suppliers make mistakes. Shipments show up short, or with damaged products.

If your record shows you received two crates of ten, but doesn’t show that three items were missing and two more were damaged, you think you have five more items than you do. You also miss out on the chance to raise credit against the lost items. It’s not just the opportunity cost of understocking. You’re also losing the chance to recover wasted money – and that’s important when you manage retail stock.

These are just some of the reasons stocktaking is so important.

Accurate Stocktaking is Essential

Accurate stocktaking doesn’t just help manage retail stock. It also tells you how well products perform compared to one another. Without it, you can’t calculate accurate gross profit margins for each product. And without that, how can you maximise profitability?

There are many different ways to do stock audits. These should ideally be matched against an accurate, computerised method – they are your check against shrinkage.

Stock Control and Employee Theft

Employee theft isn't always money from the till. Sometimes retail stock disappears.

If you believe shrinkage might be due to theft, unscheduled spot checks can help to narrow down the list of suspects. Theft is most likely to be a problem with small items that are either very low cost (“nobody will miss one or two”) or high cost (“it’s worth the risk”). These two types of theft tend to occur to different people.

Low-cost thefts can often be reduced or eliminated with an employee discount. Having a discount provides a psychological ‘agreement’ between the company and the staff, so justifying minor thefts is harder.

Staff discounts also build a stronger bond between company and employees. That extra loyalty can be essential.


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