Any business that sells goods, whether online or in a brick-and-mortar store, needs an effective system for tracking and managing inventory. Here are some tips to effectively manage it.
Like most other retail leaders, I know that inventory management matters. I knew that even before I started my business or had any experience in the industry. It's just an obvious necessity for managing a retail business.
However, I didn't truly understand the supreme importance of the practice and the ramifications it could have across an organization (both positive and negative). I also didn't understand the delicate nuances of effective inventory management, nor how I could use it to boost my profits and retain my customers.
If you're as much in the dark as I was, or could simply use a refresher course on good inventory practices, read on for some tips to step up your game.
1. Understand the risks of poor management.
The first step to perfecting your inventory management system, whether you're running an e-commerce startup or a long-standing retail location, is to thoroughly understand why it matters. Too many organizations regard proper inventory management as a chore, or a nice-to-have, when it's arguably the single most important practice for a profitable retail business.
Stores and sites with lackluster inventory management systems often struggle to provide customers with the products they want when they want them, in addition to reporting high losses from employee and customer theft. Warehouse labor costs can also get out of hand for these businesses, because extra time is needed to sort through poorly organized and inaccurate inventory. Unhappy customers, unhappy employees and sinking profits – these are the repercussions of poor inventory management.
2. Don't wait to set up your system.
As my wife, Tori, and I started up our e-commerce fashion business, Pink Lily, we were overwhelmed by the number of things that had to get done. To us, the prospect of counting and monitoring our growing inventory of products was not as important as the many other tasks on our plates. And so we waited far too long to establish a system for inventory management. This delay had a damaging effect on our business, and we learned a valuable lesson. To my fellow entrepreneurs and startup founders out there, I offer this piece of advice: Do not wait to set up your inventory management system. Do not let this task fall to the back burner. Do it now. You'll thank me later.
3. Choose your process or partner carefully.
Some small, niche retail businesses can successfully manage the inventory management process with a traditional, manual process of diligent paperwork records. But for most retail businesses, both online and offline, a digital inventory management system is necessary to accurately track and monitor merchandise.
When choosing a digital system or tool to serve as your inventory management partner, it's critical that you properly vet, analyze, compare and test each option. At Pink Lily, we unfortunately had to go through two inventory management systems that failed miserably before landing upon our current tool, which is optimized for managing inventory for e-commerce businesses like ours. Learn from our struggle and do the work to investigate all options in advance, in an effort to find the best possible fit for your business.
4. Ensure lightning-fast data processing.
In this high-speed digital world, in which customers expect and demand immediate attention and gratification, it's vital to process orders – especially online orders – at the highest possible speed. For e-commerce and businesses with a strong digital presence, the data processing speed of your inventory management system will make or break your rate of customer satisfaction.
Let's say that a customer logs on to your store's website, makes a selection and successfully checks out. She's happy with her purchase and looks forward to receiving her order. What she doesn't realize is that her chosen product is actually out of stock. She doesn't know because your website didn't know, because your inventory management software has not yet finished processing the numerous orders that came through for that same product in the last few hours. This situation is going to end with an unhappy customer who will not be receiving her product, and this misstep will likely hurt or destroy any chance of repeat business with that customer. The stakes of every retail purchase are very high, and everything hangs on your system's ability to keep up in real time.
5. Set a recurring process for manual recounts.
Just as important as establishing a strong system for digital inventory management is your team's dedication to regularly and methodically counting merchandise to cross-check inventory numbers by hand. At Pink Lily, we schedule these manual recounts on a recurring basis, and we have a system to rotate through different sections of our warehouse (e.g., Week 1 – Row 5). Without this dogged attention to detail, we would not know where our inventory actually stands, nor would we be able to identify problems such as theft or inconsistencies in our digital system. Be sure that your business has a similar and oft-repeated process for checking that things are as they should be.