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From Drones to 'BOPIS': Everything You Need to Know About Managing Your Inventory

Amy Nichol Smith
Amy Nichol Smith

It starts with organization and ends with increased profits.

As the retail landscape evolves, small business owners continue looking for the best practices for managing one of their biggest assets: inventory.

In the last few years, brick-and-mortar stores have had to figure out how to compete with big-box stores, along with online-only businesses. Many stores have merged their physical and ecommerce stores, but this presents its own issues, especially with inventory.

Many small business owners scoff at the idea of having an inventory management system – about 8% of them don't track inventory at all, while 14% use a pen-and-paper method, according to a report by Wasp Barcode Technologies, a company that specializes in inventory tracking software and hardware. It's incredibly important for you to know what you have in stock, which is why you need tried-and-true methods for tracking.

An inventory tracking system not only lets you know what stock you're carrying and what you need to reorder, it also helps prevent theft (or at least lets you know if there's a problem with employees stealing). It can also give you an idea of how your store is doing overall – that's the inventory turnover ratio. However, not every inventory report tells the whole story.

It's also vital to note – for your own peace of mind and your investors' – that inventory-to-sales ratios aren't what they used to be. Retailers hold on to more inventory than ever, and they're expanding the range of items offered. It's still necessary to know your inventory turnover ratio, because you need to strike a balance between having too much stock (and risk having worthless items) and having too little (not able to fulfill customer demands).

In this guide, you'll get a refresher on the basics of inventory management, the methods and best practices for managing your goods, and tools that can help you solve unique issues facing you in today's retail world. Knowing your inventory status is one step toward success.

Inventory Management 101

You already understand your retail shop requires a stocked inventory of goods. If you have too much inventory, you're risking not only holding onto items that could be obsolete soon, you're also tying up funds in product. This reduces your cash flow. Too little inventory could mean that you miss out on selling hot-ticket items during a sale to customers. Then you have dissatisfied customers who might associate your brand with that time they couldn't get the awesome widget of the moment.


Editor's note: Accounting software often includes an inventory management feature. If you're looking for help choosing the right software for you, use the questionnaire below for free information from a variety of vendors:


Turnover ratios are different for every industry. An obvious example would be the restaurant industry. You have a constantly evolving inventory of items, whether they're perishable or not. Although retail shops like clothing stores don't have as intense of a turnover, they still need to keep their products current.

You can turn to accounting software to help you figure out your best inventory ratio. You should be tracking sales and orders, so you know what your best-sellers are. This can also change on a whim, depending on your industry, so you need to check back often to see where sales are and which items are suffering.

A manual tracking system is not suggested because you can easily and quickly lose track of what's in stock, what's on back order, and what's coming to your warehouse or store each day.

Supply chain strategies

Not all retail stores are B&M, so if you're online only, you could consider a drop-ship method, which means you wouldn't have to stock product at all. You can have the manufacturer ship items directly to customers.

Some retailers prefer to combine a traditional inventory method with drop-ship options from some manufacturers with a few items, which is a good solution when you have limited space for stock. However, you still need to keep some inventory of those products on hand if you have a physical location.

One of the biggest challenges facing retailers today is the preference of so many shoppers to buy online and pick up in store (BOPIS). It's a good problem to have, at least for Target. In 2016, Target's orders for in-store pickup increased 50% from the previous year.

This demand for BOPIS is driving retailers to stock more products, which is fine if you have the space for it and you know the item will sell. It's the former that could be an issue, but the latter can be figured out if you know how to spot trends and prepare for those sales.

Improved turnover

After you assess your inventory and determine what ratio your store needs, you need to start over, in a sense. Sales and clearances are the oldest tricks in the book for moving inventory. So, get that stock out, and then set up a process that makes sense for you and your industry.

If you're lacking space for stock or simply want to reduce your sitting inventory, set up smaller, more frequent deliveries from suppliers. Avoid bulk orders unless it's for basics and bestsellers. In fact, if you're operating a boutique, you're likely filling your shelves with unique items that cannot be found elsewhere, and you'll want to limit that stock to ensure the exclusivity that so many boutique shoppers are hoping to find.

To keep track of all these SKUs, you should invest in an inventory control system, which is imperative to stay organized and on top of your stock. The right tool can reduce headaches for you and your employees, and help improve your turnover.

The best way to track inventory

The truth is that there is no one perfect way to track your inventory. It comes down to several factors, including your industry, the number of products your business offers, your warehouse size and your cash flow needs.

At the very least, you need to know what products you have on the floor, in the back, and the number of each of those items. If it's a best-seller, it should be set up to be automatically ordered when you reach a minimum stock level.

A bare-bones system still requires you to purchase software, because a pen-and-paper method isn't efficient. If you need to keep your costs low, you can invest in software as a service (SaaS) and simply pay a monthly fee for software that helps you track inventory using your smartphone or a tablet. Incorporate bar code labels to make it even easier for you or your warehouse manager to track product levels. Many SaaS platforms let you scan codes using mobile technologies, so you don't even have to invest in specialized hardware for inventory.

If you're looking at a giant warehouse space stocked with boxes of inventory from floor to ceiling, you might want to consider a more robust system that makes it easier to track loads of items. One emerging technology retailers are considering now are drones in the warehouse. Using an inexpensive drone to fly about your warehouse to track inventory is not only efficient and easy, it's also a safer method – you'll have to pull out a ladder or forklift to access items less often. Automakers and other industries are already using drones to map their inventories.

Inventory methods you need to use

As a small business owner, you already know how important it is to have a plan before you do anything for your business. You started with a business plan to get the financial help you needed to get off the ground. The same goes for managing your inventory. Start by planning each process.

Receiving inventory

A warehouse manager or receiving manager should be in charge of each shipment that comes to your store's back door or warehouse. This person needs to cross-reference the numbers on the packing list with the number of products you've received. The manager or team then needs to enter the new products into the system, whether by unique product name, SKU or bar code.

Assessing your inventory

This is where your accounting software, point-of-sale (POS) system, or inventory tracking system (integrating with your accounting or POS software) benefits you. You can check sales tickets against inventory to determine your best-sellers and the stock that's just gathering dust on your shelves. Check this weekly or monthly to keep product moving or order stock that's running low.

You can slash the prices of slow-moving items. You may not make a profit off these products, but getting it out of your warehouse or back room frees up space for better-selling products, or at least improves your cash flow situation. It's possible you only pay for the space you use in a warehouse, and that variable cost goes down if you get the dead stock out, thus saving you money.

Planning for the unexpected

It's near impossible to plan for all unexpected situations, but you can make it easier to meet demands in a few ways. First, maintain a good relationship with suppliers. Communicate effectively with suppliers so they know what you expect and when you expect it. Almost anything is negotiable, including minimum purchase orders, so be sure to ask about smaller orders and more frequent deliveries to reduce stock you carry.

You need to prepare for an inventory emergency. What will you do if you oversell your stock? Having a good relationship with your supplier could help you get a rush order fulfilled quickly. Alternatively, if you need to purchase products that are selling fast, but you're lacking the cash to pay for it, you could negotiate a credit purchase with your supplier.

Retail loss prevention

Aside from a customer pilfering items from the shelves inside your store, you still must figure out a system to prevent loss from employees in the back. That is not to say that you shouldn't trust your employees. Human errors happen, which is why inventory control software is so important. A simple miscalculation or oversight can result in missing stock that's just overlooked. That means unsold stock is taking up space in your warehouse, which affects your cash flow.

Loss prevention can include having more than one person in charge of inventory, because another set of eyes can catch what someone else misses. Of course, surveillance can help prevent theft or at least reveal the culprit both internally and externally. Without proper inventory management, though, it's harder to know whether you're missing anything.

The tools you need

Retail inventory management requires you to invest in strategies, methods, and software. Accounting software, such as QuickBooks, can help you manage your sales and cross-reference it with your inventory. You can use inventory management SaaS solutions like Contalog to keep everything organized, whether you have hundreds of products to track or tens of thousands of SKUs. The best software lets you automate your reorder processes to maximize efficiency, which is related to profitability. 

Bottom line

The question is no longer, "Why do I need inventory management software?" Rather, it's about finding the right method that works for you. Spreadsheets can only go so far to keep you on track with your assets, and it can be a huge endeavor when you start getting involved in omnichannel shopping – tracking orders online that are picked up in store, sent from the store to a customer, or drop-shipped is a complicated matter. Unless you're dealing with one supplier, selling in-store only, and selling only a handful of SKUs, you need something better than a spreadsheet or pen and paper.

Your retail shop has unique issues that require easy solutions, especially in inventory management. With the right combination of tools and know-how that work for your industry and your inventory needs, you can succeed at having just the right amount of stock for any situation – and always know where you stand.

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Amy Nichol Smith
Amy Nichol Smith Contributing Writer
Amy Nichol Smith is a freelance writer who covers business, technology, food, sports, pop culture, and much more. She's a former features reporter and editor for The Monitor newspaper and has a love of football and video games.