What Is The Importance Of Inventory Management In The Retail Industry?

Technology | 20-01-2022 | Aftab Vasiwala

inventory management in the retail industry

The process of managing your retail inventory is to ensure you have the merchandise shoppers want. Retailers can manage inventory to meet customer demand without having excess stock or running out.

Effective retail inventory management can lead to lower costs and better sales patterns. In addition, retail inventory management tools give retailers more information to help them run their businesses.

Retailers need to manage their inventory to increase their profits. As a result, retailers are more likely to have enough inventory to capture every sale while avoiding excess stock and minimizing expenses.

Strategically, managing retail inventory increases efficiency.

Reduces inventory costs:

Knowing how much stock you have and how much you require allows you to pinpoint inventory levels better, reducing storage and carrying expenses for excess merchandise. Other savings are shipping, logistics, and the opportunity cost of not having an alternate product to sell better.

Minimizes Out-of-Stocks:

Retailers want to make sure they don't run out of stock. It will prevent customers from being disappointed and sales falling through the cracks. Retailers can use inventory management tools to help determine the amount of stock needed to keep customers satisfied and avoid missing sales. It will be higher for bestsellers than it is for less popular products. Retailers can also react quickly to stock and sales information, including real-time data.

Increases Profit Margin:

Retailers can improve their profitability by reducing inventory costs and ensuring sufficient supply to fulfill every order.

Prevents Spoilage & Obsolescence:

The inventory management system helps retailers address another inefficiency when products become obsolete or expire. It can happen to perishables with a short shelf life like milk or meat and non-perishables that become obsolete due to consumer tastes and technology changes. Seasonal collections and holiday-specific packaging are examples. If a piece of consumer technology adds a popular feature to a model, demand may drop. For example, how smart TVs have slowed demand for models that couldn't stream content.

Enhances Omnichannel and Multichannel Performance, Order Fulfilment and Performance:

It can be hard to maintain accurate inventory numbers across multiple channels, whether you sell via your website, physical stores, or third-party merchants. Accurate inventory data across all selling channels allow you to use your inventory more efficiently and get the product to customers faster.

Facilitates Growth and Simplifies Processes:

As sales increase, strong inventory management will also help reduce friction. You can make shipping, receiving, and order fulfillment more efficient, which will reduce errors, customer complaints, and stress for staff.

Reduces Shrinkage:

Shrinkage refers to inventory losses due to employee theft, shoplifting, fraud, or vendor mistakes. An FMI food industry association survey found that the average supermarket loses 3% to shrinkage. According to a National Retail Federation survey, the average shrinkage of its members is 1.4%. These data suggest that most losses are due to incorrectly recording inventory, miscounting or misplacing it. A stronger retail inventory management system could reduce shrinkage by at most half.

Manage Supply Chains with Eases:

A firm grasp of sales trends and inventory can help you manage your supply chain more effectively. You can choose the replenishment method that suits you best, just-in-time ordering or smaller, more frequent orders. Retail inventory management allows you to determine your economic order quantity (EOQ), which will help minimize inventory costs, including holding, shortages and ordering expenses. The EOQ formula considers demand in units, shipping costs and holding costs. It works best when these variables are consistent over time.

Increases Customer Satisfaction:

Customers will be more loyal if they get their products faster, with fewer mistakes and out-of-stock.

Forecasting Improved:

Data such as sales history and inventory can use to forecast future sales, growth, and capital requirements. These forecasts will help you budget and guide your spending on marketing, product development, and staffing.

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Aftab Vasiwala

Aftab Vasiwala is nurturing his future at Techimply as a Software Analyst and Writer for Retailing Software with good experience in various genres of blog writing in various industries under several topics.