Edge Retail Academy Blog

The Key Steps to Inventory Management

By David Brown

Inventory is the lifeblood of any business. It is often your greatest cost and the biggest burden on cash flow. Keeping
it under control is a fulltime job, yet many retailers adopt a haphazard approach to its management – allowing the inventory to control them rather than the other way around. In order to get the best out of your inventory there are a number of key steps that can help you manage it more effectively.

  • Set re-order levels. As we often repeat 80% of items that sell are generally fast sellers – that also means 80% of inventory orders should most likely be reorders. This alone removes much of the inventory management process and automates it in a way that can save both time and money
  • Divide your inventory into categories. Not all inventory is created equal. Within the product lines you carry will be the following types of product
  • High ticket items that don’t turn over quickly (think diamonds)
  • Medium priced items that will turn over slightly quicker
  • Cheaper items that can turn over rapidly (silver and giftware)

How you handle each of these is different and an effective management strategy needs to take this into account. You
wouldn’t monitor your diamond turnover as frequently as your silver earrings but ordering of this product will have a more significant effect on cash-flow and aged inventory and your higher ticket items will have a greater consequence for your business. Design a strategy that reflects each area.

Include repairs in your management. Often inventory control can focus around product that you own but effective management should also include repairs of customer’s items that you have. Work in Progress is part of inventory control and the turnaround of repairs can have a big impact on your cash-flow as well.

Don’t forget – the first items in should be the first items out. Even though jewelry is not a perishable item it still makes sense to manage it on a first- in first-out basis to prevent tarnishing, worn tickets and any in-store wear and tear

Don’t ignore your carrying cost. Inventory cost is more than just the buy-in of the item. Additional expenses such as cleaning costs, storage, boxing, and insurance can add 20-30% to the costs of any item in store.

Have a plan for excess inventory. All businesses suffer from surplus product, discontinued lines and slow selling items. There is no excuse not to have a strategy to deal with it.

Do regular inventory audits. What your records say and what your store tells you will seldom agree at any random point in time. That’s why regular checks should be part of your store policy to protect against error and theft. This can be done on two levels:

  • Regular full audits. A closed door full stock-take should be undertaken at year end and more often as required
  • Spot checks. A random check on individual stock codes. This picks up errors but also signals to staff you are vigilant and expect them to be also.
  • Cycling checks. On a rotating business whole departments can be checked over (perhaps once a week)

HAVE GOOD INVENTORY SOFTWARE.
Your inventory control will only be as good as the system you use and a good system has, as its hub, a good inventory
system. You need one that is simple to follow and can be relied upon for accuracy. This investment is worth its weight in gold.

Appoint a person in charge of managing it. Management means having someone to manage! Effective inventory management involves having a clear overview of your inventory strategy and ensuring it is effectively carried out. A dedicated person responsible for this and ensuring the measurement procedures are in place and are being followed will minimize inventory levels from becoming out of control or stale.

Managing your inventory effectively can save you a fortune in time and money on a weekly, monthly and annual basis – year in and year out. Take the time to put an effective system in place.


David Brown is President of the Edge Retail Academy, an organization devoted to the ongoing measurement and growth of jewelry store performance and profitability. For further information about the Academy’s management mentoring and industry benchmarking reports contact inquiries@edgeretailacademy.com or
Phone toll free (877) 5698657

 

This piece was originally run in The Retail Jeweler

Leave a Reply

Your email address will not be published. Required fields are marked *

Categories

Tags


Follow us on LinkedIn