Effective Inventory management is key to success in retail. It is imperative for any retailer to track his inventory status and inventory utilization in real-time. While retailers have been managing inventory using manual methods for decades. Managing inventory manually takes a lot of effort, and keeps one vulnerable to manual errors. Manual methods become complex with scale and an increasing number of SKUs. Getting the right Inventory management tool is key to success in retail. If you are planning to digitize your store by adopting a new Point of sale, you should invest in finding out how effective their inventory management solution is.
Why is inventory management important?
A typical retail business operates on an 80/20 rule. Where 80% of sales are brought in by just 20% of the SKU’s. They may not be the most profitable SKU’s but these are the ones that drive traffic. This is why it’s very important to track your fastest and slowest-selling categories, SKU’s. This not only enables a retail business to drive more traffic but also enables them to churn inventory effectively increasing topline. Most of the businesses have a fixed working capital that is invested in the business. In order to make the most out of this investment, it is important that they invest in the right product categories and SKU’s. This can only happen if they know what is working and what is not.
What to track – Key Metrics:
1. Fastest 20: Shelf space is the most important property in retail and is limited in nature. Retailers want their winners to take the most premium shelf space in-store. Tracking your fastest 20 SKUs can help in deciding which SKUs deserve to be placed in the most premium shelf space. Also, since most of your sales will come from these SKUs, it’s important to keep them in stock.
2. Slowest 20: This report captures the slowest 20 SKU’s. It’s important to keep a track of these so one can avoid investing in them.
3. Aging report: The aging report helps to identify SKUs that are not moving fast enough and may expire in the near future. One can plan a liquidation promo for items that are aging for long and near expiry.
4. Expired items: While no retailer wants to sit on expired items, having expired items in the inventory once in a while is part of retail and, it’s really important to track the expiries as a lot of companies accept returns of expired items. At the same time, it’s a really bad experience, if one is found selling expired items. It may not just result in customer churn but also may lead to some punitive actions from legal authorities.
5. Write-Off’s: It’s really important to account for all your write-offs and to know the reason behind them. Some of the common reasons behind write-offs may be theft, damages due to bad storage, etc.
6. Fill rate: Tracking your fill rate against the purchase order helps one track the effectiveness of his vendor system. Based on the fill rate and SKU’s one can decide on whether to introduce new vendors in the system or not.
Key tools for effective inventory management:
Master Data: Quality master data is key to effective inventory management. This allows one to capture the sales and inventory status accurately. This data can be utilized further to build the right forecasting models and to increase inventory turns.
Vendor management: A good vendor management tool allows retailers to stay on top of their liabilities, right sourcing at the right time, etc.
Purchase order: A good inventory management tool clubs the Purchase order with inventory management. Using the tool effectively can help you stay on top of all your purchases. With Nukkad Shops, we can help you fully automate this process. By setting up minimum order quantity (MOQ) and defining the vendor for certain SKUs, one can effectively automate the ordering process.
Goods receiving notes (GRN): GRN’s help retailers do inventory inward / goods receiving and capture the right data. This helps to receive the goods correctly. This tool helps to measure the fill rate against the purchase order, which is a great metric to track how good a supplier/vendor is. GRN data can be used to fetch analytics to capture profitability and margin. Nukkad Shops can help retailers to convert their purchase orders into a GRN at a click of a button and hence, makes the entire process of goods receiving very simple.
We hope this article helped you in learning about inventory management and why it is one of the most important aspects of retail operations.