When it comes to sustainable retail growth, a significant factor that’s often overlooked and under-optimized is inventory management. Your inventory is your greatest asset, but it can easily become one of your biggest liabilities when not tracked—or, more importantly, managed—effectively.
Managing inventory begins with tracking it, but tracking alone isn’t enough. Understanding key metrics like sales velocity, sell-through rate, and inventory turnover is critical to making decisions that allow retailers to have the right inventory in the right place at the right time.
But, while some seasonal and promotional demand patterns are predictable, the more channels you sell through, new products you launch, or new markets you enter, the harder it becomes to forecast demand and thus manage your inventory.
To manage your inventory effectively means to make smart business decisions based on proactively anticipating and forecasting demand. Here are three steps that can take you from simply tracking metrics to establishing leaner inventory operations through active inventory management.
Centralize Your Data
The first step in effective inventory management is establishing accurate inventory and order tracking for all of your sales channels. However, the more channels you sell through and the more varied your product lines, the more challenging it will be track and manage all your most important business data. In fact, most companies only analyze a mere 12% of their data because, for retailers, in particular, the data needed to inform important purchasing and merchandising decisions live in disparate systems. If for example, you have separate eCommerce sites for your retail and wholesale products, a brick-and-mortar, and you sell on Amazon, there are countless ways to incorrectly track or mismanage your inventory.
In order to accurately forecast sales and optimize the allocation of your inventory, you must be able to understand historical inventory and sales trends across your entire business. To achieve this level of inventory visibility, you must centralize data from your siloed channels and systems. Once all your critical data are connected in a single, central location, you’ll be able to run comprehensive reports to quickly determine which channels and products are performing best, which products might sell faster on different channels, and much more. Having this holistic picture of your inventory and orders will enable you to make more informed decisions that will positively impact your profit margins and overall growth.
Automating your retail operations allows you to react quickly to new trends or spikes in demand. Tracking inventory is a manual process that often entails number crunching in spreadsheets. This laborious process is proven to cause time-consuming redundancies as well as costly productivity losses and errors. In a recent survey, 62 percent of respondents reported human error from manual processes as the top root cause of inventory fulfillment issues.
You can reduce redundancies and improve efficiencies by automating manual processes and streamlining omnichannel sales, purchasing, inventory, fulfillment, and warehousing. When these systems are connected and automated, you can quickly and easily create purchase orders, reallocate inventory, and anticipate stockouts.
Of the top 250 omnichannel retailers, only 19 percent can profitably fulfillment multichannel orders—and since retailers lose $1.75 trillion each year due to overstocks, out-of-stocks, and preventable returns, it’s not difficult to see that inventory plays a huge role in the pathway to profitability. With centralized data and automated systems, you’ll gain a much clearer picture of your inventory, which will enable you to make smarter business decisions that improve your sell-through rate and inventory turn for improved profit margins and more sustainable overall growth.
You can’t manage what you can’t measure. Determining the inventory metrics you need and how and where you’ll track them is the first step to managing your inventory, but the numbers alone aren’t enough. In order to successfully execute on more advanced inventory operations like optimizing allocation and intelligent purchasing, you’ll need systems and practices in place that allow you to proactively respond to changes in demand, avoid stockouts or overstocking, and maximize profitability.
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