Inventory Management Techniques That Work

Stitch is an operations management system for high-growth brands.

As you scale, it’s not uncommon to lose track of what inventory you have and where it’s located. Since most brands start out on spreadsheets, inventory techniques are highly manual and take quite a bit of time. As you grow, your brand needs to account for depending factors of business such as the type of product you sell, how you sell it, and your bottom-line.

Efficient, effective, and innovative inventory management techniques are crucial as you scale. Outstanding inventory has risen 8.3 percent the past five years, and the number of warehouses is on the rise. That’s a lot more inventory and stock to keep track of. Still, almost half (46 percent) of small businesses don’t use inventory control techniques at all.

Brands are now expected to sell across multiple channels and constantly innovate in this highly competitive retail landscape. To make it a little easier, we’ve compiled an ebook on retail success that further explores a few of these techniques to help you out.

What is an inventory management technique?

Inventory management is the process of tracking stock from manufacturing through to fulfillment. There are many techniques of inventory management that help your brand operate more efficiently while providing you with higher levels of visibility and control. Essentially, inventory management software consists of the business applications that manage inventory for you.

Inventory control is far more robust than the old-school spreadsheet system. In many cases, you can monitor how much inventory you have at any given time across all your sales channels while utilizing reporting capabilities that provide insights into your business and customers.

Management tools automate and streamline the inventory process while integrating with other tools, such as your eCommerce site, accounting, fulfillment, and other retail applications you need. In retail, inventory control techniques are typically tied to point-of-sale (POS) systems.

There are a few inventory management techniques that can assist your brand’s efficiency and accuracy. Identifying reasoning behind missing or lost inventory is critical in your brand’s success, since brands live and die by their inventory.  

Common inventory management techniques

1. Stock auditing

Often, inventory management issues arise when product isn’t labeled clearly, and employees are asked to work with multiple disparate systems. By revising your systems to work as a whole, automating a variety of these tasks, and clearly logging product into that system, errors due to these administrative tasks will reduce significantly.

Additionally, regular auditing of inventory is crucial in maintaining accurate stock levels. Connecting all of your systems to provide an accurate level of data is key in making your KPIs and targets by the end of the year.

Auditing stock can take multiple forms. Besides automated inventory management, you’ll likely still need to reconcile product from time-to-time:

  • Physical inventory is typically audited toward the end of the year, and compared to numbers that your operations team has speculated that are on-hand.
  • Cycle counting is done every few months and is a great way to close the gap between what inventory your brand thinks it has, versus what it actually has.
  • Spot checking is done throughout various times of the year, and is supplemental to a physical inventory count. It isn’t done on a schedule, and it can help with popular inventory that moves quickly.


2. Vendor and 3PL auditing

Vendors and 3PLs that hire a large number of temporary employees typically find an increased number of lost and missing inventory due to the constant need to train inexperienced personnel.

In cross-checking your inventory with the vendor’s or 3PL’s, you can keep them accountable

3. Tracking KPIs

Identify painpoints and figure out what your employees need. If you’re experiencing a lot of shrinkage, you’re losing money. Likewise, if out-of-stocks are a frequent occurrence, the customer experience suffers, and you’ll want a fix for that. It’s also important to think of both short- and long-term goals.

Understanding your stock-to-sales ratio will help forecast inventory. This can be measured through the following formula: beginning of month (BOM) stock / month’s sales

Sell-through rate will also help your brand retain customers as it compares the stock received from the supplier to how much is sold: sales / BOM stock on hand x 100

Forward weeks of supply helps your brand understand how long an item will be around, if it will need to be re-priced, and when to re-order to avoid stockouts.

Average inventory helps brands understand how much product you store over specific time periods: (current inventory + previous inventory) / 2

Keeping track of all the variables that go into proper inventory management is time-consuming and difficult. Brands often find themselves needing support in this process, especially if operations are lean.

Problems will inevitably rise, and having the proper tools and techniques to cope with them is most of the battle.

4. Try bulk shipments

If you’re forecasting properly, shipping evergreen items in bulk may be a great option for your brand. Once you ensure the product that you need is appropriate for this sort of inventory technique, you may find that you have to initially put out more money. However, the product you’d bulk ship should be product of high demand, so you’ll sell it quickly

5. Just-in-time inventory: the risk and reward

Just-in-time inventory method allows brands to decrease the amount of inventory on-hand by keeping low stock in various product and replenishing it as needed. These items are delivered only a few days before your brand is expected to stock out of them.

Tend to sit on aging inventory? Just-in-time inventory keeps stock levels low so your brand can avoid the pricey cost of having inventory sit in your warehouse.

Real-time analytics allows your brand to optimize its operations and help your brand make informed business decisions. Cloud-based inventory management systems give your brand the opportunity to have clear and concise visibility into your inventory–anytime, anywhere.

Having access to information at a timely fashion is key to running a successful business. To keep competitive, brands need to make quick decisions and remain nimble and flexible in their operations.

6. First-in-first-out (FIFO)

First-in-first-out (FIFO) plays an important role in inventory management, as it ensures that the oldest stock is sold first. The older the product, the more worn or dusty it can get. Give your customers the best experience so they’ll keep coming back!

7. Bundling

Forecasting what to order when can be extremely difficult, especially in the absence of inventory management methods such as retail reporting. Sometimes, even when you take precaution, you still wind up purchasing too much of an item.

Aging inventory can kill a brand – but not to worry! There are techniques in inventory management that can help with this, too.

Bundling is often a feature you find when brands are looking to upsell you on specific sales. However, bundling can also be used as a promotional tactic to move aging inventory.

There are a number of ways to bundle effectively:

  • Adding a surprise free gift to orders will not only delight your customers, but will move aging inventory. If you keep the free item a secret, you can change it up depending on availability. You can avoid forecasting for future demand for this item, and customers will feel special when you make them feel as if it’s an exclusive offer.
  • Bundling an item to your order at a reduced cost will make customers feel as if they’re getting a deal, and you are not discounting product heavily. This way, you are moving aging inventory through upselling the customer, and your customer is getting a better deal.


8. Inventory reporting

Inventory management tools and techniques often generate reports based on all the data it receives. These reports can provide insights into your inventory, warehouse(s), purchasing, marketing, and even consumer behavior.

For instance, Target was able to understand how its brick-and-mortar locations were turning into fulfillment centers: 15 percent of their online sales in 2015 were in-store pick-ups.

By splitting up inventory based on particular categories, brands can understand what products are moving, how product is moving in certain geographical locations, and more. Analyzing these reports can help brands make informed purchasing decisions in the future.

On a similar note, informing your suppliers on the trends you see regarding your inventory can help suppliers prepare properly. Since supplier are your partners, it is important for your brand to give suppliers proper notice of what’s needed and when.

It’s imperative to remember to do something with the data you receive from your inventory control methods. 25% of retailers face issues with inventory management methods that they attribute to the lack of information-sharing throughout the company.

Proper reporting will also allow your brand to calculate reorder quantities and set low-stock thresholds. That way, you can ensure that you’re properly stocked: no overselling, no aging inventory.

How inventory management can help

You might already have tools and techniques of inventory management place. If that’s the case, it’s beneficial to find an inventory management solution that is compatible with your existing tools and software.

With a more integrated and connected back-end, you’ll have even deeper insights into your business and more checkpoints to ensure accuracy and identify discrepancies. You could also take this as a chance to reassess the other tools you currently use and see if they have all the capabilities you need to grow your business, or if you should migrate to something more robust.

An objective of inventory management is to make it easier to glean actionable insights from the data, as opposed to presenting a bunch of raw numbers in a spreadsheet from which you must draw conclusions and trends yourself.

As your brand scales, driving multichannel growth is crucial, yet finding an efficient way to control your inventory is tricky. The most important aspect of inventory control is the ability to automate time-consuming and error-prone tasks and sync inventory across multiple sales channels, so your brand never stocks out of its best-sellers.

Centralizing your inventory allows you to sell flexibly, and avoid issues such as backorders and unfulfilled orders. Finding the best inventory management software for your brand can improve your customer experience and bottom-line.

Once you’ve figured out the right techniques to try, test them. Research plays an important role in figuring out what works for your brand specifically.

More Resources

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