12 tips for taking control of inventory & stock management
Keeping track of inventory in a growing retail business is tricky. Along with using a dedicated inventory management system like Brightpearl, these 12 tips can make it easier. From handling purchases, receipts, and gifts to using bar codes and stock takes, they’ll put you in charge of your inventory — and your business success.
How to use rolling inventories and bar codes to prevent inventory errors
How to avoid double-selling using earmarking
How inventory control can help you reduce over- and under-buying
When your inventory is wrong, everything’s wrong. Maybe you lose sales because you don’t have a product on-hand. Or your money is tied up in products that don’t sell. You may even be buried in returns because you’re shipping the wrong products. Taking control of your inventory control is the answer. Just follow these 12 tips to up the accuracy of the numbers in your stock control system. Whatever system you use, they’ll shed light on the surest ways to get your inventory right.
1. Keep your stock levels sensible.
The skill of buying will be fundamental to your retail business’s success or failure. When times are good, it’s tempting to spend the cash on new stock, creating that warm feeling you get from a full store. Hold on. Remember, at some point you have to pay for—and sell—whatever you buy! To strike the right balance between stocking a suitable range of products and running up supplier debt, try these tips:
Do the math — It’s easy to calculate whether you need more stock when you’re selling fairly large quantities of relatively few items. Just use the average supplier lead times and the number of items you’re selling each day.
Rely on reports — Use all the reports available to help you make the right decision, relying on a comprehensive Stock Keeping Unit (SKU) structure to generate product sales reports.
Just say no — Do your best to resist suppliers’ end-of-line discounts on items you don’t really need.
2. Place purchase orders (POs) with your suppliers.
Your official, written records of purchases, POs are essential for inventory control, forecasting, and reporting. Advanced inventory control systems automate a lot of this, showing you which items need to be reordered and enabling you to create new POs with a touch of a button. But if your system doesn’t generate POs automatically, you should record each purchase in your system manually. Either way, this gives you:
Written records to prevent mistakes and disagreements Documentation to cross-reference against suppliers’ delivery notes
Histories of purchases to help you decide what to buy in the future
Notes to inform your team about what’s going on when you’re not there
3. Use allocation to earmark stock.
Many advanced inventory control systems let you allocate stock to sales orders before updating the inventory level. This effectively earmarks the stock so that it can’t be sold in other ways. It’s great for online shops that need to reserve stock from the time a sale comes in from the website until it’s closed and the inventory is updated. It’s also handy if you’re building large sales orders for business customers. Just allocate items to the sale as they arrive from suppliers to prevent a last-minute rush to get everything ready.
4. Enter received orders promptly.
When a new delivery arrives, record it in your inventory system right away. This requires discipline when you’re busy with employees, placing new orders, and inundated with deliveries from different suppliers. But if you sell a product before it’s been entered into the system, things are going to get a whole lot messier. Pausing to enter your receipts immediately saves you time and headaches in the long run.
5. Reduce receiving errors with bar coding.
To cut back on inventory errors—especially when your sales volume is high or a lot of your products look alike—bar codes can be a big help. All you need is inventory control software that supports them and a USB bar code scanner, which costs less than $99. Then, when you receive a delivery from a supplier, you simply print out bar code labels and attach them to each item. Scanning the labels displays the numbers on your screen as if you were typing them on the keyboard. No more typing or transposing number errors!
6. Use weekly stock takes to keep accurate counts.
No matter how careful you are, there will always be odd errors that creep into your inventory control system. It’s important to regularly reconcile your real-world inventory with the numbers in your system. Try weekly stock takes in which you spend some time every Monday morning to check one or two product categories, preferably those that are stored close to each other for efficiency. Using this continuous cycle counting, aim to cover all product lines at least once every four weeks. If you have 2,000 SKUs, check 500 each week. Here’s how:
Export your stock counts for one category into a spreadsheet
Hide the quantity column, and then print the spreadsheet
Count each item on your shelves and record your numbers
Have a coworker read out your counts as you enter the numbers in the spreadsheet
When you’re finished calculate the variance—the number you counted divided by the number in your system — or use your system to track it. Try to improve the variance each time you do a stock take.
7. Reconcile your inventory using stock corrections.
After a stock take, you may need to change the quantity of products in your system to match your count. The best way to do this is with a stock correction, following these tips:
Choose a cost that makes sense — If you’re adding inventory, you need to enter a cost price. But with stock corrections, you don’t have supplier invoices showing the cost, so choose a number that makes sense.
Use a separate accounting code — If your system supports them, using separate accounting codes helps you see profits (more inventory, no invoice) and losses (less inventory, no sale) that result from stock corrections.
8. Keep track of write-offs and gifts.
Your business may occasionally sponsor events or donate to charities. When you do, purchased products go out the door without sales attached to them. These write-offs need to be managed carefully in your inventory control system in one of two ways:
Create a new customer in the system and add the donated items to a zero-value sale. This method enables you to see the total cost of your donations over time.
Reduce your inventory using the stock correction process in your system. If you have a more advanced system, you may be able to create correction codes for later reporting on your total donation cost.
9. Stay on top of returns.
Following a well-defined return and receiving process—and capturing the reasons for returns—are essential to successful inventory management.
Create the return — Whether you return the item with or without the original sales order, make sure you create a customer record so you have contact information for further investigation or future marketing.
Receive the inventory — It helps to place the return in quarantine until you can decide whether it can be resold. If it can’t be, you should write it off. If it can be resold, it might be either:
New — Simply add the item back into stock under the main product SKU to be sold.
Seconds — Add items that have been used slightly or have damaged packaging into your stock using distinct SKUs that keep them separate from new products. If seconds can be repaired or repackaged, you can use the stock correction process to move them to the main SKUs later.
Understand the reasons — Every time you accept a return or deal with used inventory, you’re wasting time, so it’s important to understand why products are coming back. Watch for trends. If you see products repeatedly coming back with damaged packaging, for example, it may make sense to invest in more durable cartons to save time and money on returns.
10. Account for consignment stock.
If you accept products on consignment—meaning you don’t pay for them until you sell them—from your distributors, you have an inventory challenge to manage: You don’t own these product, so while you want them to be available to sell on all channels, they shouldn’t appear on your inventory value report.
Depending on the stock control system you use, the most common way to handle this is to add your consignment inventory to a different “virtual warehouse” in your system. You can then filter reports to include or exclude inventory for that warehouse. And when you’re making inventory available to customers, you include inventory from all your warehouses.
11. Watch out for drop-shipments.
Another practice that can make inventory control a challenge is drop-shipping—selling products that are shipped directly from your suppliers to your customers. With suppliers who never run out of inventory, this is easy. But with most suppliers, you need a way to track the inventory available to sell.
The best approach is to accept direct inventory feeds from your suppliers’ systems to your system. The feeds update the inventory on your sales channels automatically — so they can sell the products as soon as suppliers have them on hand, and don’t sell products that are out of stock.
This method isn’t 100 percent reliable — you’ll probably only get an update once a day — but it can be better than setting products up as “non-stock tracked,” so anything can sell at any time. Also, think hard about the cost of not integrating with your suppliers’ systems before spending time and money on an automated process.
12. Stay vigilant with 3rd-party logistics companies.
If you use outsourced warehousing, or 3rd-party logistics (3PL) companies, for inventory storage and shipping, you need to design your inventory management system carefully. While 3PL companies have their systems, you still need your own system to integrate with sales channels, accounts, orders, returns, and so on.
In fact, you’ll follow all of the same inventory control best practices you’d follow if you had your own warehouse. When goods are received at the 3PL warehouse, for example, you need to be told that they arrived and were allocated against the correct purchase order with the correct cost prices. Similarly, when the 3PL company does a stock take and notices a discrepancy, the data and system updates need to be done the same way you’d do them in your own warehouse.
Whether you have an advanced inventory management system like Brightpearl or a less integrated system, these tips will help you take control over your stock — your largest asset. For growing retailers like you whose inventory is moving fast — across multiple channels — this control can mean the difference between failure and success.