16 Jun 2014

Inventory Optimisation – The Key To Retail Profitability

Retailers spend more on inventory than on any other part of their business. Making sure you have the right mix of stock on your shelves at the right time is critical to your success. But how do you manage this? You must optimise your inventory and ensure it is working for you.

With the multitude of issues retailers face on a daily basis, be it staff, visiting sales reps, customers or suppliers, intelligent decisions on inventory can get a bit lost in the mix. Failing to optimise inventory perfectly is costing retailers millions of dollars each year. Your stock is without doubt your biggest investment and really does take up a lot of your focus. Even so, without the proper inventory management system running accurate reports, there is going to be a degree of inaccuracy as to what you are ordering. For retailers with an annual average of 10% error rate in purchasing, considering their total spend on inventory, it really is a frightening number to be losing out on every year.

Where do most retailers go wrong?

With innovative inventory management software on the market – it doesn’t need to be this way. As one of Australia’s leading Retail Consultants, Stuart Bennie of Impact Retailing writes in Inside Retail, “It’s not what one would expect of a modern retailer with all the sophisticated tools available.”

The most common costly mistakes are:

  • Buying items purely because a supplier offers a better price when buying more – this doesn’t mean you can necessarily sell that number – only buy a set limit.
  • Not having the full assortment and range of products in store will see you miss out on sales opportunities. If the customer can’t get their choice in their desired colour or size then you will have lost out on the sale
  • Purchasing the same quantity of items no matter what size – not all sizes sell at the same rate.
  • Delegating buying to store managers without arming them with the right tools to make intelligent choices.
  • Allowing suppliers to influence inventory – letting them reorder for you when in store. Ultimately giving a supplier the opportunity to clear out their stock by selling you what they want to sell you – not necessarily what is right for your business.

Most retail stores have thousands of stock lines, all selling at different rates for different margins, creating a situation that is hard to manage efficiently. For many retailers with multiple store locations, the task of optimising stock is even harder.

How can Retailers make better decisions?

So how do you prevent buying too much of what you don’t need and not enough of what you do? The only way you are going to know exactly what to order from thousands of stock lines is with the help of smart algorithms performed through intelligent inventory management POS software. With a POS system that monitors all retail activity in real-time and can process all the data for you – the guess work is over. It is impossible and foolish to try and purchase and reorder your inventory without using an algorithmic approach.

retail stock

Even with the right tools in place to make smarter decisions on stock – it’s not just about your POS software as Bennie explains, “And yet it is these very tools that sometimes sabotage us. We do not train our people how to use them properly and therefore they distrust them and override them.” If you want to achieve full inventory optimisation even with the right system in place you still need to educate your staff.

A great purchasing program will help you to determine exactly how much of each item to order, when to order it and which store it should be delivered to. To have all these answers, the system will consider:

  • All Sales
    • Unit sales
    • Sales revenue
    • Sell through rate
    • Run Rate
  • Lead time from your supplier
  • Frequency that you re-order
  • Physical stock in store
  • Physical stock in the supply chain (en-route)

Not to mention a range of other important factors…

The right POS software takes in all this data and by way of built in algorithms can advise you accurately on what you should order and then automatically create all purchase orders ready to send to your supplier. With this considered approach you will streamline your ordering process and maximise your return on inventory for the biggest investment in your business.

Visit www.retailexpress.com.au or call 1300 732 618

Aaron Blackman is the CEO of Retail Express. Follow Aaron on Google+