Effective Stock Management Methods for Retailers
"80% of your profits come from 20% of your stocks. Managing stock is not a chore, but a mandate for business success."
Inventory management is a nightmare for all kinds and sizes of businesses. The level of difficulty is directly proportional to the amount of stock held by a business.
Even with an inventory management system, things can be rough. Here are some stock management techniques that can perfect inventory management for your business, be it retail, wholesale or anything else.
What are the Common Problems Faced in Inventory Management?
Over-stocking or stock outs are the biggest challenges that all businesses face in inventory management. Even if an optimum stock level is found, frequently raising multiple purchase orders as and when stock is needed will prove to be expensive. Associated costs like warehouse lease, inventory transportation costs and order administration costs.
On a regular basis, keeping a tab on the physical stock available is also another challenge that rattles business owners.
What kind of stock control methods for small business help negate the problems?
1. Fixating Stock Levels
Maximum, Minimum, and safety stock levels are critical in inventory management. These stock levels help a business know where their stock levels are going. It is one of the most commonly used stock control methods for retail and manufacturing industries where stock volumes are large in number.
How each stock level helps?
- Helps prevent over-stocking and tying up of working capital
- Carrying more inventory also increases the risk of stock expiry, spoilage or damage
- Ensures regular availability of materials for ensuing operations
- The bare minimum amount of stock required to carry on operations without coming to a halt. A stock level which hints an emergency need to purchase stock replenishment.
2. EOQ Ordering
Economic Order Quantity is one among the methods of stock control that helps achieve profitability through planned procurement. Economic Order Quantity is what ensures that the amount of stock you purchase each time is indeed the most cost-effective purchase you can make. It factors the quantity discount and associated costs you will have to incur for the purchase.
How does EOQ help?
Helps derive the exact stock amount, number of orders to be released during the year and total associated costs to earn the maximum discount.
3. Physical Stock Taking
46% of SMBs in U.S.A do not follow sound inventory management methods to track their inventory. As a result of which a huge amount of inventory is pilfered, damaged or simply lost. Physical stock taking helps put a cap on such issues. It reconciles the stock as shown in records with the physical stock amount.
How it helps?
Reduce stock losses drastically by warning employees of pilferage detection
Book stock and actual stock levels are in sync thus ensuring stock availability at all times
4. Just-In-Time Ordering
Just In Time ordering was rampant in the automobile industry. With time it has found place amidst other stock management methods in all industries including retail. JIT follows the principle of ordering and procuring inventory as and when the need arises for production.
How JIT helps?
- Helps reduce the cost of warehousing of piled up stocks
- Cultivates a production culture of using scarce resources for maximum output
- Well-organized supply chain system that works with clockwork precision
5. ABC Analysis
In simple terms, ABC distinguishes your inventory into three broad classifications based on quantity and worth. Commonly, ABC analysis will classify inventory as critical parts with high value, regularly used products with average value and spare parts with negligible but significant value.
How ABC helps?
- ABC Analysis helps lay down stringent stock control measures for those inventories that are high in worth and should not be misplaced or lost
- Ordering and storing can also be streamlined for critical products using ABC analysis
Implementing a painless inventory management system
These inventory control methods are used in all kinds of businesses, including manufacturing, retail and logistics. They help cut down losses in inventory management, streamlines procurement processes and ensures stock availability at all times.