GUEST COMMENT 5 Things every retailer should do when managing their inventory

Erhan Musaoglu is the chief executive officer and co-founder of Logiwa Corp



Retailers often believe that simply tracking their inventory is enough to run a successful business. However, what happens when the unexpected strikes? You could run out of stock and lose sales, or spend more money than needed in the picking and packing processes. These small errors can build up over time, resulting in angry customers and a drop in your customer service level, which leads to less sales, which leads to… well, you get the picture.



There are, however, a lot of things you can do to stop this downward spiral from taking control of your business. Retailers should always do the following five things when managing their inventory:

1. 
   

   Calculate Your ATP

   
   

Calculating your ATP (available to promise) is essential for every retailer because it tells you what you have available to sell in the near future. Think of ATP as an amount of inventory that you are promising your customer you have available to sell. Unlike safety stock, which should be a stable number, your ATP will fluctuate depending on numerous factors, such as sales order demand and when a new purchase order arrives. It can even be negative!



While a positive value indicates you have inventory available to sell, a negative value indicates that your inventory is below your safety stock quantity. You can prevent missing a sales opportunity by knowing whether your ATP is negative or positive because the number tells you whether you should create a purchase order or sell inventory to free up money for other products, such as sales. A warehouse management system (WMS) can use this value to then create a well-constructed report, outlining the flow of your inventory and where you have wiggle room.

2. 
   

   Calculate Safety Stock

   
   

Safety stock is an essential part of managing your inventory. Safety stock, or buffer stock, is a fixed amount of extra stock you have allocated yourself as a built-in life raft of sorts, in case your stock dips below expected levels. Your safety stock level is usually below the reorder point level, but just enough to account for fluctuations in demand— ensuring that your stock will never dip below 0.



Including safety stock in your inventory management plan is essential to prevent missing a sale. Safety stock is beneficial because it cuts unnecessary costs, it makes sure your customers are never faced with an “out of stock” sign, and it prevents warehouse disruptions. Warehouse management systems (WMS) use safety stock to indicate when a retailer’s inventory is at warning levels, and will automatically warn the retailer to take action should inventory dip below this level.

3. 
   

   Optimize Picking

   
   

Whether you’ve got a handwritten pick list or have devised your own picking pattern, chances are that your method is slower than an automated pick list. A WMS can automatically generate your pick list, helping you optimize your orders based on where they are in the warehouse rather than by item type or size. This helps your pickers pick items faster by saving them from having to walk miles just to complete the day’s orders. This is an essential piece to managing your inventory because it helps cut down on warehouse labour time, which gets shipments out faster and increases customer satisfaction.

4. 
   

   Implement Barcode Scanning (and SKU’s)

   
   

If you haven’t already done this, you should definitely start now. Nothing is worse than getting a call from a baffled customer who ordered a lamp and got a candle instead! Implementing SKU’s for even the smallest of inventory levels helps ensure that the orders being shipped are 100% accurate and that the correct items are being picked, packed, and shipped. Plus, this helps identify returned items as well, which is key to maintaining an accurate inventory balance. You should always assign a unique SKU to a product, even if you sell the same product to another seller. An SKU helps in many different ways, such as categorizing products easily, measuring inventory levels, purchasing accurate items, and helping make communication between you, the vendors and your customers smooth and efficient.

5. 
   

   Create A Demand Forecast

   
   

Effective inventory management relies on accurate demand predictions, and the best way to produce those is to create a demand forecast. Demand forecasts help produce a future sales predicted level to help indicate what quantity of an item retailers need to keep in stock. There are many aspects of a business that can affect the future sales of a given product, such as market trends. Things like seasonal flux, where you list a product on your site, and advertising can change predicted demand considerably beyond what your retail business might be prepared for. Another factor in your demand forecasting is vendor deadlines. Is a big holiday coming up soon? Will vendors be slowing down or speeding up for the holiday season? Make sure to consider these factors when creating your demand forecast for your inventory.



Photo credit: Courtesy of Logiwa