Highlights
Introduction
Efficient inventory management is essential for business success during peak retail season. However, many businesses overlook this critical aspect by failing to track their inventory effectively or using outdated manual methods. Such oversights can lead to costly stockouts, which can impact customer satisfaction and cause substantial annual losses.
For example, an IHL Group report found that poor inventory management costs businesses £984 billion annually worldwide, with one in three shopping trips ending in an out-of-stock item.
Today, we’ll guide you through some inventory management best practices to ensure customer satisfaction and prevent financial losses.
Use ABC Analysis
ABC analysis is a simple but effective inventory management technique that enhances efficiency and profitability. ABC analysis classifies items into three categories, assigning a value based on their importance to the business, namely:
A items include the most valuable products, contributing the highest percentage of sales. They typically have a high unit price.
B items are less valuable than A items because of lower unit prices but contribute significantly to your business revenue.
C items are the least valuable items with the lowest unit prices, accounting for the lowest percentage of sales.
The primary objective of ABC analysis is to strategically allocate resources for efficient resource utilisation. It optimises revenue and reduces stockouts for Category A items while ensuring that Category B and C items are managed appropriately without excessive resource allocation.
Opt for FIFO or LIFO Method
First-In, First-Out (FIFO) and Last-In, First-Out (LIFO) are two inventory management practices. The choice between these two depends on your specific needs and circumstances.
With FIFO, you can track inventory costs by first selling the oldest items and calculating the cost of goods sold (COGS). In contrast, by implementing LIFO, you can sell the most recent inventory items first, resulting in a different COGS calculation and inventory valuation.
A 2022 Journal of Accounting and Economics study revealed that LIFO can enhance inventory management and reduce business costs. The same research validates that the companies implementing LIFO practices successfully reduced their inventory costs by an average of 3% compared to those practising FIFO.
Moreover, companies using the LIFO method were better able to maintain stock quantities, offering a financial buffer during economic crises.
Optimise Pick-and-Pack-Process
The pick-and-pack process involves efficiently locating and retrieving ordered items and packing them for shipment. It can significantly improve order processing time, labour costs, and the overall customer experience if carried out efficiently.
According to the National Retail Federation, a 1% improvement in order picking can reduce order fulfillment costs by 10% and increase sales by 2%.
To expedite the pick-and-pack process, use a Warehouse Management System, such as Snapfulfil, ProSKU, Infor WMS, or Microlistics. When used by trained employees, it can speed up order processing and boost your customer satisfaction scores.
Leverage Data
Data analysis is pivotal in modern inventory management, offering deep insights into stock levels, demand patterns, and operational efficiency. A 2016 study by McKinsey & Company found that retailers who used data analytics to improve their inventory management increased their profits by up to 5%.
By harnessing data from multiple sources, you can make informed decisions about procurement, storage, and distribution, leading to more streamlined and cost-effective inventory practices.
Follow Six Sigma Principles
Six Sigma practices involve a data-driven and systematic approach to identify and address the root causes of inventory problems, such as overstocking, understocking, stockouts, and obsolescence.
A study by the American Society for Quality found that organisations implementing the Six Sigma methodology achieved a 20% – 50% reduction in inventory costs.
Another study by the Aberdeen Group reported that organisations that used Six Sigma principles achieved a 15% reduction in stockouts, a 10% reduction in obsolescence, a 5% reduction in lead times, and a 3% improvement in customer satisfaction.
The Six Sigma methodology can also optimise Stock Keeping Unit (SKU) management. Through the application of data-driven analysis, valuable insights into the performance of each SKU can be obtained. This facilitates the identification of slow-moving or obsolete items that occupy warehouse space unnecessarily.
By discontinuing orders for such products, you can allocate resources more efficiently and focus on in-demand items, enhancing profitability.
Need Assistance to Handle Data Challenges During Retail Peaks?
For businesses looking to implement Six Sigma principles and streamline their inventory management, Taskaler can provide valuable support. We understand that data-driven decisions can accelerate growth by keeping you ahead of the competition. That’s why we offer a comprehensive Insights and analytics solution to help retailers save time and gain actionable insights to unlock commercial and customer-centric advantages.
Our commitment to excellence extends to the entire project cycle, from inception to execution. We fully own your data analysis projects, translating your unique business challenges into actionable insights. Whether you require our services on a project basis or retail peak planning, we can efficiently adapt to meet your needs.
Perks of Leveraging Taskaler Edge
- Comprehensive data collection for a 360-degree business overview
- Data trend analysis for informed decision-making
- Customised strategies for cost-efficient inventory
- Cost-effective solutions for enhanced profitability
- Data-driven contingency planning for retail peak seasons
Count on our experienced data analysts to optimise your retail performance during New Year’s peak. Get in touch with Taskaler for more information, and let’s together achieve more every day!
FAQs
- What are the four main steps in inventory management?
Inventory management is the process of tracking and optimising the flow of goods and materials throughout a business. It involves forecasting demand, planning orders, storing inventory, and fulfilling customer orders.
- What are the five forms of inventory?
The five inventory forms are raw materials, work-in-progress, finished goods, maintenance, repair and operations, and packing materials. By tracking and managing these, you can ensure the right amount of goods on hand to meet customer demand.
