Chapter 5

Inventory Management Best Practices

As discussed earlier inventory management is an essential task while running a manufacturing or a retail unit. There are a certain set of practices that a successful wholesaler or retail house practices across the borders and these very profitable practices are discussed in detail in our best practices for inventory management guide.



For optimizing your inventory and minimizing your holding costs, you should practice some of the best industry practices.


Here are some useful ones for you to follow. Please click on the bullet points given below to read a detailed guide on them.



1.  Maintaining Safety Stock


Every retailer stocks inventory according to its customer’s average demand. Now, sometimes there can be a rush of sales. Meaning, you are soon going to be out-of-stock faster than you can replenish your inventory. It is during such situations that we need a safety stock.


Safety stocks thus help in preventing stock-outs when there is a high variation in demand and supply. For instance, in this current situation of the Coronavirus pandemic, the suppliers are not able to provide the required product in the given time frame or in the right quantity expected by the retailer. Now in such situations, if the retailer has kept safety stock then it will help him to make sales and keep his customers happy.


However, there are various facets to safety stock such as how much safety stock to keep? How to calculate the amount of stock required? To know all this and much more follow our link given below.


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2.  Demand Forecasting and Planning


Demand Forecasting is the scientific process of estimating the future demand for products in terms of quality, quantity, and driving factors. The use of end results generated from forecasting is done to calibrate the business processes and set targets for the sales teams.


Here are some of the most significant reasons to include demand forecasting as a core business process:


  • It helps in devising sales and marketing plans along with their respective budgets.
  • They also lay down the foundation for the master budget of the company.
  • The data available from these exercises will give insights to the required plant capacity to meet the targets.
  • It also contributes to the pricing strategy.
  • It suggests the type of equipment required, production processes, types of products, and components along with the volume of production.
  • It also helps in devising procurement strategy by understanding the consumption of various raw materials and supply chain management.


To learn more about the methods and strategies on demand forecasting, please refer to the link given below.


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3.  Merchandise Planning


Retailers of modern times might not ask this question because they know how vital merchandise planning is; however, for the beginners or the ones who think that it is not that important, here are some of the reasons why you should plan your merchandise.


Merchandise planning can help you stock your warehouse in a way that increases the inventory turnover ratio.


It decreases inventory carrying costs as there is less unwanted inventory in the warehouse and hence less labor, less maintenance cost, less loss through obsolescence as most of the stock is sold, less depreciation of inventory, etc.


Brings value addition to the company as your customer very rarely goes empty-handed and has enough options to compare products to make a purchase.


However, these are just a few benefits, to know the detailed benefits of merchandise planning, please click the link below.


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4.  Retail Visual Merchandising


Simply put, visual merchandising means a visual display of the store. When you enter the store, you’ll most likely first get attracted to visual displays at the store. This can include aspects like window displays, décor style, fixtures, and many others that give a visual identity to the store.


Visual Merchandising always attracts more customers. So, showcase your best products, make it attractive and beautiful, bring in those people who are window shopping, and show them your store!


You can increase your Brand Value with appropriate visual merchandising. The more attractive your store looks, the more customers prefer visiting the store. This way, your brand value increases as well as awareness. No wonder, in a short time, people have started knowing your name!


You know, right, when customers walk-in, it clearly shows that they have an inclination towards your products. Well, when your brand is increasing its value and customers are increasing, there is no surprise that your sales will also grow.


To read more about the visual merchandising techniques, Do’s and Don’ts, please click the link below.


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5.  Inventory Turnover Ratio


Inventory Turnover Ratio is key to efficient stock replenishment. If you’re having trouble understanding all the weird formulas floating around for calculating the inventory turnover ratio, then this is a must-read for you.


You will learn how to calculate the inventory turnover ratio in the easiest and yet accurate way possible in this article.


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6.  Stock Replenishment


In layman’s terms, stock replenishment is a general practice to make sure that the right quantity of the products is available at the right time with the vendor or shopkeeper on the picking shelves.


Did you know that as per a study conducted by Harvard Business Review, “72% of stock-outs were due to faulty in-store ordering and replenishing practices—retailers ordering too little or too late, generating inaccurate demand forecasts, or otherwise mismanaging inventory.”


Such an alarming percentage indicates that inventory replenishment must be conducted in a timely fashion as well as in a systematic way.


In short, a properly done Stock replenishment helps in eliminating stock-outs and overstocking – both of which can prove to be very costly in Supply Chain Management.


To learn more about the replenishment or restocking strategies click on the link below.


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7.  Product Bundling


Retailers combine several products in one package and make it a better deal via several types of attractive offers. This is called product bundling.


Usually, a retailer will bundle a slow-moving item with the corresponding fast-moving item so that he can minimize his loss of stocking the slow-moving item. When product bundling is used correctly, it can boost your sales and improve your conversions.


You can combine it with other marketing strategies, and it’s not actually costly.


Since it’s an effective strategy on so many levels, it’s worth trying. You can read more about the bundling strategy, how you can benefit from it, and the examples to help you understand the difference between a well-combined product bundle and a bad one by clicking the link below.


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Chapter 4
Inventory Management Challenges