Understanding the Importance of Inventory Management
The importance of inventory management has never been lost on retail business owners. However, a recently released report puts a dollar figure on how costly inventory mismanagement can be: $300 billion in 2018 alone. Ouch!
The Coresight Research survey of more than 200 retail companies determined that by discounting merchandise, U.S retailers left billions on the table last year, and that money could have been saved if better inventory decisions had been made. The businesses surveyed estimated that only about 60% of their merchandise sold at full price.
While the survey showed that external factors such as unseasonal weather or changes in consumer behavior were considered the biggest contributor leading to markdowns, improper inventory management accounted for roughly 53% of revenue lost to discounts. Overbuying led to nearly 30% of discounted merchandise while buying the wrong type of products came in at almost 17%.
Common Missed Steps
Poor performance measures, industry experts agree, are the leading cause of inventory management mistakes. That means not having accurate inventory data or a way to gather it leads to outs and overstock.
An inability to meet customer demand is another telltale sign a business doesn’t grasp the importance of inventory management. If the products that shoppers want aren’t on the shelves, customer satisfaction declines in addition to sales revenue. Automated inventory management software does a better job of tracking inventory in real time and forecasting consumer demand than people.
Lack of planning is the result of not being able to forecast demand for products. A BRP study, Keeping Customers Happy, shows that for 63% of shoppers it only takes one unsatisfactory experience to make them stop shopping at a store and not having the correct items on the shelf is the first step on that journey.
Putting Data to Work
Not too many years ago, John and Chris Henkle, who own Henkle’s Ace Hardware in Webb City, Missouri, decided to upgrade their business. John was an old school, “nobody can manage inventory better than me” kind of guy. Tired of seeing him spending too much time on the process, his wife, Chris, convinced him to let her manage one aisle of the store with the new Paladin retail platform they adopted.
After seeing how easy it was for Chris to manage her stock, it didn’t take John long to realize the importance of inventory management and give Chris the rest of the store’s inventory to manage. With more time on his hands, John focused his efforts on business-to-business marketing, which added customers without any added investment.
The technology upgrade, a brick-and-mortar facelift, and an expansion of services contributed to Henkle’s being honored as one of Ace Hardware’s Coolest Hardware Stores in 2015.
“You have to let technology work for you rather than you working for it,” says Dan Nesmith, owner, president and chief technical officer of Paladin Data Corporation. “Allow technology’s use of sophisticated forecasting models to automatically tailor your inventory to meet your customers’ expectations.”