As we’ve blogged about here, here, and here, inventory management is one of the most critical components of running a retail business. It can also be one of the most technical parts of owning a retail business, with so many things to take into consideration. A major component of any successful inventory management strategy is replenishment.
What is replenishment? Why does it matter?
Replenishment is defined as filling-in merchandise or product to their optimal levels. However, it is much more than just buying more of what has been sold. You also must consider other factors like product seasonality, category, and inventory performance data when replenishing your inventory.
When looking at your inventory levels, it is important to walk the line between low stock and overbuying. The goal should be to sell items at full-price while achieving the highest turn.
So, how can you create a plan that ensures profitability while cutting costs? Consider the tactics below.
These are 5 Inventory Replenishment Tactics to Improve Performance and Reduce Costs:
- Evaluate your inventory key-performance indicators (KPIS). Inventory turn, gross profit percentage, ROI, and aging are critical to managing inventory at all levels, right down to SKU sizes and widths. By monitoring these data-points, you can identify the need for more stock in certain categories and brands. For example, Mar-Lou Shoes was able to identify great demand for women’s footwear resulting in sales revenue for three of their top brands rising 50%.
- Identify your best and worst sellers. Reporting on your best and worst sellers will help you determine trends so you can more accurately plan your future orders.
- Hold yourself accountable to a markdown plan. If you have a clear plan in place for markdowns, you’ll avoid overbuying when replenishing your merchandise. We recommend the following schedule as a baseline.
- Work with sales associates to achieve goals. You have sales targets in mind. Communicate them with your staff. Talk about your goals throughout the day, track them within your POS, and incentivize your employees to hit your targets.
- Shop your own inventory. If you have multiple stores carrying the same products, before replenishing your orders shop your own inventory. For example, if Store 1 sold out of their Suede booties before the end of the season, but Store 2 still has items in stock. Instead of buying a small amount during the middle of a season with a small order fee, avoid the extra cost by moving items from Store 2 into Store 1.
Technology can automate your inventory management strategy.
Most retailers find that they wear many hats, making time a most precious resource. By automating inventory management, retailers can cut back on time spent on the ordering process by 90%.
Here’s how technology saves you time:
- Automated Purchase Orders. Start by identifying your ‘Best Sellers’ and analyzing your inventory performance metrics. Then you can decide the products that are appropriate to be automatically purchased (think of these as the merchandise you always want to have in store). Then you decide the minimums and maximums you want to carry for each item, even down to the size. Once your decisions are in order, you can generate an Automatic Purchase Order based on your model. With RICS, you can generate transfers using this tutorial.
- Balancing Transfers. This feature enables retailers to transfer merchandise between their stores based on pre-defined product models, multiples and sales over a period. This allows you to keep an ideal on-hand quantity for items in a store to help prevent lost sales. The benefits: It’s automated so you always having inventory on hand when your customers want to buy. You’ll also avoid unnecessary costs that can be incurred when purchasing small quantities from vendors. With RICS, you can generate transfers using this tutorial.
Bottom-line: Data-driven inventory management results in the following benefits:
- Reduced costs.
- Improved inventory turnover.
- No excess inventory.