Retail Inventory Management

By Rene Cintron

Inventory is more than a substantial investment; it is usually a company’s largest asset. Smart companies have found that the ability to manage this asset is a key factor in their ultimate success or failure. Companies manage inventory differently, according to their particular needs and focus.

Inventory is the company's merchandise, raw materials, and finished and unfinished products, which have not yet been sold. Inventory Management is the process of ensuring the availability of products through inventory administration such as planning, stock positioning, monitoring product age, and ensuring product availability. The Inventory Management System provides information to efficiently manage the flow of materials, effectively utilize people and equipment, coordinate internal activities, and communicate with customers.

Inventory Management does not make decisions or manage operations; it provides the information to managers who make more accurate and timely decisions to manage their operations. Inventory Management must be designed to meet the marketplace needs and support the company's strategic plan.

Most retailers utilize a computerize method of inventory tracking in combination with scanning at the point of sale (POS), which then transfers the information to a computer program. Even though this method is not 100 percent accurate, it is the most widely used. For manufacturers and distributors striving to compete in a fierce marketplace, effective Inventory Management helps them avoid stocking too much of the wrong products and not enough of what customers want. It allows them to meet and exceed customer expectations of product availability while maximizing profits.

Human interaction is necessary in order to maintain POS programs as accurate as possible. The various systems utilized by different retailers will lead to conclude the need for an Inventory Management System that performs automatic updates when the product is scanned or otherwise electronically altered and one that is closely monitored in order to account for non-electronically automatically commanded changes such as theft and misplacement of product.

There are various methods of managing inventory. Most of which, require tracking incoming, outgoing, and idle merchandise either by hand or computerized methods.

Since different retailers use different programs and even computer platforms, each company uses the information differently as well, due to the various strategic focuses. The end result is the same. Retailer utilize this system of scanning the product when it arrives in the store to add it to the inventory system and when sold it is scanned again at the register to indicate that it is not in inventory anymore. Depending on the setting of the program the item either, will automatically be re-ordered when sold, when reached a certain low point, or an order manually entered on the computer. As mentioned before, computer inventory is not accurate; it is a method used to assist in making inventory decisions, and controlling inventory. It cannot be stressed enough that computerized inventory systems require human attention to maintain its close accuracy.

Retailing is becoming more complex every day. Retailers have spent time, money and resources instituting fundamentals, establishing inventory controls and aligning their assortments. Retailers continue to search for the optimal blend of art and science to conduct their Inventory Management activities. This can become time consuming and costly. Solving the problems with the present POS systems problem requires new IT solutions and systematic changes that cut across functional boundaries within and between retailers, in the supply chain, and among suppliers.

One example of the computer program flaw is stock-outs. Retailers find stock-outs annoying, just like everybody else, but they live with gaps in their inventory because they figure the fix is more expensive than the problem. This particular problem requires extreme attention. Studies show that an average of 4% of annual sales is lost due to stock-outs.

There are many elements into play to account for the accuracy of the system: system connections such as the one between the POS and the office computer and that to the warehouse, service clerks scanning the correct item, weather itself can present a problem, etc. All of these factors must be taken under consideration when entrusting Inventory Management solely to a computer. A close watch should be kept on the system and up-to-date program updates as well. Inventory Management Systems are an excellent tool to assist in Inventory Management operations such as tracking, controlling, ordering, and others inventory related activities.

It has been found that inventory is a significant company asset and it should be managed as such. Close attention must be paid to this great company asset. It is recommended that the use of computerized systems be combined with regular checks and adjustments of its accuracy done manually. This can be done by either scanning the items that are out on the shelves, meaning there are not any there, to see what on-hand count the system is showing as well as by performing random periodic counts of items throughout the store to assure accuracy and effectiveness of the inventory system.

When new inventory is received, if it is too much to go on the shelf, counts should be fixed in the system. The program will keep track of items scanned at the register, items received or items otherwise scanned out of the system due to a return or damage. There are instances when inventory changes that are not scanned such as theft, mistakes in prior adjustments, and system errors. Because of these other instances, the Inventory Management System utilized by the company must be regularly updated.

The main message of Inventory Management is to be as accurate as possible using a blend of computerized and human help. This allows for a checks-and-balances situation where human and/or system errors can be caught and corrected as soon as possible as to not affect the entire inventory process.