Inventory Management Guide: 10 Essential Practices for Retailers

by Management 17 September 2021

Inventory Management

Every successful retail business needs well-organized inventory management to thrive. It has tons of benefits for your company as it streamlines operations, ensures you never run out of stock, and provides a satisfactory experience for your customers.

To have a good grip on your inventory management, you have to understand what it means, what it has to do with retail business, and the essentials your inventory management practices should have.

You also need great inventory management software to always ensure you’re in line and the account books tally. This article will explain all this and answer most questions retailers ask about managing inventory the right way.

Follow this guide to get a grip on your inventory management processes in no time.

Inventory management explained

Inventory management ensures that your retail company always has stock or merchandise that your customers want or that is relevant to their needs.

It involves monitoring and controlling the purchase of these items and ensuring that they are properly stored; you have enough of these items at hand (not too much, and not too little.)

Inventory management differs based on the type of products your company carries and the channels through which they are shared.

Through proper inventory management, you can rest assured of meeting customers’ demands when necessary and not run at a loss by overstocking products.

Inventory management is essential because it allows retailers to better understand the sales patterns of their items. This allows you to get quality information on how to run your business, such as:

  • Which items sell well
  • Which products do your customers love most
  • Which geographical locations order your product (based on the customers’ locations)
  • How many products you should have in storage
  • How often to reorder
  • When to no longer carry a product (for instance, during specific seasons of the year)
  • Your profit margins, etc.

The essentials of inventory management for retailers

For inventory management practices to be successful, there are certain best practices you can leverage. We have listed ten of them below to help you get the best results.

1. Invest in a retail inventory management software

Inventory management has become way less tedious in today’s digital world, with retail inventory management software available to save the day. It eliminates human errors and inaccuracies and provides a simplified way of keeping track of stock and purchases.

Inventory management software will help you save time and keep track of necessary processes automatically. For example, for a real-time count of your inventory, work with an inventory management software that is integrable with a POS, such as Lightspeed.

2. Create a centralized record of all products

Make a list of all the products you have in one place. This list should include the product name, brand, wholesale cost, stock keeping unit, economic order quantity, case order quantity, etc.

Images and product descriptions also make it easy for staff to identify products, essentially for eCommerce retailers. Finally, add new products to the records and have a clear guide for updating the central database with new information.

3. Develop a purchasing procedure

It’s important to have a smooth process for purchasing products to avoid lagging when you need to stock up on products. Set out times to review the inventory and reach out to suppliers so you don’t run low on products when you need them most.

4. Set up alerts for depleting stocks

This is essential to make number 3 above work. Depleting stock alerts inform you when your inventory is running out. This ensures that you get notified when your stock is going low or below your indicated threshold.

Use inventory management software that allows you to set up stock alerts for your products.

5. Use the best Stock Keeping Unit (SKU) practices

5. Use the best Stock Keeping Unit (SKU) practices

Because the demand for your products is skyrocketing doesn’t mean you should overstock up on it because market trends can change quickly.

The best SKU practices will allow you to analyze the cost for every SKU item to determine how profitable it is for your business. If they are not performing well, discontinuing them is the best bet.

6. Take stock regularly

Your inventory management software effectively helps you keep a count of your stock, but experts still recommend that you conduct a quarterly or yearly counting of your inventory. This helps to eliminate errors and deviations, if any, to avoid surprises.

Inventory counting methods like physical counting or cycle counting are some effective methods you can try.

7. Figure out your stock locations

Small retail businesses may not have difficulty with this, as your inventory/stock location may simply be the display room or your stockroom.

However, for large-scale businesses, stock locations may include warehouses, stockrooms, distribution channels, department store shelves, and lots more.

Identify where your products exist and fully map out the location of your inventory to avoid revenue loss or missing sales records.

8. Establish a stock receiving process

8. Establish a stock receiving process

Without a smooth stock receiving process, your retail company may suffer damages in terms of loss, misrepresented supply information, shortfalls, overpayments, and more.

Ensure that every delivery matches the order requested, confirm the product types, check that cartons, boxes, etc., contain the requested products, and count goods immediately when they arrive to reduce the amount of stock receiving errors your business incurs.

9. Establish a process for returns

Retail companies often allow customers to return goods and products based on certain exceptions and allowances. Set up a process to confirm the state that returned products are in.

Check if they are deformed, resellable, defective, suitable for repair, or a complete write-off. This way, you can save costs on selling off items that you can still make money from.

Resellable items should be added back to inventory and placed on display for sale.

10. Monitor your inventory KPIs

10. Monitor your inventory KPIs

To see if your inventory management processes are effective, you should carefully monitor your Key Performance Indicators (KPIs) to see the trajectory of growth or decline.

Some important metrics to look out for include the stock to sales ratio, rate of return, product sales, turnover rate, or your sell-through rate. This guide will show you the formulas to calculate over 30 KPIs valuable for your retail business.


Inventory management looks different for different retail companies, but some key practices are general to most. We have highlighted these best practices to guide you as you take inventory of your products.

It will ensure that you have accurate results and uniform information across all your stores and channels, so you never run out of stock or overstock products.

Using efficient retail inventory management software will also help to keep you in line and improve your inventory processes.

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Ariana Smith is a blogger who loves to write about anything that is related to business and marketing, She also has interest in entrepreneurship & Digital marketing world including social media & advertising.

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