3 Best Practices for Retail Inventory Management

3 Best Practices for Retail Inventory Management

Are you familiar with the key performance indicator (KPI) for Days Sales of Inventory (DSI)? Simply put, DSI is an index that gives retailers an idea of how long his/her company takes to turn its inventory into sales. Most retail businesses prefer a lower DSI value. Let’s break down how DSI can be interpreted by looking at tech leaders’ inventory statistics!

In 2017, Apple, Hewlett Packard (HP) and Samsung’s annual DSI were 9.04 days36.50 days and 61.56 days respectively. What this means is that Apple was able to sell their entire inventory in approximately 9 days! Apple’s inventory turnover was 4 and almost 7 times faster than Samsung and HP that year.

It is no accident that Apple is where they are today. Apple’s success cannot be solely attributed to great inventory management alone, but it most definitely did contribute in some ways. Back in 1998, Tim Cook, who was then the Chief Operating Officer (COO), viewed inventory as “fundamentally evil” and decided to treat all products with expiry dates. By September 1998, Apple saw 10 of its 19 warehouses shut down, which helped – greatly – in reducing unnecessary inventory and costs.

Apple’s excellence in inventory management has also positively impacted their overall supply chain management, earning them a place in Gartner Supply Chain – Top 25 List for 2018; in particular, Apple was one of four awarded under the Master’s category for the accomplishments of long-term supply chain leaders.

These are probably things you may be hearing for the first time as it seems most media outlets, in general, tend to focus more on the profits rather than inventory aspects of a retail business. As there is a lack of exposure in areas of retail inventory, this has consequently led to a lack of understanding about the overall importance of inventory management.

We saw this problem and thus, curated a list of inventory management best practices that could help your retail business improve overall work efficiency and effectiveness, as well as reduce unnecessary expenses.

Without a proper information up-keeping system in a business, inaccuracies can occur affecting your workflow efficiency.

#1 Proper Documentation and Categorisation

The foundation for any effective inventory management is proper documentation and categorisation. Without upkeeping information and ensuring that they are up-to-date, you will find your database to be inaccurate. Inaccuracies in your inventory records will result in time wastage and inefficiencies in the workflow. We recommend that you:

i) Have A Consistent Naming/Labelling Convention

This is an important first step for retailers. Without proper product documentation, retail businesses risk messing up orders, losing oversight of inventory movement and experiencing lower work rate productivity.

Remember to label all products in your store and ensure your co-workers are following the same naming scheme. Each product should also be labelled with descriptions such as the product’s expiration date, packing requirements or even attributes for quick reference and follow-up.  

ii) Have A System for Movement of Goods

Forgotten goods are common occurrences for businesses that lack the discipline to document and categorise products in storage. Having a system that monitors what comes in and out of your storage can help resolve this problem.

Take perishables such as fruits & vegetables, seasonal fashion pieces or even electronics like Apple, for example. Apple products have a life cycle of about twelve months with a depreciating value of 1% – 2% every week. In order to reduce product depreciation, older goods are removed from the storage and placed on store shelves first to encourage inventory turnover.  

Most retail businesses adopt a similar method as Apple, where priority is given to goods that enter the inventory first. Known as the First-In-First-Out (FIFO) method of managing inventory,  this gives retailers a clearer overview of what products should be sold off first to reduce the chances of product depreciation, expiration or even being forgotten.

If you are interested in learning more about documentation and categorisation, check out this article on “3 File Management Tips for Retail Businesses”.

Finding optimum stock level depends on individual business's needs.

#2 Maintaining Optimum Stock Level

There is a fine line between insufficient inventory space (due to too much inventory) and the shortage of inventory space (due to poor forecast). Finding the optimum stock level depends on each business’s need. While high stock levels tie up capital and risk product obsolescence, low stock levels risk potential sales. How can retail businesses find the perfect stock balance? We recommend that you make an effort to:

i) Maintain An Accurate Stock-On-Hand Value  

As much as possible, retailers should carry out regular stock checks to understand stock movement. By running intermittent checks on stocks, you will be able to get a sense of product performance within your inventory, as well as identify potential inventory issues.

With a better overview of your inventory, you will be able to make better purchasing decisions on your next stock-in.

ii) Conduct A Consumer Trends Analysis

There is no better way to understand your customers than through research.

In the past, market research was mostly done by large corporations that could dedicate time and a huge amount of resources. Thanks to the advent of the Internet and technological advancements, information gathering has gotten much easier and more affordable.

Most solutions provide basic reports that give insights into your business’s performance. With these useful facts and figures, businesses are beginning to interpret and further customise their goods and services according to customers’ behaviour and preferences. With insights to performance trends and customer demographics, businesses can monitor and make changes to their sales strategies, as well as make informed decisions on stock purchases so as to better meet their target audience’s demand.

iii) Adopt A Flexible Fulfillment Workflow

Change is the only constant in business. While the nature of business remains volatile and unpredictable at times, it is important for retailers to adapt and operate with flexibility.

Flexible fulfilment workflow offers businesses the agility to react to customers’ changing demands. Take, for example, if an item is sold irregularly and is costly to maintain, retailers could consider requesting for drop shipping services from the manufacturer. Drop shipping allows retailers to continue selling a product without maintenance cost associated with inventory. This method also frees up capital for the business, allowing retailers to invest in other fast-moving products that generate more sales.  

Automation ensures that your business is on the cutting-edge.

#3 Streamline with Automation

How can businesses stay competitive, efficient, cost-effective, and ensure inventory accuracy? Automate!

Pen and paper can no longer make the cut for growing businesses. With the increasing need for integrated systems and services, tedious tasks like stock movement tracking, and sales tracking, have gone towards automation for sustainable progress.

Did you know that 43% of small businesses either do not track their inventory or are still using a manual process? Here are our recommendations if you are a growing business striving for optimum performance:

i) Find the Right Solution.

It can be exciting to envision flawless automation integrated into your daily business processes. However, there is a whole host of inventory management solution providers in the market. So how do you find a suitable one for your retail business?

First, figure out what you want to automate. Then, find out if the solution of your choice provides the features you require.

For example, a fashion retail owner whose priority is to automate inventory tracking to understand consumer trends analysis would need a solution that has strong inventory filters; with data filters such as product size, colour, price and category, retailers would be able to map inventory performance to sales analysis according to customers’ purchases by age group, season and more. Finding a solution that serves your business needs would be of utmost importance.

Fortunately, many of these solution providers provide free trials. It is advisable to try out the solutions first before committing to a subscription. It is also a great opportunity to get your employees comfortable and familiar with the solution’s user interface and workflow.  

ii) Identify Your Business’s Long-Term Goals  

While it is important to find the best solution that fits your needs, you should also consider your future goals as it would affect the growth potential of your selected solution.

If you are a retailer, maintaining inventory accuracy is most probably a small part of your business. Aside from inventory management, you will need to handle and execute other day-to-day activities such as the sale of goods, or even employee shift management. Therefore, consider these while looking for a one-stop solution that is able to cover your business’ core functions through seamless integration. It is critical that you identify your long-term and short-term enterprise needs before looking for the optimum solution provider.

If you are looking for a guide on POS solutions, check out this article on: “5 Must-Have Point-of-Sale (POS) Features & Why?”.


If you are running a business and it is your first time learning about inventory management, we hope that you will apply a thing or two from this article into your business. The retail industry remains competitive. Do not allow bad inventory management practices to hinder your business progress.

For businesses looking for an integrated solution provider in POS, eCommerce and inventory management, give our 30 days free trial a try.