How Much Inventory?
How Much Inventory?
Inventory management is critical to a retail business. Customers become discouraged when you don’t have what they want or, even worse, not in their size. If you have too much of a particular item, you may be forced to sell it off at a serious discount to move it out of the way. How much inventory to keep on hand at any given time is a delicate balance between keeping your money moving and your customers happy.
The most difficult decisions are made in the beginning as you prepare to open your store. Make your first orders from your suppliers well in advance of that opening day, by at least 4 to 6 weeks. Most suppliers will promise receipt on your end within a week. If this happens, you then have ample time to inventory and prepare the items for sale. However, you don’t know yet who is slow and who is not. Secondly, backorders can be a nightmare. You often will not know that an item is on backorder until you receive an invoice. Some companies will automatically send you the backordered items as they replenish their stock (and that can take months) and some will not. Make sure that you know that supplier’s policy in advance.
How you determine how much inventory to have on hand in the beginning is based on the type of store that you are opening. Variety in the selection is ultimately important in establishing your business amongst your competitors. Customers are usually willing to pay a little more as long as they know that you probably have what they want. It is better to begin by carrying a large variety of your main goods for sale than to purchase extra items that are related but not of the same type. If you are opening a book store, for example, don’t worry about stocking games yet. You can add them to your next order. Otherwise, you may spread yourself too thin.
If your store requires sizes, you need to balance the inventory with enough variety and stock of each item. Carry plenty of each item in the most common sizes, but also several of the smaller and larger ones too. You do not want to find yourself in an inventory shortage situation. If you do not have a customer’s size, you will lose the sale.
Find out how long it will take for your supplier to get stock to your business after you order to determine when to get more. A quick turn around time from your supplier will make managing that inventory much easier. It will help you avoid both shortages and keep you from stockpiling more than you need tying up money on unnecessary items. Hold sales to get rid of items that you over purchased. If you know that one of your suppliers can take several weeks to fill your order, re-order when you know for sure that you have enough on hand to last through that period.
Make sure that you have enough goods displayed to give the effect of a full store. If necessary, move everything out from the stockroom onto the floor until new shipments arrive. Empty space will make the business look as though it is struggling, a message that you do not want to convey. The size of the store that you choose will determine, in large part, how much inventory you need to have on hand at any given time. Rotate your inventory weekly by putting new items out front to keep the display fresh and appealing to returning customers.
Finally, establish good internal control of your inventory. Your inventory is the blood of your business. You must physically count all inventory at least once per year, preferably once a month to take care of inaccuracies as they occur. Maintain efficient purchasing and receiving procedures so that you will know at a moments notice what you have and what is on its way. Make sure that you store your inventory in a way that protects it from damage, theft, and decay. Protect your investment.
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