Inventory Management: Effective Inventory Control Leads to Increased Profits

No matter the industry or the size of your store, inventory control is often an enormous struggle for retailers. If you are under-stocked, you may lose sales, but if you are overstocked, your cash flow will be tied up. Inventory management is essential for the knowledge of your financial worth. Crucial to every business is the maximizing of inventory investment and being organized and efficient in order to ultimately increase the profit of your business.

Here are six basic steps that are vital in turning the inventory guessing game into educated predictions:

1.     Purchase minimums and order more often

Identify the minimum stock level that works best for you. Deciding how much stock to keep depends on the size and nature of your business. Track your sales to stock the right products and at the right time. Know what sells and what was a “flop.” Determine your return on amount invested in your inventory. Try to transfer from another location rather than buy more product.

2.     Take physical inventory

Regular cycle counts help keep inventory information current and correct. The bigger your store, the more often you must do cycle counts. Try doing physical inventory on a day you can actually close the store or at least during a very slow time, so you do not have customer distractions or a flux in inventory.  This doesn’t have to be a dreaded task. Make it fun! Cater in lunch, allow overtime, mix and match employees, have the print music specialist count guitar accessories, while the string teacher counts trumpets. These sorts of practices encourages expanded product knowledge, allows employees to work with those that they may not usually associate with, and provides a checks and balance system to keep people honest.

3.     Compare what your computer says you have versus your physical count

Determine why your inventory may be off. Are purchase orders being entered correctly? Are you accurately checking off those packing slips and POs as inventory is received? Are your employees properly trained? Are they happy (Did you know that happy employees are far less likely to make mistakes)? Do you have a problem with theft in your store? Whether it’s shoplifting or employee theft, would a camera system be a worthy investment for your store? Don’t for one second think that you are the exception and that your employees aren’t stealing from you. Employee theft constitutes an average of 42.7% of inventory shrinkage, while shoplifting only accounts for 35.6%. Educate employees how to keep an eye out for and how to handle shoplifters. Did you know that making eye contact with and speaking to each customer who enters the store is one of the most effective ways to deter theft?

4.     Empower your employees

Customer service should be the mainstay of your floor staff. A friendly smile from a knowledgeable employee will do more for your business than a fully stocked shelf.  If an item is out of stock, have the employee offer a substitution of a similar item that is in stock.  Or teach them to simply say, “We don’t have that item at the moment, but I would be happy to order it for you.” Special orders maximize your turnover and take up absolutely no space on your show floor. Just remember, you don’t have to lose that sale just because you don’t have that particular item in stock. Face it, when they order online, they have to wait for the item; if they will wait for an online order, they’ll wait for you, too.

5.    Clear out the junk

Sales, promotions, giveaways, donations, or even a trip to the dumpster… Get rid of old inventory and free up your cash flow. That cello that has been sitting in the corner for the last five years gathering dust is not benefiting you in any way. However, there is probably a local string teacher who would be happy to take it off your hands for the little bit of money she has left in her budget. Or that best seller from two years ago? It’s not going to make a comeback. This is especially important when it comes to software or technology (which was probably outdated six months after you ordered it, anyway).  Our store often takes new issues or outdated materials to conferences where we offer it at a substantially reduced price. The teachers appreciate a chance to pick up new material that they may not have previously been able to afford. And they might become loyal customers just because of your “generosity.”

6.     Review and analyze your sales and stock reports regularly

Run reports. And run more reports. Know what you have, how often you’re turning it, what time of year a particular item sells, how much you sold last year, et cetera. Set goals on how to improve inventory to benefit you financially. Open communication and sharing of information between all divisions of your store provides for a more accurate picture of your bottom line. While it is always necessary to delegate, it is much more advantageous that as the owner or manager, you are knowledgeable about your inventory, which is essentially your money.

Ellen Leenman Brown is the general manager of Musical Innovations in Greenville, S.C. She joined MI in 2012 after several years in restaurant management, and has become an active member of NAMM (and NAMM YP), NASMD, and RPMDA. She and her husband, Dan, live in Simpsonville, S.C. with their five children, ages three-and-a-half to 16. Their oldest two daughters are members of the Mauldin H.S. Maverick Band Flag Corps and performed at the Alamo Bowl this past December.