Keeping track of inventory to avoid overstock or shortages for retail businesses

Being in the retail sector means keeping track of your inventory is high priority. The value of your inventory impacts your financial statements, whereas the quantity of inventory you hold impacts your ability to be able to meet demand.

Whether you’re an online retailer or have a presence on the high street, a mechanism to keep track of your inventory can be challenging and, although there are many off-the-shelf software solutions, you need to understand what it is reporting and take suitable actions.

If you hold too much inventory, this can be costly. Having the storage space and correct conditions to keep the inventory will increase as quantities increase. However, if you don’t hold enough inventory and you receive a large order, how will you be able to fulfil it? The art of holding just the right amount of inventory can be achieved through:

• Understanding your sales and knowing your seasonal trends
• Achieving the right reorder levels
• Being aware of external impacts, such as energy prices
• Taking account of lead times with your suppliers
• Communicating with your customers regularly and understanding their needs

Having a stock system that all department areas of your business understand can provide you with confidence that your financial statements are truly reflective of the performance of your business. From the team in production who record the correct quantities used, through to the accounts team reconciling the stock at a period end, everyone needs to have the same perspective.

A periodic review of the inventory by physically walking around your shop or warehouse can help with identifying quantity anomalies from the stock system. A physical review of your inventory also helps provide for any obsolete stock/ slow moving stock. Closing stock in your financial statements should be valued at the lower of cost or net realisable value, therefore, if you have damaged stock, an adjustment may be required.

Understanding your supply chain and the potential lead times on stock will benefit you. If you hold the stock for a limited period of time, then this reduces storage costs and cash tied up in stock, therefore benefitting you financially. Being able to communicate well to your customers on the lead times, which may be out of your control, will only improve your professional relationships and hopefully increase repeat business.  

Need help?

If you already have a stock system in place, but you don’t understand it or perhaps you don’t understand the impact your stock levels are having on your business, please get in touch and we can assist you. We have various tools and knowledge that can assist you and help you make the most from your business.

Please get in touch with your usual contact. You can find contact details on the Our People section of the Larking Gowen website. Alternatively, you can call us on 0330 024 0888 or email enquiry@larking-gowen.co.uk.

Megan Howard