Why is Inventory Management Important in the Restaurant and Retail Business?

Did you know that in 2013, Walmart lost $3 billion because of poor inventory management, which eventually led to frequent stock-outs? Poor inventory can cost you money, time, and your business. It is also one of the top reasons why startups fall.

Inventory management is vital to retailers and restaurant owners because it allows them to manage multiple locations, prevent stock-outs, and ensure accurate record-keeping. What makes these processes easier without going manual is the inventory solution.

For inventory management to be effective, it would require tools and methods to give restaurants and retailers detailed information about running their business. Learn more about the nature and importance of inventory management, how it works, and various methods to use.

What is Inventory Management?

One of the pillars of a successful retail or restaurant operation lies in inventory management. The techniques help e-commerce sellers and stores to reduce costs, increase profits, and at the same time satisfy their customers.

In restaurants, they conduct their inventory by monitoring the food and beverage ingredients in real-time. Inventory tracking enables you to see what is coming in, leaving the kitchen as sales and the leftovers in the fridge and shelves. By understanding these metrics, you become more informed of inventory orders.

Moreover, restaurants have a huge and fast-paced changing inventory with a limited shelf life that greatly affects the operations. Better and more streamlined inventory control means less food waste and more money added as profit.

On the other hand, inventory management involves the process of ensuring that you have the merchandise a shopper wants with neither too much nor too little on hand.  You can meet customers’ demands through effective inventory management without carrying excess supply or running out of stock.

Properly handled retail inventory management will result in a better understanding of sales patterns and lower costs. The tools and methods involved will also give retailers detailed information in running their business. This information may be:

  • How season affect sales
  • Quantities of each product type
  • Locations of products
  • Stocks that sell well and does not, by sales channel and location
  • Quantities of products to reorder and how often
  • Profit margin by product line or item, model, or style
  • The ideal amount of inventory for stock and storage
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Why Is Inventory Management Important?

For retailers and restaurant owners, inventory management is crucial because it helps them increase their profits. Below are the practices how inventory management increases the efficiency of your business:

1.   Minimize out-of-stocks

Retailers and restaurant owners avoid running out of inventory because this could disappoint their customers and induce missing sales. With inventory management tools, you can determine how much stock is enough to have on hand, where there is a larger allocation to bestsellers than the unpopular ones.

2.   Decrease inventory cost

You can pinpoint inventory levels accurately and precisely when you know how much stock you have and how much you need. It can reduce carrying and storage costs for excess supplies and raw materials. Shipping, logistics, depreciation, and opportunity costs are your other sources of savings.

3.   Spoilage prevention and obsolescence

Inventory management enables retailers and restaurant owners to address costly inefficiency once products become obsolete or expire. Milk and meat are supplies considered perishables and have a limited shelf life belonging to these products.

Non-perishables that become obsolete due to consumer taste and technology may also be counted to these products. Some of the examples under this are your season’s collections and holiday-specific packaging.

4.   Improves profit margins

Lower inventory costs and sufficient supply to attain every order allows retailers and restaurant owners to improve their profitability.

5.   Process simplification and growth facilitation

Friction in the system may be reduced by solid inventory management because of sales growth. Smooth shipping, receiving, and order fulfillment minimizes errors, staff stress, and customer complaints.

6.   Multi-channel improvement and omni-channel performance and order fulfillment

It can be challenging to keep correct inventory counts across all channels if you sell via websites, physical stores, and third-party merchants. If you have accurate inventory data across marketing channels, you can use your inventory more efficiently and effectively while bringing consumers faster.

7.   Shrinkage reduction

Shrinkage refers to the losses due to:

  • Product damage
  • Shoplifting
  • Vendor fraud or mistakes
  • Employee theft
  • Administrative errors

According to surveys, supermarkets lose around 3% of their sales through shrinkage. It suggests that most losses can be rooted in inaccurate recording inventory on intake, misplacing, or miscounting. Hence, retail solid inventory management can reduce shrinkage by 50%.

8.   Customer satisfaction improvement

There is a high chance of increasing customer loyalty when they get the products they want faster and with fewer mistakes or out-of-stocks.

9.   Eases supply chain management

A firm grip on sales trends and inventory will allow you to manage your supply chain more effectively. Replenishment system may work for you, may it be for a few or bigger orders.

10. Forecasting improvement

Historical sales results and available inventory helps in projecting future sales, capital needs, and growth. Forecasting is crucial in your budgeting and spending for product development, staffing, and marketing.

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What are the Steps in Inventory Management?

Below are the steps you can follow in inventory management:

1.   Creation of centralized record of all products

The details you should include in each of the products are the following:

  • Product name
  • Stock-keeping unit (SKU)
  • Brand
  • Variables include size, retail price, product category, lot number, location, and expiration date.
  • Vendor and Vendor SKU
  • Wholesale cost
  • Minimum reorder amount
  • Economic order quantity (EOQ)
  • Case quantity amount
  • Inventory on hand
  • Reorder lead time

Include product images and descriptions to speed up product identification.Every time there is a new product or changes in the vendor or wholesale costs, update your records.

2.   Identify stock location

You should be straightforward with the locations of supplies because they can either be in the stockroom or display. To prevent missed sales and loss of revenue, the use of RFID tags and barcodes can automate inventory mapping.

3.   Do regular and accurate stock counts

Count your inventory periodically to ensure its accuracy. Account for shrinkage, damage, defects, and returns to prevent errors.

4.   Combine sales and inventory data

Sales and inventory data integration is possible because of the inventory management system. It shows you the products that have the fastest turnover and those that are lagging. Product data gives you a picture of the amount to reorder and decide when to offer discounts and promotions.

5.   Create purchasing process

To not get caught behind seasonal trends or risk stock outages, you should have a schedule to review data and order placement. An electronic system can notify you of alerts for specific products that need to be reordered.

6.   Establish a method for markdowns

Create a strategy beforehand for promotions to ensure you have enough supplies to meet demands.

7.   Stock receiving procedure creation

An established procedure in receiving supplies can minimize unexpected outages, overpayment to vendors, and dead stock.

8.   Procedure for returns creation

If a customer makes a return, check for damages and defects, route it for repair, and return it to the vendor as appropriate. If it is still sellable, add it in inventory counts and its correct place.

9.   Deadstock procedure

Deadstock includes incorrect deliveries, damaged items, and leftover seasonal products. Record then remove these products from the inventory. Store it in a place and, if possible, ship it back to vendors for credit. Notify suppliers following their policy.

10.  Choose your inventory KPIs

Consider vital metrics like inventory value, profitability, sell-through rate, and turnover rate in deciding for your key performance indicators (KPIs)

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Whether your business is a retail or restaurant, you need to have effective inventory management to improve your business’s efficiency. It will not only minimize your costs but also increase your sales. Over time, you will notice how having an effective inventory management system makes your business more profitable.


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