Retail Inventory Management: Processes, Challenges, and Best Practices 

Retail inventory management is a set of processes and tools retail businesses use to order, store, track, and sell inventory. It includes everything from predicting demand and ordering merchandise to receiving, storing, fulfilling, and restocking orders. The main objective? Maintaining stock levels to satisfy customer demand without over/understocking. 

It’s plenty of functions that drive the real value behind a solid retail inventory management system. Take note of this checklist of retail inventory management system benefits. Use it after you’ve implemented your software for this process to see how well it’s going: 

• Are your customers satisfied? Retail inventory management improves the chances of products being ready when customers are ready to buy. 
• What do your costs look like? Use this process to eliminate overstocked goods and reduce storage expenses. 
• Is your cash flow efficient? Turn to a good retail inventory management software to avoid having your capital tied up with inventory that won’t sell. 
• What does your general process efficiency look like? Speed up operations like purchase order processing or fulfilment to minimise purchasing and fulfilment errors and delays. 

The ideas behind supervising the flow of goods from suppliers to customers are to balance stocking levels for all channels, keep costs down, and make sure products are where and when customers want them. 

The retail inventory management process 

This is a multifaceted journey with several interrelated parts that are equally important: 

1. Planning 

Retailers start the process by projecting demand and calculating what (and how many) products to stock and when to order them.  

A clothing store owner, for example, might look at last summer’s sales data, review which styles are currently popular, and factor in potential promotional seasons to decide how many swimsuits to stock for the next quarter. 

2. Purchasing 

Retailers then make orders according to how much they think they‘ll need and what they have in stock.  

For instance, a local store may replenish staples like milk and bread by timing their delivery to match up with running low on the existing stock. 

3. Receiving 

When deliveries are made, staff members compare the goods with the purchase orders for accuracy and quality. They then simply update inventory files.  

Let’s take a bookstore as an example this time. When they receive an order of new book releases, the team counts them, checks for damage, and records each new item in their inventory system before placing them on shelves. 

4. Storage 

Deliveries should be organised and stored so they’re always ready and easy to access for sale or delivery.  

A shoe shop would use display shelves so the most common sizes are always available in the showroom (with other sizes kept in the backroom).  

This serves two purposes. It makes it easier for staff to do their jobs. It means customers can always find their size in a shop. 

5. Fulfilment 

When customers make an order, your staff handle stock picking, packing, or shipping.  

For orders pending for in-store pickup, employees pick and prepare the order and then inform the customer it’s ready for pickup. 

6. Replenishment 

Retailers keep stocks under control and replenish them to their best inventory position.  

A pharmacy can set up an automatic reorder level for all over-the-counter drugs. When an inventory level falls below a threshold, the orders are automatically placed, eliminating a stock-out risk. 

There are many difficulties, like maintaining stock levels, reducing manual errors, or processing orders in time, that you'll need to handle without breaking the bank. These already difficult issues are further complicated by the requirement to provide quick and efficient customer service.  

The next examples show how these challenges play out in the real world: 

Ultralight Outdoor Gear (UOG) sells a wide range of lightweight outdoor equipment used and recommended by seasoned experts who take their gear very seriously.  

As their stock and range grew, paper and manual ordering systems made their way into the company's daily workflows. Workers found picking orders and bringing stock into the warehouse a “nightmare” and had “horrible” trouble keeping track of and updating inventory. 

The company’s problems were evident during periods of fast growth, like the pandemic, when sales and order volumes skyrocketed. Without automation via Mintsoft, UOG was at risk of becoming inundated and might have had to hire more staff just to keep pace. 

UOG also turned to Mintsoft because they needed a solution they could easily connect with their current ERP, as well as be flexible enough for a variety of new integrations as their business continued to expand.  

Without any automation in place, executing time-consuming tasks manually (such as generating picking lists, updating order statuses, and finding the best routes through the warehouse) was also slowing down their growth. 

Lux Cuttings, the oldest retail hydroponics shop in the Southern Hemisphere, bumped into a unique set of problems when their previous software provider, Veeqo, left the Australian ERP marketplace. The sudden shift left the company with no dependable solution for syncing their inventory between their brick-and-mortar shop, ecommerce site, and third-party marketplaces. 

Most of the other alternatives didn't come with key integrations, in particular with Australia Post and the Australian eBay. Some were too expensive or required complicated workarounds and IT support which Lux Cuttings couldn't afford.  

The lack of a system that would allow them to manage their complex multichannel business seamlessly was putting both their daily operations and their growth at risk. 

It was a struggle to keep track of stock control and inventory levels accurately, with stock located on different platforms, and manual processes introduced unacceptable levels of error and inefficiency.  

The absence of a centralised automated solution, in addition to consuming valuable time, introduced stress and complexity to standard operations, making it difficult for the owner to scale the business. 

Here are the best practices we recommend using to improve retail inventory management processes for UK retailers: 

1. ABC analysis 

ABC analysis is a technique which categorises inventory/stock into three categories based on its value and impact on the business: 

• A: Includes high-value, low-quantity products 
• B: Includes moderately priced, moderate in quantity products 
• C: Low unit value, high unit quantity items 

How to implement it: 

1. Keep track of the number of sales you make of each item and how much you sell them for. 
2. Sort items into A, B, or C groups based on the Pareto principle (a maximum of 20% of items are critical and will represent 80% of value). 

Example: 

• A: Designer handbags (£20,000 annual value, 30 units) 
• B: Trainers (£10,000 annual value, 120 units) 
• C: Socks (£2,000 annual value, 600 units) 

2. Forecasting 

Forecasting in retail inventory management is the prediction of the demand for an item well ahead of its sale based on past sales data, trends, and market intelligence. 

How to implement it: 

1. Analyse sales patterns using quantitative methods such as time series analysis or regression. 
2. Support this with qualitative findings you pull from market research. 

Example: 

A garden centre could estimate a greater number of compost customers during spring by examining last year’s sales and even the weather that’s forecasted. 

3. Reorder point 

The reorder point is the stock level at which the retail inventory management software should place a new order to refill the stock to a desired level. 

How to implement it: 

1. Calculate your reorder points with this formula: Reorder point = Safety stock + (Average daily sales × Lead time in days) 
2. Automate alerts or reorder systems when inventory falls to that level.  

Example: 

A grocery store manager could establish a reorder point for fresh produce by calculating the average daily sales and delivery schedules. Additionally, they should also make sure shelves are well-stocked and customers can easily find what they’re looking for. 

4. KPIs 

Key performance indicators let you measure the effectiveness of your inventory management. 

How to implement it: 

1. Track key performance indicators like product performance, stock turn, sell-through, and inventory shrinkage. 
2. Use your POS or inventory system to print reports frequently. 

Example: 

A toy store might track which products have the fastest selling time versus high-margin lines to guide future buying decisions. 

5. Inventory turnover 

Inventory turnover measures the frequency at which inventory is sold and replaced during a specific timeline. 

How to implement it: 

1. Calculate using this formula: Inventory turnover ratio = Cost of goods sold (COGS) ÷ Average inventory 

Example: 

A supermarket should aim for a fast turnover for fresh food and flowers to keep waste to a minimum and profits to a maximum. 

6. Safety stock 

Safety stock refers to additional inventory that retailers maintain to avoid stockouts due to demand surges or supply disruptions. 

How to implement it: 

1. Calculate safety stock using: Safety stock = (Maximum daily sales × Maximum lead time) - (Average daily sales × Average lead time)  
2. Vary stock levels with season and supplier. 

Example: 

A clothing store retailer may maintain additional T-shirts (as safety stock) before a big event or sale. 

7. Picking process 

The picking process is straightforward as your staff comes in to choose products that will satisfy customer orders. 

How to implement it: 

1. Select a picking strategy that works for your workflows, like batch picking for large online orders or zone picking for large stores. 
2. Keep inventory organised and well-labelled to prevent mistakes and expedite fulfilment. 

Example: 

A pet store that fulfils online orders, for example, might practice batch picking for popular items like dog food or cat litter. Instead of selecting each order one by one, staff assemble all orders for the same product at once and sort them for packing. 

Grab our guide to more inventory management best practices to learn how to better track every item you hold in your warehouse and maximise stock profitability. 

Let’s start with the bare minimum: 

A retail inventory management software. 

Consider it your virtual stockroom helper. Inventory management software provides automation to record, file, and update the stock of your products. 

Use it for: 

• Collective inventory for multi-location and sales channels 
• Automating item replenishment to avoid stockouts 
• Creating reports to make smarter purchasing decisions 
• Connecting it with ecommerce and accounting systems 
• Eliminating errors and wasteful stock with real-time data 
• Integrating new sales channels or warehouses into your process as your business grows 
• Making smarter decisions with numbers-driven insight 

How Mintsoft can help 

Mintsoft isn’t just a stock control software. It’s your entire fulfilment operation in one place: inventory, order, warehouse, and shipping connected in one platform. 

Key capabilities you’ll get with Mintsoft: 

Centralised order management: Mintsoft integrates with 150+ ecommerce platforms and marketplaces so you can manage orders from all of your sales channels in one place. Orders are automatically loaded, acknowledged, and fulfilled without information rekeying needed. 

• Real-time inventory control: Get one source of truth for your stock across all locations. Mintsoft synchronises stock precisely and handles advanced inventory strategies like FIFO and FEFO for perfect stock rotations. 
• Warehouse management: Maximise warehouse logistics with pick/pack/ship automation workflows. Mintsoft’s app is available on android mobile devices and allows you to scan barcodes, pick items on the go and updates inventory levels for real-time stock figures to increase accuracy and speed of picking.  
• Reporting and analytics: Get rich dashboards and analytics for complete visibility across business performance, profitability, and warehouse productivity. 

Mintsoft also integrates with Unleashed so you can connect manufacturing, inventory, fulfilment and logistics into one system. Unleashed takes care of the production side (i.e. demand planning, production management, and inventory forecasting) while Mintsoft deals with everything else from sales order import through to final delivery. 

A personalised demo awaits you next! No costs, only a super vision for your retail inventory management process.