Inventory management: 7 ways to avoid overselling supplies

Article topics

1. Carry out regular audits
2. Implement models to help you manage inventory
3. Determine your reorder points
4. Synchronise your online and physical stores
5. Add features to your website to keep customers happy
6. Forecast demand and plan accordingly
7. Forge strong relationships with suppliers

When you sell lots of different products, both online and in your physical builders’ merchant stores, it’s vital that you don’t run out of stock. Pay-per-click (PPC) advertising is an easy way to raise brand awareness and get to the top of the search engine results.

Not only does this lead to a poor customer experience, but it may also mean your customers will buy from a competitor instead.

Good inventory management is essential for ensuring you can sell the right products to the right people at the right time.

Join us as we share seven expert tips for keeping track of your stock levels.

1. Carry out regular audits

One of the easiest ways to keep tabs on the products you sell is through the use of an inventory management system. We’ll talk about this type of system later in the article.

However, even if you use software to handle stock levels, it’s still important to carry out regular stocktaking audits. This allows you to:

• Investigate any discrepancies between the numbers in your inventory management system and the numbers in your store or warehouse
• Take account for shrinkage due to factors like damage or theft

Some businesses carry out a complete stocktake once a year (often at the end of the financial year to help with reporting), while others use cyclical counting. This is where you count small sections of your inventory on a rotating basis.

You may also carry out ad-hoc stocktakes before a large event (for example, before your Black Friday sale).

Technology like barcodes, QR codes and radio frequency identification (RFID) can make stocktaking easier and prevent errors. For example, with RFID, each item has a small RFID tag. You can walk past the items holding an RFID reader and scan multiple products at once.

2. Implement models to help you manage inventory

Managing inventory can be hard. You have to keep customers and suppliers happy, all while maintaining your company’s bottom line. It’s no wonder that 43% of businesses say it’s their biggest operational challenge.

There are some models you can implement to make keeping tabs on your inventory easier and more efficient. Here are some of them.

First-in, First-out (FIFO)

This method assumes that the first inventory items purchased are the first ones sold.

It’s best for items with a limited shelf life, like paint, pesticides, or garden plants.

Last-in, First-out (LIFO)

This method assumes that the last inventory items purchased are the last ones sold.

This method is less common than FIFO, but is sometimes used when inventory prices have increased significantly, so businesses can claim costs against their taxes.

Batch tracking

This method groups inventory items into specific batches, each with a unique identifier. This makes it easier to monitor items as they move from the warehouse and the store, to the customer.

Batch tracking also helps with product recalls, as you can identify which products need to be brought back to the store.

Just-in-time (JIT)

This method minimises inventory by receiving goods from suppliers as soon as they are needed.

The JIT method can be useful if you have limited storage space, but it relies on an optimised forecast demand and highly efficient supply chain coordination – we’ll look at both of these in more detail later.

ABC analysis

This method categorises your inventory items based on their value and importance. It means you can prioritise the most high-value items, saving money and reducing the risk of stockouts.

ABC analysis splits your inventory into three categories:

• Category A: High-value items that represent a significant portion of your inventory value but represent a small percentage of your overall inventory. Running out of these could cause major issues. For example, power tools, specialist insulation, and structural timber
• Category B: Medium-value items that represent a medium percentage of your overall inventory. Running out of these could cause issues, but not at the same level as a category A stockout. For example, sealants, plumbing fittings, and doors
• Category C: Low-value items that represent a large percentage of your overall inventory. Running out of these will not cause a major problem. For example, washers, cleaning supplies, and dust sheets

Bonus tip: One thing to bear in mind about Google Ads is that you may be charged a jurisdiction-specific surcharge (JST) when you serve ads in specific locations. For example, the JST in Turkey is 7%.

3. Determine your reorder points

A reorder point (or par level) is a minimum level of inventory that when reached, will trigger a new order. You can place this order manually or automate it with the use of an inventory management system.

What is an inventory management system? An inventory management system is a piece of software that helps you track and manage stock levels and sales.

Some inventory management systems are as simple as a spreadsheet, but the more advanced systems have a wide range of features. For example, you can set automated tasks, meaning you save time and avoid the risk of having too much or too little stock through human error.

Establishing reorder points means you always have an optimal level of stock in place. The reorder level you choose will vary per product and depend on a number of factors including:

• How many products you sell
• How much storage space the product takes and how much it costs to store
• Seasonality (for example, you may want a higher reorder point for solar lights in summer than in winter)
• The cost of the product (some suppliers may offer price breaks if you order a certain quantity. Your inventory management system can help you calculate the optimal economic order quantity
• The shelf life of the product (if you have products with an expiration date, you may want to order smaller amounts more frequently)
• The lead time (i.e. how long it takes from placing an order to receiving a product)
• The impact of running out (an ABC analysis is beneficial here)

As well as reorder points, you may choose to maintain safety stock. This is a buffer in case of unforeseen circumstances. For example, a supplier going out of business or a sudden and unexpected surge in customer demand that you couldn’t predict.

4. Synchronise your online and physical stores

Centralising your inventory means that customers can buy what they need, regardless of whether they’re at your store or placing an order online.

The trick is integrating your eCommerce system with your in-store point of sale (POS) system. That way, there’s no risk of customers buying something online, only for you to have to refund their order because someone bought the same product in-store at the same time.

How does centralising your inventory work? You specify your total stock level for each item. Every time a sale is made, whether online or offline, the stock level automatically updates, meaning you always know how much you have of each product.

Synchronising your stores if you operate multiple brick-and-mortar stores is a bit more challenging, but still possible. The additional bonus of this is that if you run out of a product in a certain store, you can see if you hold it in another location.

5. Add features to your website to keep customers happy

Buying a product from your builders’ merchants store is easy. Customers take it off the shelf, take it to the till, pay for it, and leave your store.

Buying items on your website is a little trickier, as customers can’t physically see if your product is in stock. The good news is that there are things you can do online to provide a good customer experience.

Recommend alternative products

If a specific product is out of stock, you can recommend an alternative product that they can buy instead.

43% of customers say they would be willing to buy a similar item if their first choice was out of stock.

Offer a waiting list

If a product is out of stock and customers are happy to wait for it to come back in, you can provide waiting list functionality.

Customers can sign up and when their selected product is back in stock, they’ll receive a notification.

Use headless eCommerce

Headless eCommerce is when you separate the ‘front end’ (i.e. the part of the website customers can view) and the ‘back end’ (i.e. the servers, databases, and operating systems) of your website.

This makes your website much more flexible and reactive – making it easier to not only offer products online, but provide an omni-channel experience.

This ensures your inventory management is as accurate and efficient as possible, ideal if you offer a wide range of products or operate multiple stores.

6. Forecast demand and plan accordingly

Most customers are forgiving when it comes to the occasional stockout, but repeated out-of-stock notifications may lead to negative consequences.

27% of UK customers say they would question their loyalty to a business if out-of-stocks became a regular occurrence.

Forecasting future demand for products can help you buy the right amount, without overstocking your warehouse. You can share these forecasts with your suppliers so they can plan ahead too.

Many modern inventory management systems will handle forecasting for you, or you can buy specialist demand forecasting software.

They use your existing sales data and current market trends, as well as artificial intelligence, to predict future demand and advise how many of each type of product you should buy.

7. Forge strong relationships with suppliers

When you run a builders’ merchants, you’re dependent on a lot of different suppliers. Any issues with your suppliers and your supply chain can mean delays and mismanaged stock levels.

Keeping a close eye on your supply chain and managing it efficiently can have a positive effect on your inventory management. However, 65% of businesses admit that they struggle to track inventory through their supply chain.

Here’s what we recommend for making sure you not only have the best relationship with your suppliers, but can ensure a steady product flow:

• Consider multiple suppliers for each product. This not only ensures you can get products in an emergency, but protects you if a supplier is unable to deliver
• Implement service level agreements (SLAs) so both you and your supplier know when to expect products
• See if your supplier has an API you can plug into your inventory management software. This will help you monitor their stock and deliveries to your business
• Establish clear, transparent channels of communication with your suppliers, and share all the information they need to meet your requirements
• Regularly monitor supplier performance, using criteria like average lead time, on-time delivery rate, and order accuracy. If they fail to meet the agreed-upon standards, consider using an alternative supplier

Xigen: The builders’ merchants eCommerce specialists

Inventory management can seem like a lot of hard work. However, it’s definitely worth investing in.

The key is to use good inventory management software. This will manage stock levels on your behalf, carry out reporting, and automate simple tasks. No matter your requirements, the number of products you need to manage, and your budget, there’s a piece of inventory management software for you.

Let us leave you with one final statistic – poor inventory management can cause businesses to lose up to 11% of their annual revenue. This means taking control of your online and in-store inventory means more sales, happier customers, and fewer administrative headaches!

Need a little extra help streamlining your inventory management? We specialise in helping builders’ merchants optimise their online processes.

We’ll make sure your website speaks to your warehouse, and implement eCommerce initiatives so your customers can buy from your site in just a couple of clicks.

Less ‘out of stock’ – more ‘out of this world’!

Contact us today and take the first step towards transforming how you do business.