Even for major retail conglomerates, cost of stock is a major factor when it comes to efficient capital management. For an independent retailer, lean inventory levels are even more critical.
For example, if your business is holding more than $50,000 in stock, your potential cost of capital could equal 10%, the potential interest fee charged by your bank for a revolving credit line. That will cost your company $5,000 per year.
The $5,000 doesn’t cover the costs for storing your inventory, paying staff to do physical counts, or pulling products for shipping. If some of that inventory becomes dead stock, your margins and profits decrease again as you lower prices to sell those items. Just consider – if the inventory level was half of our initial example, how would an additional $25,000 affect a retail business?
Take a look at industry averages of what an extra investment in different departments can do to your store’s bottom line:
To achieve the revenue shown in the chart above, your business must operate at its highest productivity level—and manual inventory tracking across multiple channels is not efficient. Apart from the error rate, which can lead to customer service issues later on, manual inventory tracking needs a full-time employee—someone who could be better utilized in one of the services or roles mentioned earlier.
Indeed, a key factor to running a lean retail operation is automation –- and automation works best when centralized. Here’s how that works: when operations are centralized through a retail platform that connects all sales channels, inventory is updated automatically as a sale occurs, no matter on which channel it is processed. There is no manual entry required. When new product arrives from a supplier, inventory is again updated across all channels simultaneously. Rules can be applied to the centralized backend in order to spread product offering differently across varying channels, if that is part of your business strategy.
A centralized inventory management system also updates the accounting side of the business, including asset tracking, profit and loss management and cash flow.
Tapping sales data within the retail platform also enables you to view your sell-through levels by product. This data is of great value when determining which products to stock and at which levels to ensure quick order fulfillment and to prevent dead stock.
Less Inventory, Bigger Bottom Line
It helps to negotiate with your suppliers for quick turnaround times or to think about dropshipping products as needed. Data collected through your cloud-based inventory management platform will help to highlight which products produce the highest revenues via which suppliers and timelines.
Let’s say you review your company’s sell-through report and determine 25 products have low but consistent sales numbers. Keeping just one of each in stock ensures same day shipment to customers, and with a supplier delivery agreement, you can receive another in stock the next day.
Or, you may offer a few rare, but high-priced items that sell on occasion, though it doesn’t make sense to keep them in stock on a regular basis. If an order comes in, you can still provide quality customer service by dropshipping the item to the customer from the supplier. And, with operations centrally controlled, asset tracking is all managed in real time to keep your accounts receivable, accounts payable, inventory and sales numbers all in line.
With less capital sitting in your store or warehouse, you’ll have more money to spend on other areas of your business. And by using a cloud-based, centralized retail management platform, you’ll have more time to spend on sourcing new products and scaling your business.
Learn how retailers can use inventory control to streamline their business in this free white paper.