The fundamentals of ordering inventory for retail

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A single female rabbit can deliver up to 60 babies in a year. When left unchecked, rabbits will continue to multiply, which can be devastating to other wildlife and natural resources.

The fundamentals of ordering inventory 

When you are in retail, ordering the right amount of inventory can be the difference between making a profit and going under. If you carry too much inventory, you risk tying up too much capital that may be needed in other areas of your business. For example, sinking funds into the costs of unsold goods and the necessary storage to hold them for long periods of time can impact your advertising budget. Conversely, if you do not keep enough inventory, you run the risk of losing credibility with your customers. They will seek out a competitor that has what they need, when they need it. Losing customers, and the sales associated with the lack of available products, can be detrimental to current and future business. Ordering and investing in the right products at the right times is the best way to make sure that your inventory works for you. 

I have worked in retail for over thirty years. While a lot has changed, a lot has stayed the same. I am sharing what I have learned about how understanding merchandising, price, and ordering inventory can work together to drive sales, reduce costs, and help your retail business, whether you are in a brick-and-mortar, online, or both. 

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Female green sea turtles may lay 1,900 to 2,300 eggs within a lifetime, and it’s thought that only one in every 1,000 hatchling will survive to adulthood.

Before you order, know your numbers 

Before ordering, you should always know your current inventory; otherwise, you run the risk of inflating your inventory. For example, you may be sitting on 20 units, you may have ordered 20 units, but you may have only sold 5 units. Sitting on inventory takes up your spending dollars and warehouse or merchandising space. And for products that have an expiration date, you increase your liability of losing money on unrealized sales. 

Before you order, know your customer 

To successfully order products, it helps to know your customers’ buying habits. What have they bought in the past? What do they like looking at now? Are they $100 customers or $1,000 customers. Are the $100 customers impulsive? Do the $1,000 customers take their time to decide? By understanding your customers’ buying habits, you can make more informed decisions about what inventory you need to carry. 

How often should you order inventory? 

Knowing when to order products is a science, not an art. You cannot rely on your feelings or your gut. Hard data and tracking is absolutely necessary. You need to be able to accurately estimate how much your customers are likely to purchase and when your customers are likely to make a purchase. On top of that, the logistics surrounding the timing and size of an order are crucial. How much lead time do you need to anticipate between order placement and receiving the order? Will you have the space to store the product when it arrives? Is the storage of these specific products a good use of that space? Would a different product be more valuable to allocate these resources to? These are all questions that must be considered alongside properly sizing your order. 

How much inventory should you order? 

You want to order what is selling, and try to be ahead of the game so that you are not selling out of something. The best way to assess needed quantities is to look at your historical data. And when in doubt, order a little over rather than a little under. Remember, if your customers are unable to get what they need from you, they will go to your competitor. The long-term cost of having slightly too much inventory is less detrimental to your business than not having enough. 

What happens when you order too much inventory? 

If you order too much inventory, you need to find ways to move it without losing all your profit margin. One way to do this is to run a small sale and make a big sign! Yes, this sounds pedestrian, but it really works. Signs are great for drawing attention, even if you are not running a sale. 

While there are risks to sitting on inventory for too long, if you have the warehouse space and good liquidity, it’s OK to sit on some overstock for a short period of time, especially if you know that a busy season is around the corner. And sometimes, the company that you ordered it from can take it back. 

What happens when you order too little inventory? 

When you do not order enough inventory, your customers will be irritated that you are out of the product that they came in to buy. You will lose potential sales of the product that they came looking for as well as other products that they may have bought while shopping for the out-of-stock product. 

When ordering inventory, always have a plan 

Never place an order without a plan. You need to know how you are going to price products, how you are going to merchandise products, and how they will impact your margins and sales. 

If it’s not something that you can see your customers buying, you should not order it. 

Make sure that you have a strategy in place for whether or not an order makes sense for your retail environment. For example, if you are ordering TV sets for a downtown store, you probably will not sell many, because people will not carry a TV five blocks. If you cannot offer a solution to potential hurdles for customers, like delivery in this instance, it might not be a good fit for your situation.

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Armadillos from the same litter are genetically identical

Location

Even if you are online, that does not mean that you have a global customer base (though it might). So it’s important to know your location. This is another way of knowing your customers. If you know where they live, you can make informed decisions about what they need. For example, if your customers live in Hawaii, you probably do not need to sell snow shovels. 

So, how much inventory should you order? 

Like I mentioned above, carrying inventory is a science. Too much inventory and you can lose valuable cash flow, too little inventory and you can lose your customers to competitors. The best way to determine inventory is to use historical data that details past sales and inventory reports.

When it comes to inventory, never stop innovating 

Technology has come a long way. It makes it easier to conduct inventory, manage logistics, and order the right quantities for your customers. When it comes to ordering, you need to constantly improve and innovate. If you are doing inventory the way that you have always done it, you are probably leaving a lot of opportunities for saving money or making a profit on the table.