Rule # 1: Always Maintain Enough Inventory

The reason that it is important to maintain enough inventory to cover your demands is because consumers cannot purchase what you do not have. They would have to, and probably will, look for it elsewhere. When maintaining proper inventory levels, one of the important things to take into account is lead time. This is the amount of time that it takes from when you order the merchandise, until you actually receive the merchandise. The said time frame varies from industry to industry and from vendor to vendor. You need to be order with enough time to guarantee that you will receive the merchandise when you need it. One of the best ways to be safe is to calculate a reorder point. Ordering extra merchandise will reduce the probability of experiencing understock, but ordering too much will hold you overstocked, which is not good either. For this reason, a margin needs to be developed based on a percentage of anticipated inventory needs while holding prior sales statistics in mind. Once you calculate this margin, you would set the Minimum Quantity of that particular product, and have a Point of Sale System remind you to reorder when the items reached that point.

Rule # 2: Avoid overstock

Having enough inventories to satisfy demand is one thing, but having too much inventory is a problem within itself. This is even more important when dealing with a seasonal item such as Christmas merchandise or “summer trends.” No one wants to purchase merchandise after a season is over, at least not for a reasonable price. Besides this fact, excess inventory is costing money. It is occupying space, which is prime real estate in the retail industry.

Rule # 3: Prioritize your Demands

The 80/20 rule states that about 20% of the products you sell will provide about 80% of your profits. These products consist of regularly selling items. Your customers return to purchase this merchandise repeatedly. Hence the significance of identifying which products these are and analyzing all aspects of these products to further aide in your knowledge of what needs to be stocked and what doesn't. You need to know that these products have to have a higher reorder point.

Rule # 4: Invest in Information and Information Gathering Techniques

The importance of Point of Sale Systems is sometimes greatly understated. Some retail owners believe that it is overkill, yet this simple tool can mean the difference between a productive store, and a store close to reaching a critical point. These systems can provide several key elements such as:

• Calculating when to reorder and what.
• Analyzing inventory levels.
• Analyzing sales (much harder and important than it might sound).
• Analyzing Customer trends.
• Controlling Employee consistency and honesty.
• Providing critical statistics for decision-making.

These systems are a true investment that allows owners to know what their business worth actually is. It allows you to experiment with merchandise and merchandise placement and can track the success or failure of those experiments. Another positive aspect of a Point of Sale System is their inherit control of inventory. This will provide you with an idea of what you need to by and when. Your Inventory Budget is the amount of available funds that you have to invest in merchandise. This is a figure that is calculated on a monthly basis. During the first year, these figures are probably calculates based on the amount of sales need to cover costs as well as the expected sales volume as per your business plan. After your first year, the POS system will be able to provide you with honest exact figures.

Retail Companies invest thousands of dollars in stocking their stores. This is probably, apart from location, the most important aspect of any retail establishment. Products are the heart and sole of the business. It is the link between the business and the customers. It astonishes me at the response I get from some retailers when I ask what Inventory Control or Point of Sale System they are using or if they are planning on obtaining one. The number one response: “Well, I need to invest everything in merchandise right now. I might get one later on.” Analyze this statement for a while. You're telling me that you are investing thousands of dollars in merchandise, but not in a way of controlling how the products are doing or how much you have left?

Why is this mentality flawed? To answer this question, ask yourself the following: Do you send your kids to school to learn and not see how their grades are? I am positive that most parents want to know if their kids are doing well, and if they are not, what are the areas where help is needed and how to improve those areas. The same goes with your inventory. It is vital to see how your products are doing. It is important to know which products are selling and which are lagging, why, and how to improve said products. You need to take control of your store and those elements that can make or break your business. Do you honestly believe that you can control thousands of products without a mechanism for storing the amount of information produced by the art of selling? The fact is that while it may be true to know what products are selling the quickest without any system in place, the truth is that as your business continues and as products continue rotating, you will be losing control as the days go by. You probably say to yourself: well, when that point comes, then I will implement some sort of Inventory Control System. Well, yes, that would certainly help, but realize that it will cost you a lot more to implement a system afterwards that doing it from the beginning. Begin estimating how much it would cost to close the store while you take inventory, how much retraining employees to use a new procedure for selling, as well as the headaches associated with implementing anything that it new to something that has already been rolling.

Hopefully, this article has been helpful in convincing you the important of an Inventory Control System for retail businesses. Think about it this way: If it is not important, then why do you see the number one retail giant, Wal-Mart, doing it?

Most small businesses underestimate the importance of their inventory or of inventory management software. They do not realize that many of the headaches are caused by a lack of control and knowledge of their inventory. Whether it is a lack of knowledge of the quantity of a certain product, businesses continue to use outdated systems that do not allow them to get the most out of their inventory. Inventory management systems, when used properly; allow a business to make established analysis of products and markets that help them make better business decisions. They keep a tight customer control to allow business owners to better serve their customers, and keep a detailed and accurate record of their customers purchase history as well as a way to properly reorder inventory. With a tight control of inventory, owners know when products are been stolen, when products are not rotating properly, or when products need to be reordered. By default, the business begins to develop an organization and by a control of inventory, profits begin to increase. Inventory Management Systems allow programmed owners to make decisions about promotions and specials and let owners know when a product is no longer being profitable.