Inventory management for stores: 6 steps to find where capital is tied up

1. Take stock to establish what is actually there

An SKU recorded as having 100 items may not have 100 ready for dispatch. Some may be reserved, awaiting quality checks or no longer saleable. Compare actual quantities by status, rather than combining all products into one stock figure.

The working table should include SKU, variant, location, quantity, condition, receipt date or batch, and cost basis. For expiring goods, track batches in enough detail to determine handling order. Where discrepancies arise, find the transaction causing them before adjusting figures.

2. Classify by age and saleability

Possible groups include consistently selling items, slow-moving items, seasonal products and products needing quality checks. Calculate stock age by batch or another agreed method; an SKU’s latest receipt date does not represent every older item on the shelf.

Prioritize both quantity and value at cost. A few high-value items can tie up more capital than many low-priced ones. Grouping helps decide what to examine first; it does not establish losses or recoverable value.

3. Interpret sales velocity in the right context

Check sales over the period and the time the product was actually available. An SKU out of stock for many days may sell little because it is unavailable; newly received items need enough observation time. Account for seasonality, channel changes and promotions when comparing.

Inventory turnover measured at cost gives an overall view of movement, but can conceal differences between SKUs. A fast-selling group does not automatically resolve long-held stock. The next article explains formulas and examples, including limitations when only beginning and ending inventory data exists.

4. Identify the cause before cutting prices

Slow sales may result from over-ordering forecasts, a poor fit with demand, confusing information, unsuitable distribution or a weak experience. Check customer questions, reach and return rates. If customers do not understand specifications, improving information may be more suitable than immediately discounting.

Hypothetical scenario: a store holds many water bottles in a rarely chosen color. Distinguish customers who have not seen that variant from those who have seen it but do not like it. These situations require different experiments, both using recorded data rather than conclusions drawn from the impression of a full warehouse.

5. Choose an appropriate response for each group

For products still in demand, test better presentation, move them to a suitable channel or create bundles with genuine functional value. For seasonal items, compare the selling window against holding costs. Check all supplier return or exchange terms against the actual agreement.

Products that do not meet quality standards must be removed from the sales flow. Do not use bundles to conceal faults or push unsuitable goods onto customers. For discounts, calculate net revenue, additional costs and cash collection potential; higher order counts alone cannot establish whether the approach works.

6. A stock review and replenishment decision checklist

Before the review, check: correct quantities and statuses; consistently calculated stock age; value at cost; sales velocity by period; evidence-supported causes; actions and owners; review milestones; and replenishment conditions. Record missing data too, avoiding firm decisions based on an assumption.

After testing, compare valid sales, actual cash collected, contribution and remaining stock. Adjust purchasing plans to demand and replenishment lead time, not just supplier discounts. A cheaper purchase can still tie up cash for longer if volume exceeds demand.

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