Inventory Rules to Follow 

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.