Inventory Control: The Pros and Cons of the Retail Method

Inventory Control: The Pros and Cons of the Retail Method

The retail method of inventory control is loved by some, hated by others. If you’re new to inventory management, or you’re revisiting whether you should stick it out with your current system or move on to greener pastures, here are some things to consider.

It Allows Objective Inventory Control

When the system is running normally, you get fairly objective measures of your inventory. Since it ties directly into the sales side of things, you see when products move off the shelf or leave the warehouse. When you reconcile the units on hand against the number purchased, you know what’s been sold.

A good inventory management software program, like the one offered by EMS, can also more easily detect theft, since it tracks products directly. Using a barcode scanner, for example, ties products directly to sales logged in the POS.

Comparing the two will tell you if there are any shortages in the inventory since theft will not show a sale in the till.

It’s Cost-Effective

It’s a cost-effective method of assessing and controlling inventory. The retail method shows you exactly what’s left to sell and what’s already been sold to customers. This usually means you get an inexpensive and quick tool that allows you to adjust inventory reordering even when you have short notice of a need to restock an item.

Companies, like Wal-Mart, Target, and Sears use these types of systems because of its simplicity.

It’s Something You Can Use Forever

This method is something that could be used into perpetuity. Every time a sale is made, it automatically records it, as well as an appropriate adjustment on the inventory side. Compare this to the periodic inventory method, where physical counts are done manually at regular intervals.

The periodic method cannot update in real-time, making it difficult or impossible to track the effectiveness of current advertising or the need to restock.

It’s Only An Estimate

While there are many good things about retail inventory control, there are some not-so-good things about it as well. For starters, the numbers counted by the system are estimates and, while it is actually tracking items as they are sold, any items not in the system won’t be counted.

You are relying on a computer system to tell you about physical sales and inventory levels. If there is a delay between the shipping times and the sales tally, your inventory could temporarily be inflated.

It May Cause Inaccurate Measuring If Markups Change

The bigger problem with the retail method is that it will show inaccurate measurements if you have different markups across all products sold. So, if, for example, you choose to use a 100 percent markup on one item, and 200 percent on another, you’re going to run into problems relying solely on this one method of tracking.

There is another persistent problem with this method if you regularly discount goods and services during holidays or special times of the year, since it changes the markup.

The Method Doesn’t Work If Markups Change After an Acquisition

This problem extends to acquisitions where large amounts of inventory are marked up differently than your existing product line.

Max Gardiner works as an assistant stockroom supervisor. He likes to write about managing and inventory control. Look for his posts on many industrial and business blogs.

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