7 Rookie Inventory Management Mistakes to Avoid in Retail

Inventory management is one of the most vital elements to the success of a new retail business. Keeping track of your inventory levels at all times helps you find products quickly (when you need to serve customers), understand your most popular and least popular products, identify sources of loss, and monitor and improve your profitability.

Inventory management mistakes

Unfortunately, inventory management isn’t as straightforward as it seems on the surface, and most new retail entrepreneurs end up making serious mistakes in the creation or execution of their overall strategy.

The Biggest Mistakes in Inventory Management

These are some of the most common and devastating mistakes new retail businesses make in inventory management:

1. Using the wrong software

Your choice in inventory management software can make or break your inventory management system from the outset. If you choose a platform that’s too expensive, you might not get your money’s worth. If you choose a system that’s counterintuitive or hard to learn, your employees may not be willing or able to use it consistently. To protect against these possibilities, try using a free inventory management platform that’s simple and easy to use, but one that still offers ample features to cover all your inventory management needs.

2. Relying on too many manual processes

Manual processes are problematic for inventory management for a few reasons. First, they’re more vulnerable to error; human-initiated decisions to begin a count are less reliable than an automated notification. Similarly, scanned-in counts are less likely to be inaccurate than manually counted items. Second, manual processes take much longer; counting every item in the store could take hours of time, while scanning them in could take a single hour or less.

3. Using a counterintuitive numbering system

Too many new retail business owners believe their numbering system is arbitrary; so long as every product has a unique number, they don’t pay much attention to it. However, it’s much easier to manage a system when the products are named in some intuitive way; for example, keeping the numbering format consistent across categories, while changing the initial string of letters to reflect a category or department can help employees find products faster.

4. Checking too infrequently (or too frequently)

There’s a sweet spot for doing inventory counts, and it’s different for every business. If you check inventory too infrequently, you won’t be able to collect enough data to form reasonable conclusions; for example, if you notice an inventory discrepancy for the entire month of March, you won’t be able to narrow it down to a specific time or event. By contrast, if you’re running thorough store counts every day, you’ll end up wasting time with no real bottom-line benefit to your business. Usually, a mix is ideal; run high-level estimates on a frequent basis, while performing thorough, item-specific counts on an occasional basis.

5. Not documenting your policies and processes

In inventory management as with most other processes related to your business, it’s extremely important that you document your processes. If you don’t have a designated point person in charge of inventory management, or if you’re process is based on informal rules, eventually, you’ll encounter deviations from the processes and policies you intended. Formally documenting these processes gives you the opportunity to spell out the details you might not otherwise consider, while giving new employees a resource to reference any time they might have a question. It’s also handy for when you need to update a rule or stage of the process; you can cite the exact step you’re attempting to revise, and change it tangibly.

6. Having no backup plan or redundancy

Even if you’re relying heavily on scanners and automation, you’ll want some degree of redundancy in place. There’s a chance your employees aren’t counting accurately, or that your data are being lost or corrupted. A good start is to have multiple employees running counts to back each other up, or a supervisor in charge of reviewing those numbers periodically.

7. Failing to learn from your data

Data is one of the most valuable resources for your retail business—but only if you’re learning from it, and using those insights to make real improvements. If you notice that some of your products are outselling the others, keep more of them in stock. If you notice a shrinkage problem, act proactively to prevent further thefts. Merely keeping track of the numbers isn’t going to help you.

Better inventory management

Making Iterative Improvements

It’s not important that your inventory management system is perfect; in fact, it’s to be expected that your first approach to inventory management will be prone to errors, flaws, and inaccuracies. What’s important is that you recognize that your system is ripe with imperfections, and work to make up for those imperfections over time.


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