An effective inventory system is an integral part of the retail and manufacturing process. The main purpose of a retail inventory system is to accurately track a large number of products and merchandise stored in a warehouse or retail location. Inventory systems can play a useful role in preventing theft, making decisions about additional orders, measuring product velocity, and calculating the present value of operations. This article explains several basic elements of an effective inventory control system.

Set Up a Storage System for Counting

Organize inventory products while taking into account the work needs of inventory counting personnel. The effectiveness of an inventory system depends largely on the accuracy of inventory counts. Inaccurate counting of products or merchandise can lead to discrepancies in accounting and sales tracking, leading to problems such as over-ordering and over-production. Inefficient storage systems can delay inventory tracking time and increase inventory tracking costs.

When designing storage racks, each item has clear boundaries. Products need to be stacked neatly so that inventory takers can easily access each product and count it.

Create an Inventory Spreadsheet

Create an inventory spreadsheet as the master record for each inventory item. An effective inventory system should include category columns with the following headings:

• Use the inventory column to record the total quantity of each item.
• Use the Product Description column to describe the item or items being counted.
• Use the Quantity Required column to indicate the expected quantity of the item required.
• Use the Wholesale Price column to record the wholesale cost of purchasing or producing storage items.
• Use the Unit Price column to calculate the unit cost of purchasing or producing each item.
• Use the “Sales” column to represent the number of items sold during the previous period.
• Use the Cost of Sales % column to indicate what proportion of the total cost of sales the cost of each item is.
• Use the “Quantity to Produce or Reorder” column to automatically derive the quantity of an item needed to be purchased or produced to meet the next sales cycle.

Enter data for each category in the corresponding columns. Subtract the order quantity from the sales volume to get the “demand quantity”, and subtract the inventory quantity from the “demand quantity” to get the exact quantity that needs to be adjusted in the next period’s inventory.

Regular Inventory Counts

Conduct daily, weekly, or monthly inventory counts. The frequency of inventory counts has a significant impact on the accuracy of your inventory system. The frequency of inventory counts varies by business category, with some business categories requiring more frequent inventory counts. For example, a car dealership doesn’t necessarily need to take inventory as frequently as a department store or grocery store.

Assign two groups of people to conduct inventory counts. This greatly reduces human error in physical inventory counts. Print the inventory table corresponding to the master record and use it during manual inventory.

• Arrange for one person to do the physical count, call out the numbers, and write them down on the printed inventory sheet, and arrange for another person to record electronically with a laptop or mobile device, that is, record the numbers on the main recording spreadsheet at the same time. The number called out is entered into the corresponding position. Two sets of data can be compared to ensure the accuracy of inventory data.