For many retailers, the holidays are the most profitable time of the year. But as traffic increases, so do operational costs and logistical hurdles. Then, when it’s all over, you have to perform a physical count of your entire inventory before January 1st.
Managing seasonal inventory causes a lot of stress on the systems and processes that you have in place. Because of it, you will typically have more difficulties during this time than at any other time of the year.
How To Manage Seasonal Inventory
The end of the year brings a lot of challenges for managing your inventory. To overcome them, you will often find workarounds or shortcuts that provide immediate relief but may never fix these problems. Here are some typical issues that arise during the holiday season and tips to overcome them:
1. Inaccurate Forecasting
Predicting demand is one of the most critical functions of inventory management. There are a lot of variables involved in making a good forecast, some of which are unpredictable. This can be difficult but definitely worth the effort because a good forecast will help you balance your inventory and cash flow.
Tips: Always start with your previous year’s sales, then look at your current growth rate. You can adjust these to align with promotions and spikes caused by holiday shoppers. There are also some useful resources available for purchase regarding current trends in the market. Many of these are reasonably priced and offer great insight into what you’ll need to prepare for in the coming months.
2. Running out of Storage Space
The influx of new inventory during the holidays can make your warehouse more crowded and less organized. Studies have shown that disorganized stock rooms lead to more mistakes by employees.
Tips: You can free up space by pulling dead stock from the shelves. This should be done around October before the big rush. It’s never too late to remove these items from the shelves, especially when you perform your end of year physical inventory counts. Another way to overcome this problem is to have a contingency plan that accommodates your need for more space and how you will get inventory when you need it.
3. Inventory Gaps
Failing to have a product or multiple products in-stock becomes a waste of time and effort for the customer, resulting in a negative experience. This problem can be the most costly in terms of customer satisfaction and loyalty. To make matters worse, the pandemic has pushed vendor delivery times back, sometimes resulting in delays lasting as long as a month.
Tips: If you have any gaps in your inventory, then it’s time to set new re-order levels. These are typically set by past sales data and market demand. You can pull last year’s sales reports for a particular product or category and take a look at what the experts are forecasting through the holidays and into next year. Don’t forget to include your vendor lead times for delivery.
4. Safety Stock
At the end of the year, your safety stock acts as a double-edged sword. On one side, it protects you from unexpected spikes in customer demand and logistical issues with your vendors. On the other side, it increases your carrying costs going into the new year. If you forego holding safety stock, the cost of dissatisfied customers maybe be higher than the money you save.
Tips: To fine-tune your safety stock, reach out to your vendors to see what their lead times for delivery will be. You can also see what it would cost to get faster shipping. You may determine that the costs associated with emergency delivery are less than unfulfilled customer demand.
Rely on Your POS Reporting
Proper management of seasonal inventory is vital to the success of your company. The accuracy of your reporting and stock levels impacts customer service and profitability. Inaccurate stock levels can also become a nightmare for next year’s books, leading to hours of paperwork to reconcile your accounts, as well as filing forms with the IRS. Many of these problems can be avoided through a few changes in your operations before the end of the year.
To achieve operational efficiency, you should examine the data coupled with your inventory management processes. Every change you make to correct errors during the busiest time of year will improve productivity and profitability. These changes will also make it easier for you to do physical counts and other end of year tasks, which leaves you with more time to spend with family and friends.