Most retailers know the importance of tracking inventory. However, understanding inventory storage is often overlooked. At the end of the day, they’re equally important. You need enough inventory to keep your customers coming back, but you also need a place to store it.
Jamming inventory into your back room is bad news on several fronts. It could create hazards for you and your employees. Lack of organization could lead to employee frustration, false advertising, stockouts, and more.
On the flip side, paying to lease a warehouse area when you don’t have enough inventory to fill it will hurt your business. This could lead to layoffs, overstock, and deadstock.
Mastering inventory storage is easy when you have the right tools. In this blog, we’ll explain the different types of inventory storage, which is best for you, tools to help you achieve inventory management, and how to automate the entire process to make informed business decisions.
Understanding Inventory Storage Needs
Your inventory storage needs will depend on your business type and available free space (or lack thereof). An inventory storage solution will help you store, manage, and track inventory. Here are three common types.
Warehousing: Your first option is to pay for a warehouse to store your inventory either on- or offsite. Let’s take a look at some of the benefits and drawbacks of warehousing:
Pros of warehousing:
- Full control of inventory management
- Reduced errors with user-friendly inventory systems
- More professional than traditional self-storage
- Greater long-term savings compared to third-party logistics (3PL) usage
Cons of warehousing:
- It may be too large or small for your needs, inhibiting scalability
- May involve a long-term lease that’s difficult to break
- Upfront investment is high both to lease and hire staff to manage stock
- Location cannot be changed quickly if needed
Self-storage: You can also store your inventory yourself. This method involves stashing inventory wherever you have space off- or on-premise (back room, storage room, home, garage, etc.).
Pros of self-storage:
- Cheapest option available
- Manageable for new businesses or businesses with consistently lower stock
- Easily accessible
Cons of self-storage:
- Fall or trip hazards if stock piles up
- Difficult to organize and manage
- Inaccurate stock count risk
- Employee frustration when items are not easily accessible
- Impossible to scale with limited space
Related Read: What Should Be on Your Inventory Reconciliation Report?
Third-party logistics (3PL): Finally, you can use third-party logistics. This option might be used if you maintain an online store in addition to a physical location. Third-party logistics handles inventory storage and picks, packs, and ships for you.
Pros of 3PL:
- Someone else manages your inventory
- Shipping is quick and affordable
- Bigger 3PLs will have better security features
- Possibility to order in bulk to save money
- Access to inventory management tools
Cons of 3PL:
- Storing slow-moving stock will end up costing you
- No control over stock
- Ongoing costs add up and may not be worth it depending on your sales
The type of storage you choose will depend on the size of your retail shop and the amount of product you sell. Before you make a decision, ensure you have a good understanding of your sales and incoming products. More on that below.
Tips for Optimizing Inventory Storage
Optimizing your inventory storage is about more than organizing by type. There are several factors that will influence your storage methods, including:
- Store layout considerations
- Product type
- Product volume
- Turnover rate
- Seasonality
- Perishability
- Temperature control, humidity regulation, or protection from light
- Supply chain (lead times, reliability, etc.)
- Growth projections
If you don’t choose the 3PL route, consider these factors when searching for an inventory management solution.
Related read: Convenience Store Management Software: Top 5 Providers [Features and Pricing]
When using a warehouse or self-storage option, every square inch counts. Here are two ways to make the most of it.
1. Utilize Space Effectively
If you’re storing inventory yourself or in a warehouse, keep organization in mind.
Use block stacking for quick-moving stock and to keep costs low. This method involves stacking from the floor up (or pallets). You won’t need to buy shelving equipment but keep in mind that it may be difficult to access products in the back or lower to the ground.
Vertical storage solutions help free up floor space. These can be in the form of shelving or racking systems. Just make sure there’s a safe and easy way for you and your staff to access the products higher up.
If you have a stockroom, consider mobile shelving solutions. These will allow you to move shelves around as product demand changes.
2. Implement Inventory Methods for Easy Access and Retrieval
Now that you have organization solutions, it’s time to think about how you store your stock on the shelves. There are several methods to try including:
1. First in, first out (FIFO): FIFO operates under the belief that the oldest products in your inventory were sold first, rather than physically tracking the sale of each individual item. For example, a grocery store places new dairy products (like milk) behind the older stock on the shelves. Shoppers will naturally pick the milk in front (the older, first in inventory). As customers purchase the front milk, the staff restocks the shelves by moving the new milk to the back ensuring that the oldest milk is sold first, minimizing spoilage and waste.
2. Last in, first out (LIFO): The opposite of FIFO, this method is also based on beliefs rather than calculations. For example, when new holiday decorations arrive at a retail store, they are placed in front of or on top of existing stock. When fulfilling orders or restocking shelves, the most recently received decorations (the last in) are picked and used first. The older stock remains behind and is used only when the newer items are depleted.
3. ABC analysis: This method categorizes inventory items based on their value and importance to the business. It helps in focusing resources and attention on the most critical items. The categories are:
- High-value (A) items: These are the most important products that generate the most revenue. They typically represent about 20% of total inventory but account for 80% of the value.
- Medium-value (B) items: These are important but less critical than A items. They usually represent about 30% of inventory and 15% of the value.
- Low-value (C) items: These are the least critical items, often representing 50% of total inventory but only 5% of the value.
4. Cycle counts: This method confirms your full physical inventory count matches your inventory records, making adjustments as needed. Instead of counting your entire inventory at once, you work in cycles counting sections at a time. This method helps weed out discrepancies between actual and recorded inventory levels. For example, your staff may count T-shirts on Monday and pants on Tuesday.
5. Just-in-Time (JIT) inventory: This involves ordering and receiving stock only as it’s needed to meet immediate demand. Using this method, you can prevent spoilage, deadstock, and overstock. For example, by analyzing sales trends in your point of sale (POS) system, you notice people buy more shoes on the weekend. Using the JIT method, you order shoes to be delivered Friday, just in time for the weekend rush.
As mentioned above, a modern POS can take all the guesswork out of what sells and when, ensuring you have the right products in stock at the right time.
Related read: What is the Best Retail Inventory Method?
Tools and Tech for Inventory Management
Inventory management software can help with everything from stock counts and loss prevention to barcode and RFID scanning. An all-in-one POS system like POS Nation will help you accept sales transactions, manage employees, track inventory, and more, serving as the central sales system needed to run and grow your business.
POS Nation also features:
- Software purpose-built for multiple retail industries and business types
- Fully configured hardware
- Integrated payment processing
- Powerful customer support
- Barcode and RFID systems
A POS system should make your daily operations more fluid and easy to interpret, and assist with making informed decisions.
Related read: The Complete Guide to Retail POS Systems for Small Business
Processes for Efficient Inventory Handling
Here are a few tips to ensure your inventory is accurate and organized when you need data on demand.
- Set reorder points to avoid stockouts
- Track bestsellers and lowsellers to avoid overstock and deadstock
- Implement inventory management and tracking for accuracy
- Conduct audits to double-check inventory counts
- Set a threshold for a storage upgrade. Examples: lack of space for inventory, difficulty physically reaching or accessing items because of the storage design, disorganization or mixing of SKUs, high storage costs
If keeping track of all of this sounds like too much, automate the entire inventory process with POS Nation. Our system allows you to create mix and match pricing, automatically generate reorder alerts, track inventory, manage vendors, simplify transactions, and more.
We work with thousands of retailers across the country to streamline business operations and take the guesswork out of inventory management.
Related read: What Is Inventory Shrinkage in Retail? 8 Ways To Prevent It
Manage Inventory Storage With an All-in-One POS System
Without a firm understanding of products in your inventory, you’re likely to make mistakes that will lose customers and negatively affect revenue. No matter where your inventory is stored, manage it with a tool that makes inventory easy. Warehousing is a good choice if your stock has outgrown your backroom, while 3PL takes inventory out of your hands altogether.
No matter which option you choose, POS Nation can support your business by providing accurate, easy-to-understand inventory data when you need it so you can continue to please your customers and improve your revenue.
Schedule a demo to learn more about how we can help your business thrive.
