Your Guide to Improving Inventory Management (& Revenue)

One of the biggest costs for retail business operations is inventory. Inventory is a necessary cost of doing business for retailers of all sizes. After all, without inventory, you wouldn’t have any products to sell!

But many small businesses are starting to look at innovative ways to save money on inventory or otherwise manage their inventory more efficiently and strategically. We’ve created a quiz to help you see how well you manage your inventory. Take the quiz below to see where you are:

No matter how well you’re managing your inventory, it’s always beneficial to review, research and improve. Fortunately, we’ve created this guide for retail business owners to help them better manage their inventory. In over 4,000 words (or 13 pages), we’ll cover supply chain, wholesalers (and how to negotiate with them) and how to better manage your inventory.

We know it’s a lot, so that’s why we’ve broken it up into four chapters:

1. Supply chain
2. Finding the right wholesaler
3. Negotiating with wholesalers
4. Inventory management

Supply Chain

One of the most important concepts of inventory management is learning how to optimize your supply chain. The term “supply chain” might sound overly complex for a small business. But the truth is that every retail business, no matter how small, has a supply chain too.

A supply chain is not really a “chain”. It’s more complex and multi-directional than that. The supply chain involves all of the various steps and processes involved with bringing a product or service from a supplier to a customer.

Good supply chain management can help you:

• Minimize your expenses
• Maximize your cash flow
• Boost your profits

For most small retail businesses, the supply chain is the network of wholesalers and other businesses that supply the inventory that the retailer ultimately sells to customers. Managing a supply chain involves:

• Managing relationships with wholesalers
• Managing shipping from wholesalers to the retailer (and sometimes from wholesalers to customers)
• Processing payments
• Managing the overall process of getting products
• Paying for inventory
• Keeping inventory in stock
• Delivering purchased goods to the customer

Maximize the use of your supply chain.

Diversify your supplier base.

Do you sometimes feel like you rely too much on just a few key wholesalers and vendors to provide your business with inventory? What would happen to your business if one of your wholesalers couldn’t deliver a shipment on time? Or if you had a disruption of their business operations or went out of business altogether?

Here are some do’s and don’ts of finding suppliers:

• Don’t rely too much on few suppliers.
• Do keep your supply chain nimble by having backup suppliers.
• Don’t jump at the first vendor you find.
• Do make sure you’re familiar with all major wholesalers or vendors.
• Don’t buy products at random.
• Do test the market to see what products work.

It’s good to be loyal to suppliers that have earned your loyalty, but keep in mind that as a retailer, you’re the customer for multiple different businesses. Vendors need to keep competing to win your business.

You don’t have to be cold and heartless about it, but it’s good to keep your suppliers on their toes – don’t let them get complacent; keep your options open and always do what is best for your customers and for your business.

Use supply chain management (SCM) software.

Supply Chain Management (SCM) software might sound complicated, expensive and better suited for big companies. However, more small businesses are starting to use SCM software. There are a lot of cloud-based SCM software options that enable small business owners to get just the right level of SCM support and features that work for them. SCM software can help your business:

• Track shipments
• Handle logistics
• Get data-driven insights into supplier relationships

SCM software is a great way to keep up a consistent overview of the state of your business’ inventory. It can help you track:

• How much inventory you need
• How much inventory is in stock
• Which items are selling quickly or slowly
• Which product might need to be re-priced for a quick sale
• And much more

Consider drop shipping.

Drop shipping is the process of selling products that are not currently in your inventory, and then paying a wholesaler/vendor to fulfill the order and ship the product directly to the customer. Drop shipping can help you:

• Reduce inventory costs
• Offer more competitive prices
• Expand the range of products you sell

Some products can also be drop shipped directly from the manufacturer – it all depends on the product’s maker’s business and what they’re willing to do; not every company will do drop shipping, but it’s worth asking.

Drop shipping is a good deal for small retailers for a few different reasons:

• Save money on inventory storage.

With drop shipping, you can sell products to your customers, even if those products are not on-site. This greatly expands the types of products and sometimes the size and complexity of products that you can sell. You don’t have to worry about storing, packaging and shipping the products because that step is handled by your drop shipping vendor.

• Maximize cash flow.

Drop shipping is great for cash flow because it works in reverse of the typical retailer-wholesaler transaction. Instead of buying inventory in advance (which sometimes requires an inventory loan), the retailer collects payment in advance from the customer and then pays the drop shipping vendor for the product. The drop shipper makes money by charging a small drop shipping fee to the retailer.

• Save time on logistics.

Instead of dealing with packaging and shipping the product to the customer, drop shipping lets the retailer handle the front-end of the transaction (marketing and sales) while leaving the back-end of the transaction (packaging and shipping) to be handled by the drop shipping vendor. This saves time and lets you focus on what you do best as a business owner – building relationships with customers and making sales.

There are a few possible drawbacks to drop shipping, however. Sometimes the drop-shipping vendor might not have the same standards that you do for packaging, customer service or returns. So, make sure to discuss expectations upfront with your drop shipper. That way, you can deliver a consistent and positive customer experience, regardless of where the product is shipped.

Ideally, drop shipping should be a seamless experience for your customer. Customers shouldn’t notice or care whether the product gets shipped from your business or from your drop shipping supplier.

Look abroad for international suppliers.

It’s easier than ever before to be an international business owner with an extensive supply chain of vendors and wholesalers around the globe. No matter what you sell in your small retail business, there are amazing companies all over the world that would love to have you sell their products to your customers.

If you want to be 100 percent American Made with your inventory, that’s great too – lots of American consumers are looking to buy local and support locally produced items! But if you want to diversify your supplier base and offer exciting products from around the world, it’s more possible than ever before to do that.

However, there are a few caveats to keep in mind when building up an international supplier base. Check them out:

1. First, make sure that any products you buy from other countries are in fact legal to import into the U.S. market.
2. Then, do your research about any companies you consider buying from – make sure they are reputable, ethical companies that are maintaining adequate standards for worker safety and environmental protection.
3. Finally, make sure the products are legitimate (not counterfeits). If a price seems too good to be true, it probably is.

As a retail business owner, understanding your supply chain doesn’t have to be complicated – but it pays to spend some time doing your research and learning more about how your supply chain works as part of your overall inventory management process.

Whether you use supply chain management software or just want to take a more strategic look at where your inventory comes from, there are many options to get more out of your supply chain in a way that boosts your efficiency, lowers your costs and maximizes your profits.

Finding the Right Wholesaler

Another important part of small retail business inventory management is finding and working with the right wholesalers to supply your business with inventory. Wholesalers are companies that work with manufacturers to supply massive amounts of products to retailers all over the country and all over the world.

Wholesalers manage:

• Logistics
• Merchandising
• Delivery
• Any other aspects of serving as the “middle-person” between manufacturers and retailers

Most consumers don’t know the names of big wholesalers and actually never see the work that wholesalers do behind the scenes of the consumer economy. However, wholesalers are hugely important for the service they provide to keep the supply chains of the retail industry running smoothly.

Although there are some big players in the industry, it’s also complex and fragmented enough that there are lots of smaller companies to buy from too – and there is plenty of flexibility for small retailers to find the right wholesalers to buy the right inventory for their businesses. You can learn some helpful inventory management tips related to wholesalers below.

Types of wholesalers

There are five key types of wholesalers:

1. Manufacturers

Manufacturers sometimes sell directly to retailers, but mostly they prefer to sell to wholesalers because the volume is higher, and the process is simpler. Instead of dealing with lots of small retailers, most big manufacturers prefer to ship their product out the door as quickly as possible to a strategic network of big distributors.

2. Importers

Importers are companies that often have unique business relationships with manufacturers in other countries and have the approval to bring these foreign goods to the domestic market. Sometimes retailers can buy inventory from importers, but it requires time and relationship-building to make sure you’re a good fit for what the importer sells and to prove that you can buy a big enough volume.

3. Exclusive Distributors

These wholesalers have an exclusive deal with a particular manufacturer or brand, often with international companies (similar to importers), and they sometimes sell directly to retailers. However, this type of wholesaler might not be the best fit for selling to small businesses because they are often working on a national scale and trying to build sales relationships with big retail chains.

4. Regional Distributors

These are smaller wholesalers who sell to companies on a regional or local basis. These wholesalers can be great fits for local small retail businesses.

5. Brokers

Brokers are small wholesalers that supply products for individual retail stores.

There are wholesalers for companies of every size and scale, but it all depends on finding wholesalers that are the right fit for your business. You need to find wholesalers that can sell products to you at a volume, price and profit margin that makes sense for your business.

As your retail business grows, you can gradually get to the point where you can afford to make bigger purchases and pursue bigger deals.

Where to find wholesalers

The wholesale market is big and complex, so it takes some research to find the right wholesalers for your business. Start by using some wholesaler directories like Worldwide Brands or Wholesale Central.

If you are an Amazon seller, check out the Amazon Services Seller Forums for advice and ideas from other Amazon sellers – you can probably get some good ideas of which wholesaler sites to explore, or which ones to avoid.

Other ways to find wholesalers include:

• Attending trade shows and networking events at your local Chamber of Commerce
• Checking out the ads and wholesaler listings in trade publications
• Sometimes talking directly with brand manufacturers.

Even if a brand does not sell directly to retailers, they might refer you to the right wholesalers that sell their products.

You can also find wholesalers or product manufacturers on eBay, Etsy and online forums for retail sellers – but keep in mind that if you decide to buy directly from small manufacturers, there are risks to this as well. Small manufacturers might not be able to meet the product volume requirements that you need, especially during the holiday season, and might be more vulnerable to going out of business altogether.

Avoiding wholesaler scams

Unfortunately, as with any other area of business, the wholesale industry is not immune to scams and disreputable actors trying to cheat business owners out of their money.

The best wholesalers are “factory-authorized” wholesale suppliers that have relationships directly with brands and manufacturers, but some fake wholesalers sell unauthorized or counterfeit merchandise.

Other wholesaler scams include fake wholesaler middlemen who take your order, pass it on to the real wholesaler and mark up the price along the way.

Before you start dealing with any wholesaler, it’s important to make sure that they are real and reputable. Do your research and due diligence. Find out if there are any complaints about this wholesaler online.

Other tips for avoiding wholesaler scams include:

• Don’t pay extra fees. Legitimate wholesalers will not charge a sign-up fee or monthly fee. They make money just by selling products to retailers.

• Watch out for suspicious behavior. Real wholesalers operate like real businesses like yours. However, wholesaler scam artists will often be a bit cagey with the details. They don’t want a real business relationship; they just want your money.

• Don’t buy add-on services. Real wholesalers just sell products. Scam wholesalers might try to upsell you on added services.

• Don’t believe the hype. Another trick of scam wholesalers is to make elaborate claims about how much money you can make by using their services. Real wholesalers don’t do this; they just sell products.

Just like any other business deal, with wholesalers, if it sounds too good to be true, it probably is.

Building good relationships with wholesalers can be a competitive advantage for your retail business. Ideally, you want to have a good network of companies that you buy from, with a diverse array of products and a steady supply of inventory that can grow along with your business. Do your research, investigate any companies carefully and make sure you feel confident about any wholesaler or manufacturer before you buy.

Negotiating with Wholesalers

Small retail business owners and Amazon sellers often struggle with the concept of how to negotiate with wholesalers. It can seem intimidating to do business with bigger companies, especially when you’re a small business that doesn’t buy massive volumes of product.

Fortunately, there are a lot of options for small retailers to negotiate with wholesalers, and sometimes it’s simpler and easier than you might expect.

Build strong business relationships

Retail is a relationship business – this is also the case on the wholesale side of the transaction. Wholesale businesses are not just in the business of products and pricing. They’re in a business of building relationships.

Yes, wholesalers need to sell the right quantities and at the right price, but just like small retail businesses, they ultimately want to have a strong network of relationships with good buyers who come back to them for repeat business.

This means that even if you’re a smaller customer, your wholesalers still want to keep you. And one of the best ways to negotiate with them is to build up a good working relationship. Here are a few tips:

• Communicate openly and effectively
• Call to say hello and introduce yourself
• Visit the nearest warehouse
• Check out their booth at a trade show

Also, it helps to show your wholesalers that you appreciate their service. If your wholesalers enjoy working with you and are happy to hear from you, they will be more likely to cut you a discount or offer you a special deal during negotiations.

Pay your bills on time

This one also sounds obvious, but a lot of your competitors might not be doing it. Wholesalers are in a high-pressure, high-volume, low-margin business – they need to get paid promptly to maintain their cash flow and keep merchandise moving.

The last thing a wholesaler wants to worry about is whether or not they’re going to get paid. So, if you can pay your bills on time and establish a strong track record of paying your bills promptly, you’ll be more likely to command the wholesaler’s attention when it’s time to negotiate. Some wholesalers even offer discounts for advance payment or will offer you credit terms if you have a good payment history.

Know your facts

Before you decide to negotiate with wholesalers, whether it’s to get a discount on pricing or get better payment terms or get something else out of the deal, it’s important to know your facts and be prepared to talk with the wholesaler on equal footing. Here are four examples:

• Understand the wholesaler’s costs and pricing structure.

If you know approximately how much it costs the wholesaler to buy the product from the manufacturer, and you understand the various discounts available for higher volumes of purchases, it’s easier to get a good deal.

• Speak the same language.

Make sure you are conversant in the industry shorthand and jargon that the wholesalers use to discuss their work – if you know the lingo you can negotiate more effectively.

• Remind the wholesaler of your track record.

Show the wholesaler how much business you’ve done with them – how many orders, total purchase volume, how long you’ve been a customer and your track record of on-time payments. If you remind the wholesaler of what a good customer you are, they will be more likely to negotiate.

• Show sales projections.

Show the wholesaler that you intend to be a long-term, repeat customer – show them your plans for how many purchases they can expect from you, based on your sales projections. Wholesalers want to be part of your success; treat them like a partner, not an adversary.

Look beyond price

Many small business owners assume that wholesalers are only interested in price – and most small businesses cannot afford to buy the massive volumes that get the biggest discounts from wholesalers. However, if you want to negotiate a better deal with wholesalers, keep in mind that there are many other aspects to the deal aside from price. Here are four examples:

• Down payment: Wholesalers often will give you a lower price – even if you’re buying small volume – if you can make an advance payment. This advance payment amount can then become subject to negotiation. If you have built a good relationship with a wholesaler and you want a lower price, even if they won’t reduce the price you can ask them to reduce the amount of your down payment.

• Shipping: Wholesalers might give you better shipping prices or faster shipping terms.

• Transfer More Business: If you are currently buying from multiple suppliers, sometimes you can get a better deal on pricing and other terms if you negotiate with one supplier to bring all of your business to them.

• Payment terms: Another option, instead of a price discount, is to ask for more favorable payment terms. If your wholesaler agrees to let you pay your bills more slowly (on a net-60 basis instead of net-30, for example), this can help you improve your cash flow.

Even if you cannot buy big volumes of products, there are still various ways for you to negotiate with wholesalers. It all starts with being a good customer, communicating openly and effectively and building up good business relationships. Small business owners can’t often compete on price, but they can compete by being more personable and more authentic than their competitors.

Inventory Management

Once you’ve gotten the best deals with wholesalers, you’re ready to manage the products you buy. Inventory management is important for any retail business, no matter the size. With the right management, small businesses can:

• Minimize costs
• Prevent losses
• Maximize efficiency
• Get the most out of their supply chain and their inventory

Inventory management is a broad subject, but it touches on several key business operations. Here are five breakdowns:

1. Receiving shipments of inventory

Make sure that your inventory is delivered fully intact and undamaged, in the quantities and at the quality levels that were promised. With consistent inventory management processes, you can avoid getting shortchanged on your inventory orders, and avoid receiving damaged or incorrect products. This will save money for your business and improve your overall efficiency.

2. Storing inventory

Whether at your own business location, a warehouse or an offsite fulfillment center, inventory storage is important to get right. Make sure your inventory is safe from damage or theft, and that it is easily traceable and shippable from the storage location.

3. Making inventory projections

Just like your business needs to make estimated sales projections to develop a sense of how many sales you are going to make throughout the year, you also need inventory projections to estimate your necessary inventory levels. Estimate how much inventory you will need based on prior sales and seasonal demand. Be prepared to adjust based on shifting customer preferences and new sales trends.

4. Inventory Tracking

Good inventory tracking tools and practices will help you get an accurate count of the amount of inventory in stock and make adjustments to prices as needed. Accurate inventory tracking can also help you avoid losses or miscalculations. You paid for the entire inventory, so you should know where all of it is at any given time.

5. Inventory Analysis

By looking at your inventory data, you can get valuable insights into how your business works, what sells (and what doesn’t) and how to make improvements along the way. For example, by analyzing your inventory data, you might realize that you need to significantly change the process of buying inventory from certain suppliers. Or you might consider investing in buying more inventory at a slow time of the year when your cash flow is lower than usual.

Inventory management software

One of the best ways for small business owners to get smarter about inventory management is with the help of inventory management software. Instead of using spreadsheets or manual pen-and-paper methods to keep track of inventory, inventory management software gives your business:

• Better visibility
• Up-to-date tracking information
• Immediate insights into your inventory’s status and sales performance

Inventory management software doesn’t have to be too costly. With today’s great cloud-based business tools, there are a variety of inventory management apps that enable your business to get just the right level of support and features that you need for a smaller business. Check out these three inventory management tools.

1. Goods Order Inventory System Pro

This inventory management system gives your business a comprehensive way to track products and purchase orders, track inventory by location, store customer data in one place and add relevant taxes and discounts to customer orders before processing the sale.

2. SOS Inventory

This is inventory and order management software that integrates with QuickBooks Online, reducing data entry errors and saving time. It works from any web browser on any device and has support for multi-location inventory. This system offers comprehensive features to help you automate your business, whether it’s issuing purchase orders or tracking items.

3. Stitch Labs

Stitch Labs is an inventory management tool that helps your business save time and money by keeping track of your inventory (quantities of each product, etc.), ensure accurate order processing, automate the processes of ordering new inventory and fulfilling new sales and making your business into a multichannel sales organization.

Inventory optimization

Once your business has integrated some inventory management principles (and perhaps some software tools) into your daily operations, you can start to look to the next level: inventory optimization.

Inventory optimization is the process of figuring out exactly how much inventory you need to meet customer demand – but without incurring unnecessary storage costs or creating unnecessary delays in fulfilling customer orders.

It’s important to strike the right balance between “too much” and “too little” inventory. Too much inventory means incurring extra costs of buying, shipping and storing inventory, which reduces your cash flow. Too little means running the risk of disappointed customers and missed sales due to running out of popular products.

With inventory optimization, you can develop a deeper, data-driven understanding of your business:

• Which products or categories account for your biggest sales totals
• Which patterns or fluctuations of customer demand are affecting your sales
• How it relates to your business accounting

Inventory is the stock in trade of every small retail business – your inventory is your business. So why do so many business owners neglect to pay attention to the fine details of the inventory on their shelves?

It doesn’t have to be this way. With smart inventory management, inventory financing and next-level inventory optimization, your business can save money, satisfy more customers and operate more intelligently with greater visibility and better data to show the status and sales potential of every item you sell.