Inventory Management in Retail Industry - Need and Important Terminologies

What is Inventory Management?

Inventory refers to the goods stocked for future use. Every retail chain has its own warehouse to stock the merchandise to be used when the existing stock replenishes.

Inventory management refers to the storage of products to be used at the time of crisis.

The retailer keeps a track of the stocked goods and makes sure there is surplus inventory to avoid being “out of stock”. Such a process is called as inventory management.

Why Inventory Management?

Gone are the days when customers had limited options for shopping. In the current scenario, if a customer does not find the desired merchandise at one retail shop, he has a second brand to rely on. A retailer can’t afford to loose even a single customer.

It is really important for the retailer to retain their existing customers as well as attract potential buyers. The retailer must ensure that every customer leaves his store with a smile. Unavailability of merchandise, empty shelves leave a negative impression on the customers and they are reluctant to visit the store in near future. Inventory management prevents such a situation.

One must understand that the products need some time to reach the store from the supplier’s unit. The retailer must have sufficient stock to offer to the customers during the “lead time”.

Managing inventory also helps the retailer during situations beyond control like transport strikes, curfews etc. The retailer has ample stock as a result of judicious inventory management even at the time of crisis.

Important Terminologies used in Inventory management

  1. SKU (Stock Keeping Unit)

    Every product available at the store has a unique code. This code which helps in the identification and tracking of the products at the retail store is called as stock keeping unit or SKU.

    The retailer feeds each and every SKU in the master computer and can easily track the product in the stock just by entering the SKU Number.

    Assigning a unique code to the products avoids unnecessary searching.


    Let us take the example of “Numero Uno” which stocks denims, shirts, T Shirts and targets both men as well as women.

    SKU for Shirts

    • NU – M-40-FL-W
    • NU – M-38-FL-B

      NU stands for Numero Uno
      M - Men
      40 - Collar Size
      FL - Full Sleeves
      W - White (Colour of the shirt)

    In the same way B in the second example would stand for Blue

    Simply typing NU – M-40-FL-W would let the retailer know whether the particular merchandise is available with him or not.

  2. New Old Stock (Abbreviated as NOS)

    The stock which is never been sold by the retailer and now not even being manufactured comprises the new old stock. Such products do not have takers and may not be produced anymore.

  3. Stock out

    Stock out refers to a situation when the retailer fails to fulfill the customer’s requirement due to lack of merchandise. The merchandise is not available in the current inventory and thus the customer has to return home empty handed.

Preventing loss of inventory

Employees working at the store might get tempted to steal the merchandise.

Let us go through some tips which help to prevent loss of inventory:

  • Check the bags of the employees before they leave the store.
  • Raise an alarm whenever you find someone stealing something. Supporting a wrong deed is also a crime.
  • Make sure that all the employees leave from one common door.
  • Avoid multiple exits.
  • Check garbage before dumping.
  • Keep proper record of the inventory(Stock coming in and going out)

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