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"I have been consistently impressed by their ability to handle our complex needs and willingness to say yes to any challenge. Most importantly, I believe in the character and work ethic of the team."
Mike, Co-Founder & CEO
If you run a business that sells physical products, your merchandise inventory is one of your most valuable assets. It includes everything you have in stock that is ready to be sold to customers. Managing your merchandise inventory properly prevents stockouts and keeps your customers happy. In this guide, we will talk about what merchandise inventory is, how to calculate it, different inventory tracking methods, and much more. By the end, you will know exactly how to stay on top of your inventory and why working with a fulfillment partner can make all the difference.
Merchandise inventory refers to the products a business has on hand that are ready to be sold. This can include finished goods stored in a warehouse and items on retail shelves. Essentially, if you’re planning to sell it, it's part of your merchandise inventory.
Keeping track of your merchandise inventory is very important for maintaining a healthy cash flow. Too much stock ties up your capital, while too little stock can lead to lost sales and frustrated customers. Whether you own a small online shop or a large retail chain, you need to have a clear picture of your merchandise inventory to make sure you can meet demand without overcommitting resources.
Companies need to accurately calculate merchandise inventory for tax purposes and operational efficiency. The formula for calculating merchandise inventory during an accounting period is:
Merchandise Inventory = (Beginning Inventory + Purchased Inventory) - Cost of Goods Sold
This formula helps you understand the value of inventory available for sale. However, you will need to calculate your beginning inventory before you are able to calculate your merchandise inventory:
Beginning Inventory = (Ending Inventory + Cost of Goods Sold) - Purchased Inventory
Having efficient inventory tracking systems in place can make it easier to gather the data needed to calculate beginning inventory and merchandise inventory.
The two most common systems for tracking inventory are periodic inventory and perpetual inventory. Let's talk about both:
The periodic inventory system updates inventory levels at specific intervals, such as weekly, monthly, or quarterly. Instead of tracking every sale in real-time, businesses count their stock at the beginning and end of each period to determine what was sold. This method is often used by smaller businesses or those that don't require constant inventory updates.
While periodic inventory is simple and cost-effective, it comes with risks. With a periodic inventory system, discrepancies due to theft, loss, or damage may go unnoticed for weeks or even months.
A perpetual inventory system updates stock levels continuously as sales occur. With the help of inventory management software, businesses can always have an accurate, up-to-date count of their merchandise.
This method provides real-time visibility of inventory levels and makes it easier to prevent shortages and avoid ordering excess inventory. While the starting investment in technology can be higher, businesses that use perpetual inventory benefit from greater efficiency, fewer errors, and improved decision-making.
Inventory management is not always straightforward. Businesses often face several challenges when keeping track of their stock. Fortunately, each challenge has a solution.
Keeping too much inventory ties up cash and increases storage costs unnecessarily. On the other hand, when you run out of stock, it can lead to lost sales and frustrated customers. To deal with these issues, we recommend implementing demand forecasting tools and setting up automatic reorder alerts based on historical sales data. By analyzing trends, you can maintain optimal stock levels without overcommitting your resources.
Shrinkage occurs when inventory goes missing due to theft, damage, or administrative errors. This can significantly impact profitability, especially in businesses with high product turnover. To minimize inventory shrinkage, it's important to use security measures like surveillance cameras and RFID tracking, conduct regular audits, and train employees to follow strict inventory handling procedures.
Picking errors and slow shipping times can result in unhappy customers and bad reviews, which is why it's important to invest in logistics infrastructure or a logistics partner that can streamline your operations.
Selling across multiple platforms can make inventory tracking more complex. Without a centralized tracking system, overselling can occur. To prevent this from happening, we recommend using inventory management software that syncs all sales channels in real-time and displays accurate stock levels across all platforms.
Businesses that experience seasonal spikes in demand often struggle to fulfill orders during peak periods. Working with a fulfillment partner that offers scalable inventory management and order processing can help you handle seasonal fluctuations in demand more effectively.
Managing your merchandise inventory doesn’t have to be overwhelming. At Encore Fulfillment, we help businesses like yours track inventory in real time, streamline order fulfillment, and reduce overhead costs. Contact us today to learn more!
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