Inventory Management in The Retail Industry

Topics: Inventory

The retail industry is a huge part of our society. Whether it is a pet store or a high-end shoe store, shoppers look for the best merchandise they can find at the best price. However, the retail industry is threatened by the increasing amount of online shopping. Online platforms such as Amazon are getting more business due to the convenience, the ease of shopping online, and the perk of free 2-day shipping with the Prime membership.


According to a 2017 survey conducted of 1,000 people that looked at the reasons why people prefer online shopping verses in-store shopping, the majority preferred online shopping because of the ability to shop 24/7.

(footnote?) If someone needs a last-minute outfit for a dinner party in 3 days, they can search online at midnight in their pajamas from their couch and select what they need and have it delivered in 2 days without leaving their home. This type of convenience is what makes the online shopping arena so huge.

Our project explores the responsibilities of operations management such as planning, organizing, and the controlling of inventory. In order to ensure customer satisfaction, the right amount of inventory must be present in each store. Our argument is if physical stores maintain the proper amount of inventory, combined with a friendly shopping environment, customers who remain loyal to their favorite stores will continue to shop, which leads to increased profits.


As a society, we are all familiar with the retail industry either as a customer or as a retailer worker.

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Like most industries, there are many moving parts that keeps retails stores running soothingly and in business. These moving parts must be efficient in order to keep the stores in business and running smoothly, especially during the holiday rush hours. These moving parts vary between large stores and smaller stores.

For example, larger stores like Macy’s will have teams of staff whose job is to come in overnight and change all the sale signs, restock the merchandize, and organize or change the layout of the floor. In addition to the night crew that comes in, there is also a day team that is there during regular store hours who assist customers, clean the fitting rooms, and handle purchases made by customers.

In contrast, smaller stores such as Steinmart assign tasks that separate teams would do at larger stores to the store associates and the managers. Unlike larger stores, smaller store associates and managers then complete these tasks while the store is open and while customers are present. This method, however, can present a problem in the area of customer service. This brings the issue of balancing the efficiency of having associates and managers multitasking to reduce expenses of paying a separate team to come in during the stores closed hours and giving customers full attention and assistance.

Working in the retail industry is hard work. but there is also satisfaction in the job when customers find the exact item they were searching for while shopping at one of their favorite stores. As either a customer or a previous retail employee, many people realize how crucial customer service is in selling products because without a good experience people will either change their minds about buying product or decide not to return.

Customer satisfaction is the number one priority underlying any business, especially one that requires repeat customers to maintain and grow the business. Even with the decrease of in store shoppers due to the competitive online presence and the deals they offer, the physical stores can maintain and grow their business by implementing the proper techniques that involves the proper inventory management and customer satisfaction.

Inventory Management Overview

Having on overarching understanding of inventory management and the operations such as planning, organizing, and the controlling of inventory will provide the necessary framework for the plans and procedures that should be implemented. “Inventory is the stock of an item or resource used in an organization. An inventory system is the set of policies and controls that monitor levels of inventory and determines what levels should be maintained, when stock should be replenished, and how large orders should be.”(CITATION NEEDED) For example, in the winter, a shoe store should have ample amount of boots in stock. Boots are the product that needs to be in stock during winter because of the season. During winter, most people will prefer closed toe shoes that are water proof because of the colder weather in addition to the possibility of rain or snow. This creates a seasonal product that will mainly only be sold for a few months, but will sell far more during the winter season than another season as well as more than sandals because sandals are also a seasonal product. Systems will change according the seasons because of the type of product that stores are trying to sell.

“The objective of inventory management is to provide uninterrupted production, sales, and/or customer-service at the minimum cost.” (Powerpoint-inventory management) Maintaining the minimum cost is key because if the level of inventory is not appropriate, that excess inventory will cost the stores more money to hold on to products. This can become costly because the item can take up shelf space the can be used to sell more profitable products. For example, in the middle of summer, Christmas trees will not be in demand because it is not near the holidays so it is not appropriate to have them stocked in a store because no one would buy them. The trees would take up valuable space that could be filled with beach umbrellas and camping gear because those activities are done mainly during the summer time. It would be costly to keep an item that will not sell quickly or for a high price when the sales record show that the customers are buying other items that are more appropriate for that season.

Purposes of Inventory

The three main purposes of inventory are: to maintain independence of operations, allowing flexibility in production scheduling, to take advantage of economic purchase-order size, and to meet variation in product demand and provide a safeguard for variability. (Powerpoint-inventory management) In the following, we will take a look at each separately and explain their importance.

First, maintaining independence of operations allows flexibility in production of scheduling and is important because it allows the monitoring of usage rates and allows for slow-moving products to be easily identified. In the voice is an (idk what you mean by “voice”) easy fix because it is more than likely going to be a slow-moving product in the winter and the scheduling can be adjusted to significantly slow down the order size. However, a major drawback of retail stores is not having out of season products that the customer may be looking for.

As the world moves into a more technologically advanced future, traveling has become easier than ever. Because traveling is much easier than before, many people travel to colder areas in the summer and other to warmer places in the winter. Therefore, even during the winter months, there will be a handful of customers who visit retail stores and ask for bathing suits because their travel destinations are far warmer than the area they live in where the season maybe much colder. This is where it is crucial to be able to serve those handful of customers because it will allow the stores to be etched into their memory as a place that they can go to when they need something that may not be particularly in season at the time. When people feel like they can depend on a place or a store, they are more likely to refer it to family and friends.

Second, taking advantage of economic purchase order size is the way a store can efficiently put out and sell as much inventory as they stock. Ordering in large quantities can be very effective if the product is in high demand and the store displays the merchandize in such a way that is appealing to the customer. For example, during the holiday season, pajama sets are very popular in department stores because they generally give the customer a feeling of warmth and holidays. They are generally brought out fairly soon after Thanksgiving and come in many colors, styles, and sizes. An economic purchase order size for this type of item is going to be cost-effective because previous patterns show that the pajama sets are a staple during the holiday season and will sell well due to being used as as stocking stuffers and gifts to a variety of family members.

Lastly, being able to meet variation in product demand and provide a safeguard for variability is crucial. A major “part of inventory management is to keep the products safe.” Safety means a couple different things. The inventory should be protected against theft, handled carefully to avoid breakage, and not lost or mishandled. All of these factors can mean a financial loss for the company if they occur. ( When an item is broken either by an associate or a customer, it cannot just be thrown away. It must be logged into the system that the item has been damaged and marked out so it is no longer showing as an available item in the system. This is important not only so the store will know the product is no longer available for a customer to purchase, but also for the store to keep track of items that were actually damaged and not stolen as well as a record of why it was not sold and no profit logged for the item.

Types of Inventory

There are different types of inventory that are classified into either cycle or safety. Cycle inventory exists because producing in large lots allows economies of scale and lower cost. Cycle inventory=lot size/2. Safety inventory is carried because demand forecasts are uncertain and a product shortage may result. (PP-inventory management)

Cycle inventory results in a lower cost when the item that is ordered in large quantities is sold quickly, perhaps due to seasonal items. Sweaters being sold in the winter will create a lower overall cost because the large quantities are sold quickly since the weather is cold and sweaters are needed. The same is true for swimsuits in the summer. They are in high demand and will be sold quickly during the warmer months.

Total Quality Management

“Total quality management (TQM) is a philosophy that involves everyone in an organization in a continual effort to improve quality and achieve customer satisfaction.” (powerpoint-russell quality) TQM is used to keep a store running smoothly and efficiently. A large department store such as Macy’s cannot function without a large staff that is divided among those who are on the register, those who are putting the clothes away, those who are cleaning out the fitting rooms, and those who are cleaning the restrooms. It takes continual effort from all of the employees to achieve customer satisfaction and overall success of the store. This is because even if the store has all the products a person needs, if the place is not appealing to the five senses of the customers, and doesn’t leave the customer feeling joyful about the experience they had the store, they will not want to come back.

From the consumer’s perspective “the meaning of quality is the fitness for use and the quality of design.” (PP-russell quality) If a customer goes to a store looking to buy a tennis racket, they will expect that the racket to be in new condition without any bents or missing strings. If the use of the racket is not fit for its particular purpose the customer will not be satisfied with the quality of the product and will more than likely return the item as well as not return to the store for that item or the store may lose the trust of the customer completely and lose all future business of that customer.

Dimensions of Quality

The next step in assessing the quality, is the dimensions of quality. The meaning of quality includes a producer’s perspective (quality of conformance) and consumer’s perspective (quality characteristic and price). Dimensions of quality from the service perspective considers both courtesy and consistency. The courtesy prong evaluates how are customers treated by employees? Consistency looks at whether the same level of service is provided to each customer each time. (PP-russell quality)

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Inventory Management in The Retail Industry. (2022, Jun 16). Retrieved from

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