If you’re a retail store or product-based business in 2022, INVENTORY is probably a trigger word for you! For many small businesses like you, this is a recurring period of suffering as you count through the products on the shelves, in boxes, lying around the shop, or in some dingy back room, trying to make your best estimates. As long as your store sells physical products, inventory management can be a nightmare – and worse if you’re losing stock!
What if I told you there’s a simple 5-step process that can make inventory management efficient and much more accurate? It helps you increase your sales volume and reduce your overall cost of lost inventory! The concept stems from the Japanese automotive manufacturing industry and is a principal methodology within Lean Manufacturing, a collection of tools and techniques that eliminate waste and improve productivity using visual organization methods. And combined with consumer psychology, it can help you increase your overall sales. Let’s dive right in!
The 5-S methodology is named for the five steps that complete the cycle. It’s important to note that the steps don’t apply to individual inventory items, but rather to the workspace as a whole. That means they can be used to manage inventory in brick and mortar locations as well as digital inventory for e-commerce websites. When applying this process, it’s useful to take a bird’s eye approach and consider your entire workspace, whether that’s a storefront or a webpage. Here are the five steps.
- Sort – categorize items by necessity and priority
- Straighten – organize the items in dedicated locations
- Shine – keep the workspace clean and uncluttered
- Standardize – document your organization process
- Sustain – create a repeatable and improvable process
Sort: The first step is to categorize items by highest priority and necessity. You’ll want to determine which items are most “necessary” for work or sales. There’s no right way to sort, but each item should roughly have a category related to importance. Monetary value is a good way to start if you sell too many items to categorize individually. For example, bestselling items – regardless of price – would be quite high priority as would high ticket items, even if they don’t sell as well. Next, consider items that are “maybe” needed or would “maybe” sell well. And finally, collect the items that are “unnecessary” or aren’t selling well – these should be discarded or removed from the workspace, or what may eventually go into a bargain bin. Bookstores are very effective at Sorting by placing large labels for each genre, so a customer can walk to the shelf they need, find their book and complete their purchase faster. Could you imagine sorting through thousands of books without an inventory system?
Straighten: Step 2 involves placing the products in the workspace so that the highest necessity and highest priority items are the most easily accessible. This makes it easier for customers to see the items and pick the bestsellers first. It also allows you to manage ordering for the high priority items and move the “maybe” items forward while the high priority ones are depleted. One useful strategy is to use a “reorder line” – a measured visible line on shelves or cabinets to indicate a when a new order needs to be placed for a specific item. The reorder line concept is used regularly in e-commerce websites that include a “minimum reorder limit”, which serves the same purpose in digital workspaces. By this step, you should have gotten rid of the deprioritized items and these should either be somewhere outside the workspace or off in a corner. You don’t need to throw out these items – they can be part of a bargain bin or fire sale promotion at a palpable discount. Remember, they were unused and weren’t selling at their regular price, so it’s better to gain something from a big discount than leaving them on the shelf earning nothing!
Shine: It’s important to regularly declutter the workspace, so don’t have all the items mixed together unless they’re in the discount pile. A neat and orderly workspace is aesthetically attractive to both customers and employees. It creates a satisfying feeling of control and organization, increasing the potential for a sale and decreasing the risk of lost or misplaced inventory. Frequent cleaning of the workspace also reduces hazards and makes visitors feel welcome and comfortable in your store. A great example of this is done in many boutique clothing stores. Think about the last time you walked into Aritzia or Holt Renfrew – everything is neatly organized in sections or by type and there are so many sales associates always folding clothes and putting them neatly on racks. WHY? Because a clean and tidy aesthetic attracts a high quality clientele. In comparison, think of department stores and bargain retailers with mix and match options, bins and racks of sales items – their aesthetic attracts a more budget friendly crowd. Change the aesthetic and make your workplace Shine if you want to start attracting high quality (and high paying) customers!
Standardize: This step comes next mainly because in the first 3 steps, you will try a few tweaks in your method of Sorting, Straightening and Shining your workspace. Once you have a fairly solid or foolproof system for categorizing and placing your inventory, the most useful activity is for you to document the process. When you standardize your inventory process, think about the criteria you used when Sorting, the locations you picked when Straightening and the efforts involved in Shining the workspace. If you can make these activities consistent and repeatable, you will largely be able to transform inventory management into an auto-pilot process. This will save you hours of time and keep your inventory count much more accurate than a cluster of chaos.
Sustain: Finally, it’s important to sustain the process by continuously improving the where, when and what of each inventory item. For example, your high priority items may change seasonally. So in a clothing store, scarves will be at the back during summer and right up front and accessible during winter. HOWEVER, THE PROCESS DOESN’T CHANGE – ONLY THE PRODUCT’S PLACEMENT DOES! This is the beauty of a sustainable process. You can easily change the location of the products with the seasons and still be able to track your inventory because you’ve already Sorted and Straightened them. You’re also catering to the changing demand in different economic climates (pun intended) so you’ll show and sell more relevant products to your customers.
How can you implement 5-S?
Keep it simple – start with categorizing your inventory. Once you’ve categorized and placed similar items together, this will immediately make significant strides toward improved inventory accuracy. The added benefit of implementing 5-S is that you only do it once, then just tweak the process in the future. This saves hours of trouble trying to hunt for missing items that were stored in the back…or possibly stolen. With the 5-S system, you will know exactly where each inventory item sits at any given time in your workspace. It would be difficult to misplace items since there is “a place for everything and everything in its place”.
If you’re looking for an inventory management software, there are many options available in Canada. The most popular and easiest ones for small business include Shopify, Square and other e-commerce solutions, where you can maintain your online and in-store inventory using the 5-S process. Many e-commerce inventory solutions include a web-based dashboard with product segmentation (categorization) and a mobile physical terminal to scan and take orders in-store. Integrating the two helps keep a fairly accurate track on inventory, provided you apply the 5-S process.
For stores with a large variety of products, you may need a more complex data-oriented solution. Some of the bigger known players include Netsuite, SAP and Zoho, which offer fairly straightforward solutions built on years of industry best practices. However, you may find these expensive and difficult to customize for your niche. Since the inventory problem is not unique to any one business, there are many custom-built software solutions that you can compare. Part of the challenge with implementing complex systems is the sales agent who shows you all the shiny bells and whistles of their software, but doesn’t fully understand your products and process, so the implementation may be costly and slow.
How can Darkhorse help?
Our team consists of certified Lean specialists who are trained and experienced in implementing systems like 5-S to help business owners eliminate wastes in their inventory management process and improve the accuracy of inventory counts. Using data, we can measure and value inventory by price and quantity, creating models for supply and demand so that you can optimize your ordering process and reduce your overall cost of inventory management. That means more accurate inventory counts, less lost/misplaced/stolen inventory, less time required to manage inventory, more optimized reordering schedule – AND WAY MORE SALES! A bonus of working with us is our attention to data, which will actively help you determine your bestsellers and optimal reordering limits using simple and automated tools. Let us help you reduce the stress of inventory management so you can focus on running your business!