Tuesday, March 11, 2008

On The Shelf Or In The Bank?

Where would you rather have your inventory dollars situated? It sounds easy to answer, but those in the business know that it is a tough thing to execute for even the best retailers in the marketplace.

Think of it this way- every item you have sitting on your shelf should eventually be transformed into cash in your bank account, and the sooner the better. As long as it's inventory, it's basically dead weight. If it is not moving, you're not having cash flow. So, what is YOUR plan for turning inventory into cash for your business? Here are some of our favorite ways. Want to add your own? Drop us a line.

Here are six recommendations to minimize the cost of your inventory:

· Attempt to forecast as accurately as you can the day, week and month what you expect to sell. We all know that inventory levels grow during the fall season as Christmas approaches-but do you plan to taper your stock levels as Christmas draws near so you don’t end up with overstocks in January and February?
· Determine which item accounts for 80% of your sales. Staying on top of the best sellers will allow you to focus your attention on items that are driving sales and profits for your store. Likewise, I also suggest focusing on the worst selling (I like to use 10%) items in your stock. This will allow you to cut your losses and stop funding items that bring no revenue back to the store. You’ll be amazed at what focusing on the top and bottom can do in a very short time.

· Determine how fast you can get inventory, once you order it. Push your suppliers to deliver as close to your time of need as you can. Better for your cash flow to have it sitting on their warehouse shelves than yours when you don’t need it. Example: Some firms can use "just-in-time" inventory which enables them to receive their order the day they need it.

· Determine your economic order quantity and don't order too much inventory just to save a few pennies. Remember—once you take delivery of the merchandise, you are expected to pay for it. If it sits on your shelves for 3 months and you save 10 cents—is it really good for your businesses cash flow? Could you have been using the money you paid the invoice with to do some marketing for the store during that same time period?

· Shop around and make sure you are getting competitive prices. The internet provides a great opportunity to see what selling prices are at retail these days. If you see a much lower retail price from one of your existing suppliers, you should ask for a discount on the same products. It’s not competitive of you to have higher priced merchandise than your fellow retailers!

· Develop a policy for determining what is obsolete inventory, and how you can get rid of it. One of my favorite sayings holds true for retailers across every product category. “Slow moving inventory is NOT like fine wine, it DOES NOT get better with age!” Come up with a plan to assess and then dispose of slow moving merchandise. This should take place all year long. Not just after Christmas!

So what are you waiting for? Go turn that inventory on the shelf to cash in the bank! And let us know how it goes!