Buy Better and Control Inventory Increase Profits

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CCRA 2005
Buy Better and Control Inventory Increase Profits
by Allan Johnson 04/15/05
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Contents
01 Introduction 02 Benefits   03 Costs 04 Turns
05 JIT
06 Where to Begin? 07 Real World   08 6
Steps 09 Conclusion 10 Thank You
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Introduction
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CCRA Introduction
Buy Better and Control Inventory to Increase
Profits If you're like most store managers or
buyers the term inventory control may seem like
a contradiction. Unmanaged inventory is the enemy
of profit. You need to know which items are
needed, do not sell, have low profitability and
are dragging your sale down. You can MANAGE your
inventory rather than the other way around and
increase profits.
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CCRA Introduction

• What does inventory mean to you?
• after-hours projects
• extra paperwork
• cluttered storage areas
• conversations over cost vs. markup vs.
  profitability
• If you answered "yes," inventory probably also
  means increased profits are waiting for you.

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CCRA Benefits of Managing Inventory
      Improve profitability       Less
waste, right margin lower cost to acquire.
   Enhance customers shopping experience
        Pricing, what they need, what they
should have, solutions       Control employee
productivity         Reduce shrinkage, which
employees sell best        Better buying
decisions         Get rid of dogs, focus on
producers, stay current with tech trends
       Centralized source of information        
Process defined, not a secret        Grow your
business         Serve customers, lower costs
(increase profits) look good
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CCRA Money Sitting on the Shelf
Inventory is the same as money sitting on the
shelf. Personal experience suggests that 9 out
of 10 stores stock product that has not sold once
in over 6 months. Many stores complain that it
is difficult to know exactly what to stock, how
deep and what markup to use.
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CCRA Purpose of Inventory?
What is the purpose of inventory? Many buyers
think it's there to facilitate store operation
and increasing gross profit. In reality,
inventory exists to improve your level of service
to students, faculty and staff.
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CCRA Purpose of Inventory?
Effective inventory management allows a store to
meet or exceed customers expectations of product
availability by maintaining the amount of each
item that will also maximize the stores net
profit. How? The right amount The right part
numbers The right price Will provide you with
what your customers need when they need it,
without enormous stress on you or your staff.
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CCRA Cost-to-order
Cost-to-order The factors involved in
cost-to-order are time and money. time spent
deciding what to order   time it takes to do
the paperwork   time it takes to check in and
stock the order   what you pay your staff that
actually perform each step
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CCRA Cost-to-Keep
Cost-to-keep The important point to consider is
how much it costs to buy inventory based on how
long you own it, as well as how much return on
investment you could get on that dollar if it
wasn't on the shelf. Inventory turns are a
measure of how quickly a company replenishes its
entire stock of materials or merchandise
annually. The more turnovers there are, the less
time inventory sits idle, which helps improve
cash flow.
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CCRA Inventory Turns
The official calculation to figure out how you
are turning inventory, is to first find out the
Cost of Goods Sold (COGS) for the past 12 months.
Then take the current inventory and divide it by
the Cost of Goods Sold and you get the number of
times you have turned inventory. Turns
COGS/inventory value Your goal will be unique,
my suggestion is a target of 7.
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CCRA Just In Time
JIT Just In Time JIT means that you order on a
regular basis and purchase only when you need to
replenish what has been sold since the last
order. JIT inventory means you must have short
inventory order cycles and accurate tracking to
determine what and how much inventory to stock.
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CCRA Where to Begin?
Attitude Starts at the top. Provide a clear
vision. Remember that these plans are designed to
meet your customers needs, not compromise
them. Define Process Many options exist.
Implement checks. (ideas?) Documentation
Necessary to maintain trends, history identify
problems/opportunities. Training Talking about
the process is not training. Make it clear that
the defined process is the only way to complete
the task. Your employees need the tools to be
successful. Monitor Establish the law early and
later will not be a problem. Accountability
Reward good performance and dont be afraid to
change roles. Rely on your partners for rewards!
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CCRA Step 1 - What to Stock?
A) Determine what and how much to stock. B)
Dont buy yesterdays sales - buy tomorrows
sales.
Use yesterday as a guide, adjusted by
your experience, partners suggestions, research
in the marketplace and knowledge of your target
audience. C) Inventory Mix includes
categories,size, color, etc. Do you have
everything the customer wants? If not, you miss
sales opportunities. D) Define who makes the
ordering decisions in your shop. E) Consider
seasonal items. F) Set min/max stocking levels.
(reorder cards) Maximize your level of service.
If stocking an item doesn't help you reach that
goal, don't stock it.
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CCRA Step 2 - Know What You Own
Separate Stock from Stuff - Stock is what you
need, your real movers - Stuff is everything
else       

• Is the part necessary?
• Is the part there just in case?
• Is it show stock?

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CCRA Step 3 Get Rid of Stuff

• Inventory is not worth what you paid for it. It
  is worth what someone is willing to pay for it.
  Be realistic. Don't forget about that parts
  tucked away in the back.
• Turn dust into dollars.
• Get rid of what's not moving
• Don't get trapped by thinking about what you
  paid for it versus what you can get
  for it now
• Inventory turns can be increased by either
  selling more items, or by reducing inventory
  value. If inventory turns increase, so does your
  bottom line, guaranteed.

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CCRA Step 3 Get Rid of Stuff (cont.)

• Easiest Way to Get Rid of Stuff
• Return to Vendor - Guaranteed sale?
• Reduce price to liquidate
• Offer staff reward to sell
• If short on space throw away

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CCRA Step 4 Track Sales

• Monitor Sales for Profitability
• It's easy to fall into the we-sell-lotsa-em,
  we-better-stock-lotsa-"em"
  trap.
• It's a trap because high sales volume doesn't
  necessarily equate to high profitability! If
  you're losing money each time you sell one, you
  can't make it up in volume.
• A better consideration would be to determine
  where the profit lies and unload everything that
  isn't profitable.

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CCRA Step 5 - Regular Ordering
- Establish regular if not daily ordering - Once
you've determined what the movers are, gotten rid
of the dead inventory, and determined what and
how much to stock, then you're ready to order and
receive parts daily to replenish yesterday's
sales.
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CCRA Step 6 - Buy Smart
Select a Supplier Realize that prices are so
competitive and deliveries are so good that you
do have choices. It's important to evaluate what
you can get from your supplier other than
parts - Will your suppliers analyze your
purchases and returns on an item level? - What
are your return privileges? - What percent can
be sent back "no questions asked"? - Will they
clean up your inventory? - How often? -
Guaranteed Sale?
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CCRA The Real World
How much space do you have? Is it used well? Most
important categories? Best mix? How deep? Need
Help? Ask!
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CCRA Categories
Software OS, Suites, Ed, Fun, etc.? Accessories
iPod, Cables, Power, USB, PDA, etc.? Hardware Net
work, Desktop, Laptop, etc.
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CCRA Options?
e-commerce? Special orders?
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CCRA Education Rocks!
Thank You

• Feel free to contact me with any questions
• allanj_at_belkin.com
• edu_at_belkin.com
• [phone]