Effectively Managing Inventory. Barry Moomaw

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1 Effectively Managing Inventory Barry Moomaw

2 Inventory Management The Goal: Meeting or exceeding your customer s expectations for product availability, while maximizing your profits and minimizing your costs. Meeting the Goal: Having the right product At the right price At the right place At the right time and In the right quantity 2

3 Inventory Management Cash Inventory More Cash What impacts this flow? Timing Deliveries that miss the market demand Product selection Inventory that sits Tight Margins Customer price sensitivity combined with increased costs Availability Missed sales due to out-of-stock items or stocked at the wrong location 3

4 Balancing Act Cost of Inventory Holding Set-up Purchasing Benefits of Inventory Meet customer demand Cover vendor lead time Hedge against cost inflation Take advantage of quantity discounts There is a fine line between insufficient, just right, and too much inventory. And these levels often change throughout the year! 4

5 Inventory Management The question is how do you determine all those rights for your business? Some answers can be found in your CounterPoint data. Solution - take the numbers from the reports, along with your expertise about your business, and explore managing these rights to realize lower costs and increased sales. 5

6 Key CounterPoint Reports Transfer Advice Purchasing Advice Forecast Driven Replenishment Merchandise Analysis 12 Month Item History Acquisition of Inventory Acquisition of Inventory Inventory Performance Use to manage the 5 Rights of Retail 1. Product 2. Price 3. Place 4. Time 5. Quantity 6

7 CounterPoint Transfer Advice Why spend cash buying merchandise you already own? Use the Transfer Advice Report to utilize CounterPoint s automatic evaluation of your stock levels to determine the most effective way of redistributing inventory across your organization. 7

8 CounterPoint Transfer Advice

9 CounterPoint Transfer Advice

10 Purchasing Buying requires advance planning of purchases and then timing deliveries to meet your marketing objectives. Your purchasing plan must not forget to take into account the movement of last season s inventory. Make way for the new arrivals. Decide When purchase orders should be placed When first deliveries should arrive When the inventory peaks When reorders should be stopped When to discount the item When to no longer carry the item 10

11 CounterPoint Purchasing Advice Use the Purchasing Advice Report to have CounterPoint automatically suggest items and quantities for purchase based on Maximum, Replenishment, or Days of Supply. Maximum Orders an item up to its desired maximum stocking level when it falls to or below its minimum(reorder) level. Minimum and maximum levels are defined for each item at each location. For gridded items, levels can be defined for each cell (color/size/pattern) Replenishment - enough of an item to replace what was sold during a specified time period Days of Supply CounterPoint SQL will review historical sales and current on-hand quantities for your items and calculate the quantities you should purchase to ensure that your inventory will last for the indicated number of Days of Supply 11

12 CounterPoint Purchasing Advice

13 CounterPoint Purchasing Advice

14 CounterPoint Forecast-Driven Replenishment Use CounterPoint s Forecast-Driven Replenishment Report to create seasonal forecasts for your items, allowing you to more accurately estimate future demand based on historical sales, using proven forecasting methods. 14

15 Three important performance indicators GMROI (Gross margin return on investment) (Gross Profit $ / Average cost-on-hand, annualized) Example: a GMROI of 1.0 means we earned $1.00 of gross profit for each dollar invested in inventory Higher is Better Sell through % (or % Sold) 100 * Qty Sold / (Beg Qty + Inv Trx) Example: Beq Qty 0, Receive 100, Sell 25 = 25% Sell through Higher is Better Inventory Turn (or Turnover) (Turns = Qty sold / Average on-hand qty, annualized) or (Cost of Sales / Avg cost-onhand, annualized) Example: Had average of 10 on hand, sold 100 in year, replenished stock 10 times Higher is Better 15

16 Importance of Turn Annual Sales 10,000,000 Cost of Sales 5,700,000 Gross Profit 4,300,000 43% Compare Inventory Turn Average inventory cost 3,000,000 1,900,000 Cost of Sales 5,700,000 5,700,000 = 1.9 Turn = 3.0 Turn Decreased investment in inventory 3,000,000 1,900,000 = Increased cash in business 1,100,000!!! 16

17 Turn by Category Category Sales Cost of Sales Gross Profit Avg Inv Turn Women s Shoes Men s Shoes Handbags Kid s Shoes <1.0 TOTAL Free up investment in Kid s Shoes (Turn <1.0) invest in new merchandise Turn 2.0) Kid s Shoes <1.0 New Merch New Totals Increased Annual Profit.3 17

18 Merchandise Analysis Report - Analyze by Group Inventory / Reports / Merchandise Analysis 18

19 Preview Report 19

20 Analyze by Item 20

21 Preview Report 21

22 Add Location Detail 22

23 Preview Report 23

24 Stagnant Performers 24

25 Preview Report 25

26 Presentation Quality 26

27 The Right Product How do I determine what the right products are? Not necessarily those with the highest ticket price (ping pong table) Not necessarily those with the highest sales (ping pong balls) Not necessarily those with the highest profit (ping pong paddles) It takes a balanced approach One Strategy I offer what my customer s want I let customers know I have the product (Online presence) Customers will shop for the best price on certain items (table) Once they find the retailer for that item, they will often purchase the tagalongs, regardless of price (balls and paddles) Another Strategy Use the Merchandise Analysis report for top/bottom categories, items, vendors, etc. Consider rating your inventory each season. 27

28 The Right Place How do I determine the right place? Consider product movements, based on the selling cycle for the item. Use the MA report sell-through rates. Try locating the same item in more than one area of the store. Use daily counts to find the best area. (Careful, some items will peak in certain areas based on the weather, or they may sell because of adjacent merchandise, or sells just because it is within the customer s reach) Typically: The highest margin items are placed just to the right of the entry area Impulse items are placed near checkouts High volume items are placed furthest from the entry, but in sight of the entry 28

29 The Right Price How do I determine the right price? Competition Promotions Customers will expect a sale, if you always put things on sale (hard to recover profit lost by aggressive pricing strategies) Understand pricing psychology Knowing what pricing sells best in your store by vendor, category, item, etc. Consider using Margin-Based Pricing to serve as a starting point. 29

30 The Right Quantity How do I determine the right quantity? Visual method works with specialty items (slow moving or expensive) Data method follow inventory levels, turn rates, sell-through rates, etc. Inventory status report 30

31 The Right Time How do I determine the right time? Watch the twelve month and six week cycles 31

32 The Right Time How do I determine the right time? Watch the twelve month and six week cycles 32

33 Inventory Management Unless you develop and implement an inventory control strategy, your inventory levels will be unreliable, inefficient, and costly. Transfer assistance Purchasing assistance Stocking assistance Pricing assistance Inventory Counts Item grouping assistance 33

34 What are your Questions? 34

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