Sunday, July 18, 2010

Analyzing inventory can be a blast!

We all know beer sells better on a hot weekend, don't we? And sticky-buns sell better in the AM, than in the afternoon and evening. Depending on your area, Coca Cola 16 ounce may be the best seller, Marlboro Light 100's — you can't keep enough of those products on the shelf; but, other than the general knowledge that's obvious, do you know that every item in your store has a profile that you can fine tune and manipulate into producing substantial profits you would not receive otherwise? Well why don't you do it? I mean we're all into making big bucks, aren't we?

Well I think I know why. Your suppliers have convinced you it's something you don't need to know, your managers have stated it's too much trouble, and the people working in your stores say, 'I don't have time to worry about it'. So you already assume that it's a bad idea before you even consider it. But if you've been reading, you probably already know how I feel about 'assumptions'.

What you assume about your inventory may be driving you to the poorhouse. If you're like most, you've tried everything the experts have suggested – customer loyalty programs, bought shippers from trade shows, and signed one-sided contracts to get tantalizing rebates. You've got your employees greeting the customers when they enter your stores, keeping your coolers full, cleaning the bathrooms … and on and on.

By now, you've tried every cost cutting scheme to a point where there's nothing left to cut. You already pay your employees just enough to sustain life, and the government says you have to pay them more. It won't be long before you'll be expected to give them basket-to-casket health care. I'll bet that hostile takeover is sounding pretty inviting about now? What retailer hasn't considered passing his nightmare over to somebody else?

Now, what about your image? After all, who can think about image when the light bill needs to be paid, right? The more you cut, the more your image suffers. But I swear, it's the little tiny things your inventory is trying to tell you — that's where the big bucks are. But you can't hear them over the white noise that pulls at you from every direction.

Did you know that some items sell well on Monday through Friday but, sales fall flat over the weekend? Yet they occupy the same shelf space seven days-a-week. Do you know that it might be that an item's price is too low which affects its 'value' in the eyes of your customers and the price screams "Cheap junk"'? Did you know that an item's 'value' may change from month-to-month, season-to-season, day-to-day, and from one hour to the next? Have you wondered why Walmart is having yet another campaign about their insanely successful roll-backs?

Even tiny little things you may not notice can have huge effects on sales. Take rainy days for example. The whole wedding industry , ski resorts, electricians, amusement parks, some restaurants, photographers, postmen, most farmers if they're not in a draught, police, builders, outside painters — by the most part, these guys hate rainy days. But rainy days are a windfall for department stores that sell umbrellas. If I owned a department store, I'd automatically raise all umbrella prices by 15% at the first sign of a dark cloud. "Looks like a storm's coming, Ms. Barkley. Good idea to take advantage of our umbrella SALE!"

The point is, every item in your store deserves individualized attention if you want to raise your profits, because each one is a tiny little machine that either generates profits or sucks money out of your business like a tiny leak that goes undetected until you get the water bill, or worse – the ground caves in beneath your store.

If you have 4,000 items in your store, most of you can't name thirty of them without an invoice. You probably don't know the retail price of anything at this moment, and the money you make or lose on your inventory, if and when it sells?

You wouldn't hire an employee without knowing anything about them, yet you let your suppliers put these little strangers on your shelves every day. Some are there because they have to be someplace, and if your supplier knows you don't care, they'll put them there. Some are there because they look good (customers like that), but they never buy them. Others are there simply because you don't know they're there. And, some are there because they've been there since you first turned on your electricity. Very few of these little strangers produce profits. Almost nothing is priced correctly. The damage they do to your business is insidious and sadly permanent. You will not make up for the money lost yesterday – ever.

You need a tool that sets off an alarm when these little guys aren't paying their way. Some examples are:

  1. If an item has been there for ninety days without selling
  2. If the level of units fall below zero
  3. If the margin is not high enough to produce a reasonable profit
  4. If you have more inventory than you need to last before the next delivery
  5. If you will run out before the next delivery
  6. If the number of units were adjusted during the previous audit
  7. If sales of the item suddenly stopped
  8. If the selling price has remained the same for three months or longer
  9. If the selling occurrences of an item falls below that of other stores
  10. If you received more than you needed on the last delivery or didn't receive enough

These ten indicators, and more, should raise a red flag. Inventory is what generates profits for your business. Why do so many of you think so little of it and know so little about it?

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