Inventory is your store’s largest asset, but can also be your worst expense. According to Paul Erickson, Senior VP of Client Services, “Nothing ties up cash more than inventory”.
Do you suffer from any of the following problems?
– Overbuying or under-buying
– No buying plan
– No real-time inventory data
– Too many vendors
– Buying just in time or just in case you need it
If so, it’s time you change the way you look at buying. By executing a successful inventory management strategy, you’ll be able to make better buying decisions which will increase inventory productivity and cash flow. To do so, you’ll need to use the right data. This will give you visibility into your best and worst performers, products, classes, SKUs, brands, and more. This strategy will give you insight into the profitability and ROI of categories and vendors so you can justify your buying decisions.
Analyze product performance
As a general rule, you can improve your cash flow by 1% for every 1 week of improvement you achieve in inventory turns. Turns are the rate at which inventory is sold within a certain time frame. This is an important indicator of how efficiently a product is moving through a sales cycle. You can use turns to discover what products sell most quickly and make you the most money (note: products selling at a faster rate usually sell at full price and higher margins). On the flip side, slow inventory turnover is an indicator of lost opportunity.
Here’s how to improve your inventory turn rate:
1. Analyze your turn data at the class, brand, and product levels to identify inventory performance
2. Mark down stale products to sell them quickly and make room for better-performing products
3. Invest your cash into high productivity classes, brands, and products
Making these decisions will improve your inventory productivity to increase cash flow.
What would it look like if your business could increase overall inventory turn by shaving off just one week off inventory age? Find your potential cash flow increase:
Total number of sales X .01 (1% improvement from 1-week turn increase) = cash flow increase