Before I joined the RICS team I worked as the CEO at Stout’s, an Indianapolis-based shoe store with 4 locations.
At the beginning of every season, the team would decide how to allocate our budget against different vendors, classes, and specific products. We would focus on analyzing inventory performance across these categories so that we could plan properly for the Spring or Fall delivery, and focus on the flow of goods throughout a season.
It was important to keep things coming in as needed but also plan far out to maximize our discounts.
So, what is a smart retailer going to do with the future orders based on sales and inventory performance? Edit.
How to Analyze and Edit Future Orders
Editing future orders based on sales, on-hand inventory, discount policy, ability to transfer (for multi-store owners) and new market trends is one of the best things you can do to improve inventory turn and thus cash flow. Here’s how it’s done:
1. Make sure you’re using an inventory system that allows you to enter and report on your purchase orders.
These reports will show you what’s on order for at-once delivery and for future delivery, all in one place. You can also look at those orders and sort them by not only vendor but class/department of merchandise as well.
2. Analyze how your classes/vendors/SKUs are performing and identify what needs to be adjusted
Look at your sales reports that provide you information about total sales and profit margin. Compare your on-hand inventory’s performance to the merchandise coming in.
A good indicator of where we want to make cuts or additions are “ROI” (return on investment) and inventory “turn”. These can help you better understand where you are over-inventoried and where you are missing out on an opportunity.
3. Know your vendor terms.
If you needed to order $25K worth of product from a vendor to hit a 5% discount, find out the threshold you can reduce the on-order quantity by before you lose it.
4. Reconsider your sales forecast.
You anticipated selling $10K worth of pink suede boots in November. You have $5K on hand and $10K set for November delivery. Do you simply cut the order by $5K? Perhaps …. But there are lots of variables that can have an effect. Has it been unseasonably warm? Is Beyoncé in green suede boots all over Instagram?
The key is to maintain the ability to know what you have ordered, what adjustments you can make and what adjustments you should make.
I know two things for sure, you can’t control the weather and you can’t control trends. However, you can control your orders and your inventory levels. So be smart, be informed, and analyze and edit future orders accordingly.