Wednesday, September 05, 2012

Empty Wagon or Museum? - Inventory Control is Marketing Secret 29/101

"You can't sell from an empty wagon" might be one old saying that is very, very close to 100% correct.  But it must be contrasted with "every business with inventory is only a few bad decisions away from being a museum."  Ok, the second one I made up with help from a friend who said this about his bicycle accessory wholesale business.  But those two thoughts together form the end points of the inventory control aspect of logistics.

Walmart destroyed its competition through inventory control.  They have by far the best supply system ever created.  Their strategically placed warehouses, real time sales analysis, and supplier partnerships give them amazing turns at retail and wholesale, and the ability to restock shelves daily with resulting customer satisfaction.  Everything they created 30 or more years ago is available to the smallest retailer today.  But it is very easy to ignore computer solutions and supplier initiatives and turn back to our gut for inventory control.

Why does it matter so much?

    ✓    Cost - Buying right effects your landed cost, therefore margins.
    ✓    Expense - There is a cost to carry inventory including space, cost of money, obsolescence
    ✓    Lost opportunity - You don't have unlimited showrooms, warehouse, cataloging 
    ✓    Lost sales - Wrong inventory and/or out of stock mean lost sales and lost customers

What do you need to know to properly control inventory?  The list isn't that long.
    1.    Current inventory
    2.    Product on the way/projected arrival date
    3.    Product ordered by not shipped/projected arrival date
    4.    Sales by day or month or both
    5.    Normal time from purchase to arrival
    6.    Pack sizes
    7.    Discounts apply at pack, case?
    8.    Back up supply available
    9.    On time/in stock rating for supplier
    10.    Significance of being out of stock ranking

In 1972, I walked into the warehouse of my first, and only, employer. I couldn't believe how much money he had wrapped up in inventory that was very, very dusty. I used the 10 pieces of information in that list to create a hand system (no computers yet) to order by. He had been getting about 1.5 inventory turns per year. Using that system, we were able to increase the turns to 7 per year. 

With today's computer capabilities, the issue is only whether someone cares enough to put the tools into place and maintain correct data.

Over and over again, I start a relationship with a new client, only to find out that they are sitting on huge amounts of dead inventory. In one case I helped a client to sell of $150,000 in old inventory within 10 weeks. Be honest about your inventory. Is there $10,000, $50,000, or more that you could sell off and use to reduce debt, buy better inventory, or use for a vacation to Hawaii?

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