More Sales. More Profit. More Life!
WHY is Inventory Planning so important?
In any retail business, the inventory is the largest investment you will make and accounts for a large part of your assets. The way in which this investment is planned prior to purchasing is crucial to the long term success of your business.
The health and value of your business is also largely measured by the inventory ROI, ensuring this is competently managed is also a key benefit.
However this is not always the easiest process to master, and is often the most challenging, however if successfully done, the rewards are your key to a successful Retail Business.
HOW will Planning impact your business?
The Ability to confidently allocate Open-To-Buy:
Who has ever popped into the grocery store for a couple of things and walked out with a full trolley?
If you haven’t formed a plan to create a list of exactly what you need to achieve the required sales, you will inevitably buy more or buy inappropriately to the needs of your business.
Just like popping into the grocery store, this is exactly what can happen when there are no Inventory Planning processes in your business. You have all good intensions to only purchase a small amount from a supplier but end up with more than you actually need!
Open-To-Buy planning is all part of Inventory Planning, and with a Sales Budget in place along with the knowledge of what inventory is on hand, a correct Open-To-Buy amount can be determined. Then you can confidently meet suppliers with a specific list and only purchase in-line with the actual needs of your business.
Correct Stock Levels by Product Category:
Have the correct amount of Inventory for your business is one step; however ensuring it is the correct assortment mix to maximize sales is somewhat more challenging. This is very difficult to achieve without an accurate Inventory Planning process.
Carefully analyzing each category is a critical part of Inventory Planning. You may have adequate stock levels to meet your sales budget; however, neglecting to manage the category mix will negatively impact the sales potential and ultimately increase markdowns. Sometimes what we think is, isn’t also what actually is !
Stock Turn Rate:
Poor Inventory planning will often result in low stock turn rate. This is a clear indication of the Inventory investment not being put to work.
A low stock turn rate will often result in low sales due to carrying too much old merchandise and not enough fresh merchandise. And as a result of the carryover stock, Cash Flow will be reduced and markdowns will likely be higher than normal, leading to a reduced Gross Profit.
On opposite end of the scale, a stock turn rate that is too high can result in inadequate stock levels and risk losing sales. An efficient Inventory Management system and process will help monitor this key performance indicator.
Risk Management:
As the Inventory is your largest investment, obviously it is also your largest risk. The absence of an Inventory Planning process and regular monitoring will increase your risks considerably and you will find yourself being much more reactive when making Purchasing and Markdown decisions.
Inventory Management includes continual forecasting and therefore will keep you proactive in critical decisions resulting in decisions that are more effective and less radical.
Managing the Sales Roller Coaster:
Every business has peaks and troughs and surviving through these varied times can be challenging. If the Inventory is not managed correctly these times will be even tougher and result in unmanageable Cash Flow.
HOW will Planning impact your business?
Sales:
The full sales potential may not be recognised. Lack of effective inventory analysis will impact the ability to identify missed sales opportunities in your business and constrain its potential growth. Having a process in place to measure each category in sales and profit will give you the ability to plan and manage inventory levels to maximize the sales potential of each category.
Gross Profit:
It’s not just sales that is important in your business, the profit from these sales is ultimately the most critical outcome to attain. Poor inventory management has a huge negative impact on the profitability of your business. By not being able to control Inventory, the markdowns will likely be increased and effectively erode your Gross Profit.
Cash Flow:
Cash is King! Many circumstances can affect Cash Flow, and having excess merchandise in your business is one of the major things that will tie up cash that could better utilised in other areas. Effective Inventory Management will assist in not only controlling the amount of merchandise, but also guide you to flow it in a way that will more closely match the timing of your purchases to sales needs, resulting in a more even and manageable Cash Flow situation.
In summary, if you don’t have an Inventory Management System and Process in place, your Sales, Profit and Cash Flow could be severely disadvantaged.
So what are the key Takeaways from this?
Inventory ties up assets – your money. Doing more with less is going to make life a lot easier for you. And give you a decent return on your investment.
Good inventory planning reduces risk – Retail is a risky business, effective forecasting can take away some of that risk.
Proper Inventory Planning can prevent many problems – The inability to pay the bills to name one!
Poor inventory planning will reduce Gross Margins and tie up cash, cash which should be put to better use!
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Simply click on the email link below and leave you Name / Business Name / Phone Number and I will contact you to arrange a chat.