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CCMA 2009 Managing Inventory Presented by: Mel Braverman [email protected]. Agenda. Inventory impact on your store Inventory turns-how we measure effectiveness of inventory management Formula for inventory turns Formula for COGS What is average inventory Some industry numbers - PowerPoint PPT Presentation
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CCMA 2009
Managing InventoryManaging Inventory Presented by: Mel Braverman
Agenda
Inventory impact on your storeInventory turns-how we measure effectiveness of inventory management– Formula for inventory turns– Formula for COGS
What is average inventorySome industry numbersWhat factors may impact inventory turns, whyWhat you need to consider to determine appropriate inventory amount to carryTools for inventory managementQuestions/issues
Why does inventory need to be managed?
In real estate it is location, location, location In retail it is cash, cash, cashInventory levels impact your cash flow: more inventory=less cash, less inventory=more cash.Cash flow is extremely important to a business in general-during these times it is critical.Without appropriate cash flow a business will be stressed.Maximize your inventory management and you can enhance your available cash.
Why else?
Lost sales from too little inventoryShrink - too much perishable inventorySpace management-too much inventory may create backroom issues.Labor efficiency - too much inventory can create less efficient use of laborKeep interest payments lower:
Less inventory=more cash=less borrowing=less interest.
What are inventory turns
It is the measurement of how many time a year the value of your average inventory
(at cost) is sold.
Cost of Goods SoldAverage Inventory
What is COGS?
COGS stands for Cost Of Goods Sold
The formula to determine COGS is:
(beginning inventory + purchases) – ending inventory
It is the inventory used to produce your sales!
What is your average inventory?
Throughout the year your inventory amount will fluctuate depending on the day.
To determine your average inventory take your last 5 quarterly inventories, add them up, divide the sum by 5.
Last 5 inventories/5
Industry data
Store size Store inventory turn TQ
1. Extra large>$12 million 232. Large $8.5-$12 213. Large medium $6-$8.5 184. Medium large $3.5-$6 185. Medium $2.4-$3.5 156. Small medium $1.2-$2.4 137. Small <$1.2 12
Top Quartile Inventory Turns
Produce Haba Prepared fds Packaged Frozen Refrig Bulk
XL 104 8.2 50 21.5 30 70 30
L 95 8.1 45 21 29.5 63.5 25
LM 92 7.7 35 17.5 28 54.5 24.5
ML 84 6.2 35 16 22.5 50 18
M 59 5.2 34 13 17 47 16
SM 56.5 4.6 30 10.5 15.5 42.5 14.5
S 53 4.3 26.5 8.6 12.3 35 11
Large Medium Turns-Total store 18
Inventory Turnover
0.00
5.00
10.00
15.00
20.00
25.00
30.00
Firs
t Alte
rnat
ive -
North
Lexin
gton
Midd
lebur
y
Olym
pia -
East
TPC
- Tak
oma
Park
Wea
vers
Way
Coo
pera
tive
Asso
ciatio
n - C
arpe
nter Be
rksh
ire
La M
onta
nita
- Vall
ey
East
End
Outp
ost -
Bay
View
Firs
t Alte
rnat
ive -
Sout
h Mos
cow
Fran
klin
Com
mun
ity C
oop
- Gre
enFi
elds
Mar
ket
La M
onta
nita
- Nob
Hill
Ever
'man
Nat
ural
Food
s Co
-op
Food
Fro
nt -
North
west
Harv
est -
Jam
aica
Plain
2007 - Q1 2007 - Q2 2007 - Q3 2007 - Q4 2008 - Q1 2008 - Q2 2008 - Q3 2008 - Q4 2009 - Q1
What is the difference?
Large medium co-op @ $7.5 million sales
achieving a 36% margin
COGS= $7,500,000 * .64 = $4,800,000
At 15 turns $4,800,000/15= $320,000 average inventory
At 18 turns $4,800,000/18= $266,666 average inventory
17% inventory reduction, $53,334
At 20 turns $4,800,000/20= $240,000 average inventory
25% inventory reduction, $80,000
North East- Total store turnsInventory Turnover
0.00
5.00
10.00
15.00
20.00
25.00
30.00
City M
arket
Harve
st - J
amaic
a Plai
nHu
nger
Moun
tain
Harve
st - C
ambri
dge
Bratt
leboro
Midd
lebury
Lexin
gton
Comm
on M
arket
Hone
st We
ight
Weav
ers W
ay C
oope
rative
Asso
ciatio
n - C
arpen
terBe
rkshir
eTP
C - T
akom
a Park
Hung
ry Ho
llow
Gree
nStar
Syrac
use
Putne
yEa
st En
dCo
ncord
Frank
lin C
ommu
nity C
oop -
Gree
nFie
lds M
arket Wi
ld Oa
ts Co
-opAb
unda
nce M
arket
TPC
- Silv
er Sp
rings
Whole
Food
s Coo
pUp
per V
alley
Frank
lin C
ommu
nity C
oop -
McCu
sker'
s Mark
etRis
ing Ti
deSp
ringfi
eldBlu
e Hill
Coop
erativ
eHa
nove
r - Ha
nove
rHa
nove
r - Le
bano
n
2006 - Q4 2007 - Q1 2007 - Q2 2007 - Q3 2007 - Q4 2008 - Q1 2008 - Q2 2008 - Q3 2008 - Q4
Large Medium Produce
Inventory Turnover - Produce
0.00
20.00
40.00
60.00
80.00
100.00
120.00
140.00
Wea
vers
Way
Coo
pera
tive
Asso
ciatio
n - C
arpe
nter
TPC
- Tak
oma
Park
Harv
est -
Jam
aica
Plain
Olym
pia -
East
Fran
klin
Com
mun
ity C
oop
- Gre
enFi
elds
Mar
ket
Ever
'man
Nat
ural
Food
s Co
-op
Midd
lebur
y
Lexin
gton
Mos
cow
Firs
t Alte
rnat
ive -
Sout
h
Firs
t Alte
rnat
ive -
North
La M
onta
nita
- Nob
Hill
La M
onta
nita
- Vall
ey
Outp
ost -
Bay
View
Food
Fro
nt -
North
west
Berk
shire
East
End
2006 - Q4 2007 - Q1 2007 - Q2 2007 - Q3 2007 - Q4 2008 - Q1 2008 - Q2 2008 - Q3 2008 - Q4
What factors may impact inventory turns?
Sales mixProduct mixNumber of deliveriesProduct introduction approachProduct discontinuation speedMinimum order quantitiesPurchasing volume discountsOrder cycleInvestment buying for margin enhancementSafety stockYour cooperative’s capital use needs
What is the correct amount of inventory to carry?
A number of factors must be taken into account in addition to the previously stated factors:
Are you going to investment buy? How much?
What are your cash limitations?
What are your space constraints?
What inventory amount will negatively impact out of stocks?
What is your delivery cycle?
What is your fear factor?
Tools for inventory management
Appropriate category spaceReceiving logGL monthly reviewPurchase to sales journalSetting parsSKU reductionElectronic ordering with order history-Scan GeniusOrganizing/dating back stock Regular product movement review leading to eliminating slow sellers
Volume slottingOrdering for shelf setShelf tagsDenoting top sellers on shelf tagsSpecials buy- top selling products onlyDummy up shelvesIncrease delivery frequencyAvoid products/companies with minimums not easily metPurchasing budgetsSPINSPOS system
Purchase to sales journal-bulk
Week Purchases Sales Var $ Var %6/1 $3,224 $6,102 $2,878 47.16%
6/8 $2,988 $5,513 $2,525 45.8%
6/15 $3,074 $5,721 $2,647 46.2%
6/22 $3,163 $5,004 $1,841 36.79%
6/29 $3,021 $4,933 $1,912 38.75%
SKU reduction
Retails 80/20 rule - 80% of your sales volume comes from 20% of your products
Reduction in skus combined with greater facings of fast movers typically increases sales
Eliminate similar skus wherever possible Westbrae, Eden Natural Value –canned garbanzo beans
Hain, Spectrum- canola oil
Bulk beans, packaged beans
Thank you!