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Why does inventory need to be managed? In real estate it is location, location, location In retail it is cash, cash, cash Inventory 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.
Citation preview
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-$12213. 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
- Nor
th
Lexing
ton
Middleb
ury
Olym
pia
- Eas
t
TPC -
Tako
ma
Par
k
Wea
vers
Way
Coo
pera
tive
Ass
ociatio
n - C
arpe
nter B
erks
hire
La M
onta
nita
- Valley
Eas
t End
Out
post
- Bay
View
Firs
t Alte
rnat
ive
- Sou
th Mos
cow
Fran
klin C
omm
unity
Coo
p - G
reen
Fields
Mar
ket
La M
onta
nita
- Nob
Hill
Eve
r'man
Nat
ural F
oods
Co-
op
Food
Fro
nt -
Nor
thwes
t
Har
vest
- Ja
maica
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 = $4,800,000At 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
Marke
t
Harve
st - Ja
maica
Plain
Hun
ger M
ountain
Harve
st - Cam
bridge
Brattleb
oro
Middleb
ury
Lexing
ton
Com
mon
Marke
t
Hon
est W
eigh
tWea
vers W
ay C
oope
rativ
eAss
ociatio
n - C
arpe
nter
Berks
hire
TPC - Ta
koma Park
Hun
gry Hollow
Green
Star
Syrac
use
Putne
y
Eas
t End
Con
cord
Fran
klin C
ommun
ity C
oop - G
reen
Fields
Marke
t Wild
Oats Co-op
Abu
ndan
ce M
arke
t
TPC - Silv
er S
prings
Who
le Foo
ds C
oop
Upp
er V
alley
Fran
klin C
ommun
ity C
oop -
McC
uske
r's M
arke
tRising Tide
Springfield
Blue Hill C
oope
rativ
e
Han
over - Han
over
Han
over - 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
Ass
ociatio
n - C
arpe
nter
TPC -
Tako
ma
Par
k
Har
vest
- Ja
maica
Plain
Olym
pia
- Eas
t
Fran
klin C
omm
unity
Coo
p - G
reen
Fields
Mar
ket
Eve
r'man
Nat
ural F
oods
Co-
op Middleb
ury
Lexing
ton
Mos
cow
Firs
t Alte
rnat
ive
- Sou
th
Firs
t Alte
rnat
ive
- Nor
th
La M
onta
nita
- Nob
Hill
La M
onta
nita
- Valley
Out
post
- Bay
View
Food
Fro
nt -
Nor
thwes
t
Ber
kshire
Eas
t 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 productsReduction in skus combined with greater facings of fast movers typically increases salesEliminate similar skus wherever possible
Westbrae, Eden Natural Value –canned garbanzo beansHain, Spectrum- canola oilBulk beans, packaged beans
Thank you!