Inventory is the largest investment a company shows on its books. Having just enough inventory to meet customer demands (just in time inventory management) is key to effectively managing your inventory levels and cash flow.
Liquidating dead (obsolete) inventory or slow sellers (inactive). The problem is that slow sellers and inactive inventory take up valuable storage space. Thus, increasing your holding cost.
- Work with marketing and sales teams
Use promotions and incentives to update and move monthly slow moving items, run sales and promotions to move these out of your warehouse.
- Inventory Value
Know your inventory cost value every month. Do not place orders for new items if you still have too many old units you need to sell. Monitor your min-max for every product SKU (stock keeping unit). Do not blindly issue purchase orders for new items.
- Study historical trends
Know which inventory sell the best for each month. Each month will be different and you will have peaks and lows for each SKU and each category. By reviewing historical data, you will be able to forecast more accurately your future buys.
- Best sellers
Know which items are your best sellers. Know which category you will be increasing to capitalize on sale trends. These core best sellers should always be on hand for immediate order fulfillment and delivery to customers. These are likely to be the top 20% of products that bring in 80% of your revenue
- Slow sellers
Agree on a metric for which an item is classified a slow seller. Let’s say, for example, if an item hasn’t sold in 30 days, the marketing department gets a list of slow movers and they will devise promotions to generate sales of these items.
- Dead inventory
These are products remaining in inventory after a several attempts by marketing to get rid of slow sellers, to no avail. It’s time to re-classify these items as dead inventory. You can further reduce price significantly below cost, donate them to a non-profit or use them as give-aways for future purchases and promotions (free gift with purchase, while supplies last).
- Manage back orders
Study the items that are frequently out-of -stock and being backordered by your warehouse and by your vendor. Work on a process that will reduce the back order levels in your warehouse. This will help reduce customer cancellations of out-of-stock merchandise. There is opportunity-cost associated with minimizing lost revenue and canceled orders.
- Work with your vendor
Get to know their buying cycles, know which period they hold the most inventory and which period they are at their lowest. This will help you plan your purchasing strategy to ensure that you have optimal just in time (JIT) inventory for your key items. Rate your vendors and know which vendors are the best to work with to fit your company’s needs.
In the Long Run:
Doing the hard job of cleaning and maintaining your inventory levels helps free up your cash flow and adds more profit to your bottom line. Lessons learned in reducing dead inventory and slow sellers help your purchasing team become more efficient and become better buyers. Buying right translates into better customer service for your customers, which results in customer loyalty and more profitability. Effective inventory management is the single most important tool to improve customer service and reduce cost of operation
By: Shirley Tan
eCommerce Weekly Checklist: Inventory Management