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Inventory Control 101

Candi Horton

Association of Craft Producers - Nepal

Kumbeshwar Technical School - Nepal

Cats in KathmanduScarves in Kolkata

CORR – The Jute Works, Bangladesh

Inventory Control

• Having the right product at the right time in the right quantities. This is an art and a science.

• Selecting the right product is the art. Fresh merchandise keeps your customer coming back.

• Buying the right quantities at the right time is essential in achieving your full sales potential. This is the science of inventory control.

Three Magic Words

sku turn m/m’s

Four Magic Numbers

1.7 4 20 80

Planning for Profit

Annual Sales and Expense Budget

Profit!?!?!

Income - Expenses = Profit

Profit is needed for:

• Capital improvements

• Loan repayments

• Future expansion

• Finance cash flow

• To help others grow fair trade

• Taxes

• Working capital

Annual budget

• Have one, it’s your road map for the year

• Plan for a profit

• Usually plan for a sales increase, always have a corresponding plan on how that increase will be achieved

Sales $100,000COGS $52,000Gross Profit $48,000

ExpensesAdvertising $5,000 Industry standard: 4 to 6% of salesCredit card $2,700 2 to 3% of salesPayroll $15,000 Industry standard: 14 to 17% of salesOccupancy $15,000 Industry standard: 14 to 17% of salesOther $5,300 Supplies, insurances, dues/sub, telephone, etc.

Total Expenses $43,000

Net Profit $5,000

sku

1.7

turn

4

COGS/average inventory = turns

Average inventory = beginning inventory plus twelve month-end

inventories divided by 13.

m/m’s

20 80

Product minimums and maximums are set according to their sales history and desired number of turns.

New items are dollars at risk. You want to minimize the risk incurred by limiting the quantities purchased until you have sales history.

Projected sales under Projected sales over$200,000 $200,000

Price min max min max0 to $5 3 6 4 8$6 to $15 2 2 3 4$16 to $25 1 1 2 2Over $25 1 1 1 1

Two month reviews should be done on every new item.

Sales % Inc Sales % Inc Sales % Inc

Jan 6,372 3.5% 4,886 2.5% 5,292 3%

Feb 4,900 2.5% 6,674 3.5% 7,894 4%

Mar 10,724 5.5% 10,170 5% 12,486 6.5%

Apr 1,2506 6.5% 11,656 6% 11,332 6%

May 12,680 6.5% 14,398 7.5% 15,928 8%

Jun 14,480 7% 13,430 7% 15,234 8%

Jul 19,868 10% 18,340 9.5% 16,466 8%

Aug 16,330 8% 16,844 9% 18,356 9%

Sep 12,816 6.5% 12,148 6% 16,642 8.5%

Oct 20,342 10% 18,100 10% 16,136 8%

Nov 24,966 13% 22,340 12% 24,360 12%

Dec 40,978 21% 41,054 22% 37,622 19%

Total 196,962 100% 190,040 100% 197,748 100%

Five steps to implement:

1. Gather your historical sales information. Determine your store’s monthly sales percentages.

2. Make a budget.

3. Bring your inventory down to 1.7 skus/square foot (if properly “footed”).

4. Set m/m on all product in the store based on sales history and order accordingly.

5. Review every new item after 2 months and adjust m/m to sales history.

Index cards:

One for your name and email address if you would like to receive this handout. Please print.

One for any questions you have that didn’t get answered during this hour.

Inventory Control 201

Annual inventory management overview. What needs to happen each month of the year to keep

your turns up.

How to utilize best seller reports.

Disposal of old merchandise.

Inventory control for seasonal items.

Desired inventory level.

If you have any inventory control or financial management questions whatsoever you may email at any time of the day or night:

Candi Hortoncsmucker@vom.com