collins street inventory management presentation
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The Retail Doctor® Group Pty Ltd
www.retaildoctor.com.au
INVENTORY MANAGEMENT
© Copyright 2009. The Retail Doctor® Group Pty Ltd
Inventory Management
TH
E T
OP
5 RE
AS
ON
S F
OR
FAIL
ING
BU
SIN
ES
SThe Top 5 Reasons for Failing Business
© Copyright 2009. The Retail Doctor® Group Pty Ltd
In 2007, every 11 ½ minutes one US retailer failed due to one of the
top 5 retail killers:
5. Out of control growth
6. Out of control expenses
7. Failure to manage gross margin
8. Out of control inventory OR
9. Being out of cash
OB
JEC
TIV
ES
Objectives
© Copyright 2009. The Retail Doctor® Group Pty Ltd
How to understand a merchandise
management system to improve
gross margin and cash flow
How to analyse product categories
to improve margin profitability and
cash flow
How to understand inventory
productivity
INV
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Inventory Management
© Copyright 2009. The Retail Doctor® Group Pty Ltd
Product
What would you measure?
Quantity
Operating margins (Prime & Finish)
Cost of goods sold
Profit by product
Stock turn
Sell through
INV
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TO
RY
OB
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AT
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Inventory Observations
© Copyright 2009. The Retail Doctor® Group Pty Ltd
Inventory is the “heart” of a retail store
Inventory is the single largest investment of capital
Inventory is the cause of most successes and failures
Ultimately the goal of every retailer is to never own inventory –
perfection is sell and buy
Businesses that own inventory are called museums
‘Inventory is merely the physical correlate of deficient information’ (Evans &
Winster, Blown to Bits)
All inventory is evil (Jim Dion, 1986)
Treat your inventory like a houseguest that snores…
It will make or break you…..
FAC
TS
Facts
© Copyright 2009. The Retail Doctor® Group Pty Ltd
Most retail stores carry two to three times
more inventory than necessary
Most retail stores penalise their
customers for their own mistakes
Many retail stores have little idea of how
much inventory to purchase each month
INV
EN
TO
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PR
OD
UC
TIV
ITY
© Copyright 2009. The Retail Doctor® Group Pty Ltd
Real productivity is about doing more with less
Anyone can sell more with more inventory, the real trick is to sell more with
less inventory
BO
OS
TIN
G LO
W S
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Boosting Low Sellers
© Copyright 2009. The Retail Doctor® Group Pty Ltd
Presentation
Seasonal issues
Merchandise quality
Training product knowledge
© Copyright 2009. The Retail Doctor® Group Pty Ltd
Identify and clear everything over six
months old
Are you a museum or store?
Prepare aged inventory lists
Make the old look new
Get rid of everything over 12 months old – NOW!
SA
FE
TY
ST
OC
KS
Safety Stocks
© Copyright 2009. The Retail Doctor® Group Pty Ltd
Hide problems
Increase costs and risk
Reduce or eliminate profits
Are excuses for poor management
Ultimately decrease service levels
WH
Y A
T R
ETA
IL VA
LUE
?
Why at Retail Value?
© Copyright 2009. The Retail Doctor® Group Pty Ltd
Always ‘buy at retail’ because that is
what your customer does!
Your cash flow in is at retail
Your sales budgeting is at retail
If you have ‘deals’ at high margin an
open to buy at cost can put you way over
budget
© Copyright 2009. The Retail Doctor® Group Pty Ltd
Inventory KPIs
ST
OC
K T
UR
NStock Turn
© Copyright 2009. The Retail Doctor® Group Pty Ltd
What is stock turn and why is it important?
Inventory represents the largest single element
of total assets
The sale of goods from this inventory is the
retailers chief source of operating profit.
Effective merchandise investment is of utmost
importance in achieving a profitable operation
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Inventory Management
© Copyright 2009. The Retail Doctor® Group Pty Ltd
The quantity of inventory
The profile
The aging
The Stock turn = net sales / avg stock holding
View retail performance against benchmarks
* Inventory position / stock management is a key determinant of the
health of a retail business.
© Copyright 2009. The Retail Doctor® Group Pty Ltd
INV
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Inventory Management
Inventory generates gross margin dollars BUT it soaks up cash
What are their buying processes
Sales history, by product, place, time etc
Sales forecast etc
Do they operate and manage an Open to Buy plan
And most importantly…..
SO
ME
OT
HE
R IN
VE
NT
OR
Y M
EA
SU
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Some Other Inventory Measures
© Copyright 2009. The Retail Doctor® Group Pty Ltd
Days Supply (how many days of sales you have with current and insight
inventory)
Weeks Supply (how many weeks of sales you have with current and
insight inventory)
Stock to Sales Ratio (stock divided by sales)
Percent Fresh (amount of inventory less than four weeks old divided by
total inventory)
Weeks Supply Units (unit sales divided by weeks)
Stock to Unit Sales Ratio (stock in units divided by unit sales)
GMROII (gross margin return on inventory investment - always a $)
SU
GG
ES
TIO
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Suggestions
© Copyright 2009. The Retail Doctor® Group Pty Ltd
Use a four tier system to identify age
Current = less than 3 – 4 months old
Last season = 3 to 6 months old
Old stock = 6 to 9 months old
Danger = over 9 months old
Goal is to NEVER have anything over 9 months and over a year
is dead man walking!
Colour code or identify your stock
© Copyright 2009. The Retail Doctor® Group Pty Ltd
GMROI
GM
RO
IIGMROII
© Copyright 2009. The Retail Doctor® Group Pty Ltd
Gross margin return on inventory investment
Only financial ROI that returns a $ answer
For every $ that you invest in inventory what was the return?
Measures impact of margin and turn
Use to identify good categories / vendors
What is the minimum that is acceptable?
© Copyright 2009. The Retail Doctor® Group Pty Ltd
Markdowns
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MA
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Plan for Markdowns
© Copyright 2009. The Retail Doctor® Group Pty Ltd
Markdowns are a fact of life in retail
Although we cannot be right all the time, we should be right most of the
time!
Markdowns accurately report the true value of our inventory
Historical
Replacement
Market
Great retailers take markdowns every month
SU
GG
ES
TIO
NS
Suggestions
© Copyright 2009. The Retail Doctor® Group Pty Ltd
Try to negotiate the longest payment terms that you can
Ask yourself if you can sell at least half of what you are buying before you
have to pay for it
Buy from vendors that give you longer terms or will collaboratively plan to
increase your stock turn so turns exceed terms
MA
RK
DO
WN
BU
DG
ET
Markdown Budget
© Copyright 2009. The Retail Doctor® Group Pty Ltd
For Each Month
Identify all your old merchandise
Identify what you want to promote
Take your ‘regular’ markdowns on the first day of the month
Take your promotional as they occur
Note: Regular Markdowns are permanent reductions in the selling
price while promotional markdowns are temporary and only
are incurred when the items are sold
What Influences P
rofit?
What Influences Profit?
© Copyright 2009. The Retail Doctor® Group Pty Ltd
Sell through
Stock turns
Inventory levels and their effect on profit
Prime margin vs. finished margin
ST
OC
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UR
N Stock Turn
© Copyright 2009. The Retail Doctor® Group Pty Ltd
ADVANTAGES OF A FAST STOCK TURN RATE
Retail relies on realising a large volume of sales on as small an inventory
investment as possible to meet customer demands.
Also, it is important, as fashions and seasons change, to turn the inventory
quickly so as to avoid excessive markdowns or carryover of out-of-season
inventory.
Another advantage is that a fast Stock Turn Rate will actually increase
sales due to the increased flow of fresh new merchandise into the store
creating excitement and a reason for the customers to come back
frequently.
TU
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OV
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Turnover Benefits
© Copyright 2009. The Retail Doctor® Group Pty Ltd
Lower inventory investment
Lower inventory risk
Less space
Fresher product
Always new to show customer
Lower selling price (maybe)
© Copyright 2009. The Retail Doctor® Group Pty Ltd
ST
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Stock Turn
A few suggestions on how to reduce stock holding:
1. Buy more frequently, in smaller quantities.
2. Reduce number of assortments (vendors, styles, colours, sizes, prices).
3. Eliminate slow-selling merchandise.
4. Buy closer to the selling season.
DE
VE
LOP
ING
SA
LES
FO
RE
CA
ST
SDeveloping Sales Forecasts
© Copyright 2009. The Retail Doctor® Group Pty Ltd
Review past sales
Review past holiday and seasonal activities
Analyse changes in economic conditions
Analyse changes in the sales potential
Analyse changes in marketing strategies of the retail
organisation and the competition
Check weather forecasts
Create the sales forecast
30
CO
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Calculate min / max levels for retail inventory and demonstrate
how to set correct inventory levels for a variety of retail situations.
Apply the concepts of top sellers / slow movers and inventory
aging to retail inventory to maximise profitability.
Explain why the retail method is preferred over the cost method for
the purposes of inventory management.
(continued)
MA
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Managing the Merchandise
© Copyright 2009. The Retail Doctor® Group Pty Ltd
Developing a sales forecast
Determining the merchandise requirements
Merchandise control
Assortment planning
© Copyright 2009. The Retail Doctor® Group Pty Ltd
Receiving Inventory
Receiving M
erchandise
Receiving Merchandise
© Copyright 2009. The Retail Doctor® Group Pty Ltd
Check the merchandise to make sure it
agrees with the order, as well as the invoice.
Check the cost billed on the invoice against
the quoted price on the order.
Enter the retail selling price next to the cost
price on the invoice.
Price all merchandise showing the correct
classification letters or numbers.
Record the merchandise received on the
correct category or classification page.
© Copyright 2009. The Retail Doctor® Group Pty Ltd
Open to Buy
OP
EN
TO
BU
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Open To Buy – Strategies for Profitable Buying
© Copyright 2009. The Retail Doctor® Group Pty Ltd
Open to Buy Myths
OTB is only for fashion stores
OTB does not work with basics
OTB is complex and constraining
OTB budgeting is difficult
OTB is not for outdoor stores
OP
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Open To Buy – Strategies for Profitable Buying
© Copyright 2009. The Retail Doctor® Group Pty Ltd
Open to Buy Realities
OTB leads to greater productivity
OTB works with basics
OTB is not complex
OTB leads to better customer service
OTB improves cash flow
© Copyright 2009. The Retail Doctor® Group Pty Ltd
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Open to Buy Begins With
Sales forecast:
External factors.....….
Internal factors....…..
Then ask the question:
‘How much inventory do I need to support my sales plan?’
OT
B IS
BE
ST
DO
NE
BY
CA
TE
GO
RY
OTB is Best Done By Category
© Copyright 2009. The Retail Doctor® Group Pty Ltd
Total Store
Department
Category / Classification
Sub-Category / Sub-Class
Line / Vendor
Item
SKU
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F A
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FF
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TIV
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ER
CH
AN
DIS
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MA
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Benefits of an Effective Merchandise Management System
© Copyright 2009. The Retail Doctor® Group Pty Ltd
Carry the right inventory
Carry the right amounts of inventory
Manage cash flow
Earn a profit
THE RETAIL DOCTOR ® GROUP PTY LTD
© Copyright 2009. The Retail Doctor® Group Pty Ltd
Mailing AddressPO Box 209 Milsons Point NSW 2061 Phone | +61 (0)2 9460 2882Fax | +61 (0)2 9460 3883E-mail | [email protected]: | www.retaildoctor.com.au
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