How can I make my inventory control more efficient?

This article first appeared on November 10th, 2011.

I’ve started up an electronics retail business and have sourced plenty of stock.

However, the products aren’t selling as quickly as I thought and I’ve got an extremely costly surplus of stock on my hands.

How can I ensure that my inventory control is better in the future?

Oh my. Where to start?

1. Free up cash

You have to free up some cash. That means discounts. Get ruthless and move that stock!

Promote and market like mad. And put in place a markdown program.

2. Three month stock level

You should be looking at about an initial three month stock level as a rule of thumb.

Sounds as though you may have ordered more than three months’ worth of stock or your marketing isn’t hitting the mark. Today’s retail is more than ordering in stock and waiting for people to walk through the door.

How are you connecting with your customers? What offers are you putting to them? Are you front of mind for customers or are you invisible?

3. Cashflow

How you pay for your stock impacts on your cashflow. Are you paying in advance? 30 days? 30 days after receipt of invoice or product? And at 30 days are you paying cash (out of your bank account) or with a credit card?

If you pay with a credit card, you get another 30 days grace before you have to pay the credit card bill, which would give you product and 60 days to get your stock moving before you have to pay the piper.

4. Open to Buy

You need a system of buying and the most common is called Open to Buy.

It’s a spreadsheet that takes into account stock on hand, orders in the pipeline and when they’re due to arrive in store and guestimated sales. Used properly it will show you exactly how much stock you can afford to order each month, rather than overbuying and/or under-selling.

As a retailer you must take control of your stock levels – it should be your biggest cost. About 55% to 60% of all your costs should be stock (40% is all your other commitments). If your stock level percentage is over 60% of your expenses, you’re overstocked. If you’re under 55% – you’re understocked. It’s about balance.