Australian retailers have had one of the quietest selling periods over Christmas for many years and the global outlook is bleak. Hence, improving back-end processes and systems will help retailers to remain competitive in 2012.
Inventory forms one of the largest expense items for a retailer. Optimising the management of this important component in the business can help save money and improve selling opportunities. Here are 7 reasons why improved inventory management can help the Australian retailer in 2012:
- Reduce working capital demands. Carrying excess inventory ties up working capital – cash. We know that cash is king, especially in a retail context, and if inventory levels can be optimised, say by 10%, this has an immediate flow-on effect to the bank balance.
- Avoid excessive discounting. Discounting practices appear to be a perpetual part of the retailer’s calendar. However, when discounting is used to clear excessive stock it fails to become a strategic sales technique but rather a mechanism to cover up expensive mistakes in ordering and merchandising.
- Reduce warehouse costs. Knowing the right amount of inventory to carry has a flow-on affect in all aspects of the supply chain. A smaller warehouse footprint helps reduce labour and fixed costs.
- Make the most of consumer opportunities. Carrying the wrong inventory or not having enough stock on hand can result in missed sales opportunities. Analysing the buying pattern of consumers and identifying which products are ‘hot’ can help the ordering team remain on top of the game.
- Improved relationships with wholesalers. Most businesses prefer a regular, steady stream of orders rather than sporadic or occasional orders. Understanding the flow of your inventory and the stock-turn ratios can help regulate the placement of orders on wholesalers and avoid rushed or irregular behaviour. In turn this improves the relationships with suppliers.
- Avoid carrying out-of-date inventory. Unlike a good red wine, most goods deteriorate, depreciate with time or go out of fashion. Analysing stock-turn ratios and highlighting goods before their shelf-life expires can help the store operators to shift goods before they become expensive write-offs or landfill.
- Remain nimble to changes in the market. Consumers are fickle. As new trends appear or competitors’ tactics change it is important the retailer can be nimble enough to react quickly. The retailer whose inventory levels are optimised is likely to have more ready-cash, space, and manpower to respond than a retailer labouring under the weight of excessive or inappropriate inventory.
To find out more about how to analysis and optimise inventory management talk to Professional Advantage, www.pa.com.au/microsoft