CCMA 2009

Managing InventoryManaging Inventory Presented by: Mel Braverman

MelBraverman@cdsconsulting.coop

Agenda

Inventory impact on your storeInventory turns-how we measure effectiveness of inventory management– Formula for inventory turns– Formula for COGS

What is average inventorySome industry numbersWhat factors may impact inventory turns, whyWhat you need to consider to determine appropriate inventory amount to carryTools for inventory managementQuestions/issues

Why does inventory need to be managed?

In real estate it is location, location, location In retail it is cash, cash, cashInventory levels impact your cash flow: more inventory=less cash, less inventory=more cash.Cash flow is extremely important to a business in general-during these times it is critical.Without appropriate cash flow a business will be stressed.Maximize your inventory management and you can enhance your available cash.

Why else?

Lost sales from too little inventoryShrink - too much perishable inventorySpace management-too much inventory may create backroom issues.Labor efficiency - too much inventory can create less efficient use of laborKeep interest payments lower:

Less inventory=more cash=less borrowing=less interest.

What are inventory turns

It is the measurement of how many time a year the value of your average inventory

(at cost) is sold.

Cost of Goods SoldAverage Inventory

What is COGS?

COGS stands for Cost Of Goods Sold

The formula to determine COGS is:

(beginning inventory + purchases) – ending inventory

It is the inventory used to produce your sales!

What is your average inventory?

Throughout the year your inventory amount will fluctuate depending on the day.

To determine your average inventory take your last 5 quarterly inventories, add them up, divide the sum by 5.

Last 5 inventories/5

Industry data

Store size Store inventory turn TQ

1. Extra large>$12 million 232. Large $8.5-$12 213. Large medium $6-$8.5 184. Medium large $3.5-$6 185. Medium $2.4-$3.5 156. Small medium $1.2-$2.4 137. Small <$1.2 12

Top Quartile Inventory Turns

Produce Haba Prepared fds Packaged Frozen Refrig Bulk

XL 104 8.2 50 21.5 30 70 30

L 95 8.1 45 21 29.5 63.5 25

LM 92 7.7 35 17.5 28 54.5 24.5

ML 84 6.2 35 16 22.5 50 18

M 59 5.2 34 13 17 47 16

SM 56.5 4.6 30 10.5 15.5 42.5 14.5

S 53 4.3 26.5 8.6 12.3 35 11

Large Medium Turns-Total store 18

Inventory Turnover

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What is the difference?

Large medium co-op @ $7.5 million sales

achieving a 36% margin

COGS= $7,500,000 * .64 = $4,800,000

At 15 turns $4,800,000/15= $320,000 average inventory

At 18 turns $4,800,000/18= $266,666 average inventory

17% inventory reduction, $53,334

At 20 turns $4,800,000/20= $240,000 average inventory

25% inventory reduction, $80,000

North East- Total store turnsInventory Turnover

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What factors may impact inventory turns?

Sales mixProduct mixNumber of deliveriesProduct introduction approachProduct discontinuation speedMinimum order quantitiesPurchasing volume discountsOrder cycleInvestment buying for margin enhancementSafety stockYour cooperative’s capital use needs

What is the correct amount of inventory to carry?

A number of factors must be taken into account in addition to the previously stated factors:

Are you going to investment buy? How much?

What are your cash limitations?

What are your space constraints?

What inventory amount will negatively impact out of stocks?

What is your delivery cycle?

What is your fear factor?

Tools for inventory management

Appropriate category spaceReceiving logGL monthly reviewPurchase to sales journalSetting parsSKU reductionElectronic ordering with order history-Scan GeniusOrganizing/dating back stock Regular product movement review leading to eliminating slow sellers

Volume slottingOrdering for shelf setShelf tagsDenoting top sellers on shelf tagsSpecials buy- top selling products onlyDummy up shelvesIncrease delivery frequencyAvoid products/companies with minimums not easily metPurchasing budgetsSPINSPOS system

Purchase to sales journal-bulk

Week Purchases Sales Var $ Var %6/1 $3,224 $6,102 $2,878 47.16%

6/8 $2,988 $5,513 $2,525 45.8%

6/15 $3,074 $5,721 $2,647 46.2%

6/22 $3,163 $5,004 $1,841 36.79%

6/29 $3,021 $4,933 $1,912 38.75%

SKU reduction

Retails 80/20 rule - 80% of your sales volume comes from 20% of your products

Reduction in skus combined with greater facings of fast movers typically increases sales

Eliminate similar skus wherever possible Westbrae, Eden Natural Value –canned garbanzo beans

Hain, Spectrum- canola oil

Bulk beans, packaged beans

Thank you!