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CCMA 2009 Managing Inventory Presented by: Mel Braverman MelBraverman@cdsconsulting.coop

CCMA 2009 Managing Inventory Presented by: Mel Braverman MelBraverman@cdsconsulting.coop. Agenda. Inventory impact on your store Inventory turns-how we measure effectiveness of inventory management Formula for inventory turns Formula for COGS What is average inventory Some industry numbers

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CCMA 2009 Managing Inventory Presented by: Mel Braverman MelBraverman@cdsconsulting.coop

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  1. CCMA 2009Managing InventoryPresented by: Mel BravermanMelBraverman@cdsconsulting.coop

  2. Agenda • Inventory impact on your store • Inventory turns-how we measure effectiveness of inventory management • Formula for inventory turns • Formula for COGS • What is average inventory • Some industry numbers • What factors may impact inventory turns, why • What you need to consider to determine appropriate inventory amount to carry • Tools for inventory management • Questions/issues

  3. Why does inventory need to be managed? • In real estate it is location, location, location In retail it is cash, cash, cash • Inventory 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.

  4. Why else? • Lost sales from too little inventory • Shrink - too much perishable inventory • Space management-too much inventory may create backroom issues. • Labor efficiency - too much inventory can create less efficient use of labor • Keep interest payments lower: Less inventory=more cash=less borrowing=less interest.

  5. 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 Sold Average Inventory

  6. 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!

  7. 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

  8. Industry data Store size Store inventory turn TQ 1. Extra large>$12 million 23 2. Large $8.5-$12 21 3. Large medium $6-$8.5 18 4. Medium large $3.5-$6 18 5. Medium $2.4-$3.5 15 6. Small medium $1.2-$2.4 13 7. Small <$1.2 12

  9. 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

  10. Large Medium Turns-Total store 18

  11. 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

  12. North East- Total store turns

  13. Large Medium Produce

  14. What factors may impact inventory turns? • Sales mix • Product mix • Number of deliveries • Product introduction approach • Product discontinuation speed • Minimum order quantities • Purchasing volume discounts • Order cycle • Investment buying for margin enhancement • Safety stock • Your cooperative’s capital use needs

  15. 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?

  16. Appropriate category space Receiving log GL monthly review Purchase to sales journal Setting pars SKU reduction Electronic ordering with order history-Scan Genius Organizing/dating back stock Regular product movement review leading to eliminating slow sellers Volume slotting Ordering for shelf set Shelf tags Denoting top sellers on shelf tags Specials buy- top selling products only Dummy up shelves Increase delivery frequency Avoid products/companies with minimums not easily met Purchasing budgets SPINS POS system Tools for inventory management

  17. 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%

  18. 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

  19. Thank you!

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