Most people today would not want to leave $500 sitting in a cabinet in their home. They would prefer to put it in a bank so it can earn interest. Of course you always need a little in your pocket to pay for odds and ends but only enough to meet your needs until you can next get to the bank for more cash – generally a day or two at most.

 

You should treat your inventory in the same way. In these days of quick order turnarounds and short shipment times, you have the luxury of keeping your inventory to lower levels than ever possible in the past. Keep only the minimum that you need in stock, and be prepared to contact your vendor to replenish and expect them to be able to do so quickly. Let them carry the burden of inventory investment.

 

Of course it is not quite that simple. Freight costs can generally be minimized by taking in larger orders and when the customer does come in, you do not want to be caught short of stock, but the principles described above, with the right and responsive partner as a vendor, can help you minimize your investment and save you money. 

 

When was the last time you reviewed your individual products and made sure that your inventory levels are optimal? Generally when we do take the time to look at retail inventories, more often than not you will find more than a few items with only one or two sold per month and 3, 4 or even more in stock – when a new order to the vendor can arrive in two weeks or less. Make sure you do that analysis at least a few times a year – more often if you are a high volume store. A simple equation is the number of units in stock divided by the average units sold per month equals your months of supply on hand. If you have more than a month’s supply of any item in stock, you may need to review that item and how often you are purchasing it from your vendor.

 

Also, take advantage of vendor drop ship programs especially for items that you may sell only on an occasional basis. While the term “special order” gives the impression of potentially weeks of delay, a good drop ship vendor can get the product to you or even to your customer’s door in a matter of a few days to a week on the outside. Do you really want to keep that commercial piece in your inventory for that once a year sale when you can get one shipped to you in a few days from your vendor?

 

Inventory is never easy to manage and it takes constant vigilance, but with a little analysis and periodic review, you may be surprised at how well you can do, and make your vendors a partner in the process – it is their responsibility too.