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Getting Inventory Right

June 25, 2010

From Julie Raines, American Express OPEN Forum

Having the right inventory at the right time in the right place at the right price is the mantra of large-scale retailers with deep pockets for forecasting systems, planning analysts, and inventory purchases. But, for small-to medium-sized players, getting inventory right on a lower-volume scale in a local or regional market is tricky. Miscalculations of customer demand can be costly: tying up dollars in slow-moving inventory chokes cash flow.

Finding ways to generate sales without heavily investing in inventory, then, can be a tremendous benefit to positive cash flow and profitability. Eliminating or reducing inventory risk is certainly not a new idea, but definitely one to pursue aggressively in credit-tight times.

Consider vendor programs that allow your company to expand its product offerings in either well-established merchandise categories or new categories that complement your current lines:

  • Grow sales with special-order items, such as custom products (e.g., kitchen cabinets cut to customer specifications) and SKUs at higher-than-usual price points (e.g., designer gowns) that you may not want to carry in stores or distribution sites on a routine basis.
  • Find vendors who handle drop shipments. Product lines that are especially suited for direct shipment to customers are oversized items (e.g., furniture) and products that require specialized storage, packaging, and handling (e.g., delicate glassware or freshly cut flowers).
  • Look at online programs that link your storefront with a vendor’s inventory. Omaha-based wireless communications company Offwire, for example, offers an online catalog that enables its retail partners to sell a myriad of accessories without bulking up inventory.

Do your homework before launching new sales initiatives:

  1. Investigate programs with reputable vendors among your current list of suppliers as well as those in your industry with solid service records.
  2. Make sure you understand vendor procedures for processing and fulfilling orders as well as policies relating to inventory availability, lead times, payments, and returns.
  3. Create in-house policies and procedures for handling orders fulfilled with vendor inventory. Cover matters such as how to document customer requests and communicate specifications to vendors as well as when to collect payments from customers.
  4. Place a test order to make sure that your processes yield results in sync with your expectations; then, work out any deficiencies in your (or your vendor’s) methods.

To generate sales on products that can build brand awareness but may not be part of your core merchandise categories, consider:

  • offering apparel, gift, and home decor items embellished with your company’s logo by using print-on-demand vendors; and
  • creating, packaging, and delivering digital products, such as e-books, subscription newsletters, and webinars.

Choose product offerings aligned with your company’s mission. You and your staff can still provide expertise to customers by educating them on product offerings, benefits, and applications; making recommendations; defining and conveying specifications; resolving any problems and assuring customer satisfaction with purchases.

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