I recently came across an article written in the small business section of the Costco magazine titled "It's all in the numbers." The article identified 3 things to watch as a small business owner. During my reviews of locations these are often mentioned as imperative to know and understand. Those three items are:
1) Inventory turnover;
2) Current ratio; and
3) Days sales outstanding (DSO).
I recently witnessed a location implementing an action plan to improve the productivity of a certain category [Inventory Turnover] that was so simple in its execution I am shocked other independent locations that I visited in 2011 are not doing more of this proactive practice.
The location knew they had a productivity problem [Inventory Turnover] within one category, because they had to regularly dust the product off whereas the other product categories within the location required very little cleaning maintenance. This simple action of cleaning and maintaining shelves on a regular basis allowed them to identify a red flag with productivity [Inventory Turnover].
Additionally they took the simple step of reviewing the data [they used scan data and purchase data as they had both, but you can use one or the other although sell through data is always more accurate then purchase data] and color coding the product on their spread sheet to separate out what was truly selling. This particular location drivers through its registers on average $200,000 a month in retail sales, so it is no slouch of a location. What they found shocked even themselves.
Of the 431 items in this product category, according to their calculations, LESS than 15% of all the items are turning twice a year based on existing stock level/inventory dollars. The break down....
133 items sold sold between 0-5 times a year
136 items sold between 6-10 times a year
95 items sold between 11-17 times a year
67 items sold between 18-24 times a year.
Many of the items that sold between 1-11 times a year had stock levels of 12 or more.
So, if you have some really dusty product in an otherwise not so dusty location, it may be time to figure out if the product is selling or is it just dollar bills sitting on your shelves collecting dust or dollar bills collecting interest in your bank.
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