Welcome to the newest post in our blog series, Darren’s Great Ideas! for Independent Operators.
The Good, The Bad, And Ugly Of Truckstop Inventory
We are well into the new year and hopefully each of you are working through your inventory reduction plans after fourth quarter and the holiday season.
If you have ever read a book or two on inventory management, you are familiar with the popular words and phrases like stock lists, dead inventory, good, bad, ugly inventory, slow moving inventory, GMROI, excess stock, etc.
Whatever words and phrases you are comfortable with is just fine, the key is to ensure you have a plan to consistently work your inventory.
Let’s talk through some of the key areas that should be top of mind when discussing inventory management.
- Good or Productive Inventory. This is inventory in your location that provides a positive return on your investment. It is inventory that is providing quick turns or high margin at reasonable turns and/or inventory that produces strong gross margin dollar production.
In a perfect world our locations would be full of this type of merchandise.
Do you know what merchandise in your location makes up the Productive Inventory? Are there complete categories that can be classed in this definition? Are there sub-categories? Or is it just single products within you store?
Additionally, when you analyze the profitability of productive inventory or what you think is productive inventory, are you including all the true costs that go into the product/inventory such as freight, rebates, mark downs, mark-ups, shrink, stocking costs, carrying costs, etc…
- Bad or Unproductive Inventory. This is inventory in your location that does not provide a return on your investment but does contribute to other profitable sales.
An example might be that you would stock plastic oil funnels to support your pint and gallon oil sales or carry slow moving accessories in your shop to support the sales of other repair parts that are highly profitable products that over-the-road drivers frequently need.
Unproductive inventory is often a cost of doing business, especially in categories were you the retailer have chosen to be known for. Many experts in the field on inventory management view this type of inventory “as an expense.” They would say, “That is, it is an expense of doing business.”
Like productive inventory, it is imperative that you understand the true costs on this type of inventory.
- Ugly Or Unprofitable Inventory. This is inventory in your location that does not provide a return on your investment and does not contribute to other profitable sales.
Plain and simple, this inventory is not making your operation any profit. Period. You should think long and hard before investing in this type of merchandise product is in your store at all for any reason.
And you guessed it, if it is already losing you money, just add the other true costs to the equation and the pig with the pretty clothes on has gotten even uglier.
- Dead Inventory Or Inventory That Grows Multiple Dust Colonies. This is simple. If you have merchandise that is not performing, start calling it “The Walking Dead.” In other words, when you cannot even pretend it is “alive” like a zombie as you have seen no sales in over a year, then right it off and give it to a local charity immediately. Do not fool yourself. You are not going to sell it, do some good with it, pass your blessings forward and in the off chance you donate and they refuse it, well you really know then that the product was truly dead.
On my next blog post, we will share some ideas on how we address these types of inventory.
/// Read more Darren's Great Ideas for Independent Operators posts here.
Join the conversation! Do you have any walking dead at your location?
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