Leadership Development Community Question Answered Part 2

What should an entrepreneur be thinking about as they start a new retail business from an inventory management point of view?

Today we close out the question on inventory with Norman Katz. In this post Norman takes on a very difficult question regarding inventory levels. I will add here that in my experience the company that can figure out the optimal inventory level for their market will be far better off than their competitor. As they say cash is king and cashflow is the heart of a business. tying up too much cash in inventory can be heart stopping while too little can be customer losing. lets check out Normans perspective.

 I suspect the real question being asked here has more to do with how much inventory should be kept on hand and ordered each time.  While inventory level calculations and formulas can be found on the Internet, I think that the answer lies in a combination of science and senses.

One benefit of the POS system will be the inventory on-hand and sales reports: what’s selling, what’s not, and how much you’ve got on hand on the floor and in the stockroom.  All great and necessary science.

But you’ll need to use your senses too.  You have to know your customers and know your suppliers.

Are your customers looking for commodity merchandise or unique one-of-a-kind items?  Will customers leave your store without purchasing anything if their “target item” is not on the shelf, or will they select something similar?  How quickly can your suppliers replenish commodity versus unique items?  Will part of the mystique of your store be that customers should frequently come in to see what’s new?  If a supplier becomes unreliable, either in shipping late or providing the wrong or damaged goods, can you switch suppliers without losing customers?  Are your items seasonal or are they based on regularly occurring or random events?  (A random event may be a local sports team getting into the playoffs or championship where such games are held locally, such as those in baseball, basketball, and ice hockey, as opposed to the Super Bowl in football whose location is known years in advance even though the teams competing are not known until the end of the regular season’s playoffs.)  Fashion trends may also impact the selection of items for your store.

If you don’t know the answers to all of the above questions, then start slow.  You’ll go through some trial-and-error, and you may have to discount your errors to get them out of your shop and make way for more appealing items.  Don’t over-commit to anything – especially purchasing large quantities from suppliers in exchange for discounts – until you begin to have a better knowledge of your customers and what’s going to sell and what’s going to sit.

Great advice from Norman Katz consultant and supply chain expert. If you want to contact Norman directly feel free to let me know at ronn.hurst@gmail.com or checkout his website at www.katzscan.com

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