Managing Inventory CCMA 2009 Managing Inventory Presented by: Mel Braverman

Agenda Inventory impact on your store Inventory turns-how we measure effectiveness of inventory management –Formula for inventory turns –Formula for COGS What is average inventory Some industry numbers What factors may impact inventory turns, why What you need to consider to determine appropriate inventory amount to carry Tools for inventory management Questions/issues

Why does inventory need to be managed? In real estate it is location, location, location In retail it is cash, cash, cash Inventory levels impact your cash flow: more inventory=less cash, less inventory=more cash. Cash flow is extremely important to a business in general-during these times it is critical. Without appropriate cash flow a business will be stressed. Maximize your inventory management and you can enhance your available cash.

Why else? Lost sales from too little inventory Shrink - too much perishable inventory Space management-too much inventory may create backroom issues. Labor efficiency - too much inventory can create less efficient use of labor Keep interest payments lower: Less inventory=more cash=less borrowing=less interest.

What are inventory turns It is the measurement of how many time a year the value of your average inventory (at cost) is sold. Cost of Goods Sold Average Inventory

What is COGS? COGS stands for Cost Of Goods Sold The formula to determine COGS is: (beginning inventory + purchases) – ending inventory It is the inventory used to produce your sales!

What is your average inventory? Throughout the year your inventory amount will fluctuate depending on the day. To determine your average inventory take your last 5 quarterly inventories, add them up, divide the sum by 5. Last 5 inventories/5

Industry data Store size Store inventory turn TQ 1. Extra large>$12 million23 2. Large $8.5-$ Large medium $6-$ Medium large $3.5-$ Medium $2.4-$ Small medium $1.2-$ Small <$1.212

Top Quartile Inventory Turns Produce Haba Prepared fds Packaged Frozen Refrig Bulk XL L LM ML M SM S

Large Medium Turns-Total store 18

What is the difference? Large medium $7.5 million sales achieving a 36% margin COGS= $7,500,000 *.64 = $4,800,000 At 15 turns $4,800,000/15= $320,000 average inventory At 18 turns $4,800,000/18= $266,666 average inventory 17% inventory reduction, $53,334 At 20 turns $4,800,000/20= $240,000 average inventory 25% inventory reduction, $80,000

North East- Total store turns

Large Medium Produce

What factors may impact inventory turns? Sales mix Product mix Number of deliveries Product introduction approach Product discontinuation speed Minimum order quantities Purchasing volume discounts Order cycle Investment buying for margin enhancement Safety stock Your cooperative’s capital use needs

What is the correct amount of inventory to carry? A number of factors must be taken into account in addition to the previously stated factors: Are you going to investment buy? How much? What are your cash limitations? What are your space constraints? What inventory amount will negatively impact out of stocks? What is your delivery cycle? What is your fear factor?

Tools for inventory management Appropriate category space Receiving log GL monthly review Purchase to sales journal Setting pars SKU reduction Electronic ordering with order history-Scan Genius Organizing/dating back stock Regular product movement review leading to eliminating slow sellers Volume slotting Ordering for shelf set Shelf tags Denoting top sellers on shelf tags Specials buy- top selling products only Dummy up shelves Increase delivery frequency Avoid products/companies with minimums not easily met Purchasing budgets SPINS POS system

Purchase to sales journal-bulk Week PurchasesSales Var $Var % 6/1$3,224$6,102 $2, % 6/8$2,988$5,513 $2, % 6/15$3,074$5,721 $2, % 6/22$3,163$5,004 $1, % 6/29$3,021$4,933 $1, %

SKU reduction Retails 80/20 rule - 80% of your sales volume comes from 20% of your products Reduction in skus combined with greater facings of fast movers typically increases sales Eliminate similar skus wherever possible Westbrae, Eden Natural Value –canned garbanzo beans Hain, Spectrum- canola oil Bulk beans, packaged beans

Thank you!