Petrogram - Spring 2015 - (Page 16)
5 Ways to
By Betsi Bixby, Meridian Associates, Inc.
hen we do business valuations for
marketers who want to know what
their business or someone else's
is worth, one of the criteria we measure is
inventory efficiency. Why?
Because inefficient inventory will actually reduce the company's value using any
asset-based income model. But more than
just reducing the company's market value it
is also a huge waste of cash and most times,
We find most companies think that their
inventory is just fine. It's at a level that they're
used to seeing and that number becomes
pretty comfortable. Unfortunately, comfortable
isn't always the right number.
So what is the right number? To get to
that number, we begin by calculating days of
inventory on hand. This is simply the inventory
dollars on your last balance sheet divided by
the average cost of goods sold for one day
over the last month. That is the number of
days of inventory you have on hand.
Next we compare that to what your inventory should be, which is 1.5 times your
supplier frequency plus any lead time. For
example if you own stores and your grocery
supplier comes weekly, take seven days times
1.5 and you get 11 days worth of inventory.
Let's use another example of a lubes
warehouse. We find for most marketers,
given lead-time and customer service issues,
the maximum lubes on hand should be no
more than 15 days. Yet the typical lubes
warehouse will have 30 to 45, even 60 days
So here are the top five actions to reduce
your inventory and increase the market value
of your company:
1. Reduce the variety of products.
Customers don't need 10 choices of everything. Figure out what your customers need
and get rid of the rest. Major research on
retail purchases has shown that by giving
customers less choice and reducing decision time, velocity increased - resulting
in more sales! In a lubes warehouse, think
three brands - a premium brand, a mid
brand, and a value or house brand. Going
beyond that scope may be alluring, but
brand proliferation will normally hurt you
more than help you.
2. Reduce multiple sizes of same products. This isn't just about potato chips, it's
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about anything that you carry in multiple
sizes. And don't always delete the midsize
product. Study velocities in all sizes and
reduce what makes sense.
3. Add Non-moving, slow-moving automated flags. The reason why inventory
often grows and grows is that customer's
buying habits change, but the inventory
stocking method does not. With today's
software systems there is no reason you
should not get a big red alert when inventory is not moving.
4. Assign single person accountability
with performance pay. We've noticed
a simple trend- those companies with
the best inventory levels have someone
assigned and accountable while companies with the worst (highest) inventory have
no one held accountable for inventory levels. Most people in charge of inventory are
worried about run outs more than they are
about your cash. You can change this first
through education and then with improvement bonuses, which are self-funded
through cash savings.
5. Reduce theft. Video surveillance has
become inexpensive. The other day
Table of Contents for the Digital Edition of Petrogram - Spring 2015
Chair’s Perspective By Noel D. Hardy, FPMA Chair
Alternative Fuels: A Glimpse Into the Future By John Eichberger
Endless Possibilities for C-Store Food Programs By Al Hebert
UST Owners & Operators: Don’t Miss the Train! By Amy Bell
5 Ways to Stop Wasting Cash in Inventory By Betsi Bixby
Member Spotlight Marci Fechter, Sales Manager Southeast Region, f’real foods
Making Hiring Decisions Using Social Media By Lourdes Espino Wydler, Esq.
Calendar of Events
FPMA Featured Advertiser Marketplace
Index of Advertisers/Advertiser.com
Petrogram - Spring 2015