Steve Gomez HOW MUCH OF YOUR CASH is sitting on your shelves? How could you grow your business if you could free some of that investment, while still keeping your retail sales humming? Professional development manager for Milady, Steve Gomez has helped hundreds of salon owners overcome obstacles and become financially free. Here, he guides you through the complicated process of managing inventory.
ST: What’s a great system for successfully managing inventory—ensuring that the product that is needed is in stock without tying up cash in unnecessary product?
Gomez: “Successfully managing your inventory begins and ends with accurate tracking. To calculate how much inventory to keep in stock, begin by being sure you have all of your numbers in the right place. Perform a physical count of what is on the shelves. When you are doing this, be sure to also count how many products are currently being used by your team members for services. Compare these numbers with what your software system levels are to ensure accuracy.
“Once you have the right numbers in place, you can begin to manage how much inventory to keep in stock. To manage this effectively, you should do the following:
“Create a budget for your inventory and manage from it. Look back over a minimum of the last 6-9 weeks of sales and purchases in order to reveal what your average retail purchasing percentage is. (Divide inventory dollars purchased into retail sales dollars for the period to get your average.) Your budget goal is 50%. If you are running too high for too long, it can cost you thousands of dollars in lost pro t. Running too low (below 50%) could mean that you are continuously out of stock on certain items, thereby losing sales and potential profit. Remember that each business is different and you may find that, due to costs and product mix, you may not be able to get it down to exactly 50%, but your goal is to come as close as you possibly can.
“Know your minimums and maximums. Most software programs will help you manage this, however at some point you have to determine what they will be and monitor them. At least three to four times a year, you should review the selling history of each product in each line to make necessary adjustments. While this may appear to be tedious and painstaking, the impact of this analysis will have far reaching effects on your retail profitability. For example, if you sell between 25-40 cans of a certain hairspray each month, then your re-order point for that product would be when you are down to 25. You would then adjust your re-order point each quarter based upon sales averages for that can of hairspray. If the sales are trending down, let’s say between 20-35 a month, adjust the re-order point from 25-20. It is also important to remember that minimums and maximums can also shift each year due to seasonal activity like the holidays.