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.
If you know at certain points of the year you are going to sell more, you can be out ahead of it before the time comes and ensure that you are not over or under ordering.
“Create inventory plans. Finally, by managing re-order points, salon owners will be able to identify hot sellers and slow movers and then create plans to boost levels for those hot sellers and shift their purchasing patterns for their slow movers. This brings up a nal point of emphasis. In my experience as a business coach, I have seen many instances where salon owners drop a product line in favor of another product line. Usually this happens based upon an emotional reaction to either lack of sales with the line or pressure from their team to get a new line. Ultimately, the best advice I can give with regard to knowing when you should drop a line is based upon the above research.
As you monitor your minimums and maximums and see shifting sales trends in a negative direction for a line, the most important things to do is to not react. At this point it is time to do more research. Get your team and your sales consultants involved. Find out from their perspective what is happening with the line. Poor sales could be occurring due to lack of education, marketing or product display and placement. Find out what the issue is and take action to rectify it, and give it a month or two to see if there is turnaround. If there is not, then you can begin to take the steps to drop the line in favor of a new line or take the purchasing budget of this line and move into the existing lines you have and ramp them up. Overall, healthy returns and more pro t will come when you review and analyze your inventory, accurately track it and consistently act upon the information you see.”
For more information and consulting from Milady, visit milady.cengage.com or call 800-988-7478, Ext. 2700.