It's been a while since I wrote an analysis article on people, goods, and places. Today, I'll write an article on product inventory management logic. Many companies have the wrong inventory management logic, mainly including the following errors:
- Focusing only on absolute inventory while ignoring relative inventory;
- Focusing only on total inventory while ignoring that effective inventory is more meaningful;
- Inventory management only looks at the present while ignoring future predictions. In fact, the main purpose of inventory management is not to avoid stockouts but to maximize future sales by continuously providing product support. No company can achieve zero stockouts; the core of product inventory management is to "minimize the impact on sales" during stockout situations. Ordinary inventory management logic is to try not to run out of stock, while advanced inventory management logic is to try not to affect sales. Think about it carefully; there is a big difference between the two.
- First, look at days of stock A 5 million yuan inventory might be overstocked in the off-season but understocked in the peak season. So we need to look at relative inventory, and the commonly used relative inventory indicator is the concept of days of stock (DOS). Days of stock is a relative indicator. Days of stock = Inventory amount ÷ Average daily sales amount (Note: Amount can be replaced by quantity) A store's latest inventory is 5 million yuan, with average daily sales of 100,000 yuan (usually taking the average daily sales of the last month), so days of stock is 50 days. The meaning of 50 days is that at the current sales rate of 100,000 yuan per day, the 5 million yuan inventory can support 50 days of sales. A similar indicator to days of stock is weeks of inventory (WOI), the difference being that DOS divides by average daily sales, while WOI divides by average weekly sales. Few people use the concept of months of inventory, but some companies' inventory-to-sales ratio is actually a backup for months of inventory. By reviewing historical data, we can find our company's standard days of stock. For example, when I was at an FMCG company, the standard days of stock was 45 days, and all customers and stores were managed according to this standard. However, sometimes we still find that even though the current days of stock is far greater than the standard, stockouts still occur frequently. Why?
- Then, look at effective inventory The problem is whether this inventory can continuously bring sales. If out of 5 million yuan of inventory, 2 million yuan is unsellable products, then the existing inventory's ability to sustain sales becomes a problem. So we must look at the inventory of products that can continuously bring sales to be meaningful. Effective inventory ratio = Effective inventory amount ÷ Total inventory amount × 100% To calculate the effective inventory ratio, we first need to define the standard for effective inventory. Effective inventory is defined as the inventory of products that can bring continuous sales to the store. From the definition, defective products, expired products, out-of-season products, and products with no sales are certainly not effective inventory. However, in actual analysis, determining effective inventory is much more complex. Corresponding to effective inventory is ineffective inventory. Ineffective inventory includes defective products, expired products, frozen products (meaning temporarily frozen, such as sunscreen in winter, down jackets in summer), and even virtual inventory, and slow-moving products. For slow-moving products, a standard needs to be determined to classify products with sales into effective and ineffective inventory. This standard is generally measured by weekly or monthly sales volume, and the standard varies by channel. For example, a certain style of clothing sold 2 pieces in a week; for a single specialty store, this might be effective inventory, but for a region or the head office, a product selling only 2 pieces is certainly not effective inventory because the value of continuous sales is low, and the standard needs to be raised. The Pareto principle can be used to assist in determining the standard for effective inventory: the average sales volume of products that account for 20% of total sales is the dividing line between effective and ineffective inventory. Of course, this dividing line can also be manually determined. Focusing on effective inventory and the effective inventory ratio is actually focusing on sales maximization. Absolute inventory numbers are often deceptive. Store managers often complain about having nothing to sell, while purchasing or merchandise managers will always use total inventory to shirk responsibility, without looking at how much of it can actually generate sales. Everyone understands this, but in practice, many people selectively ignore effective inventory. Therefore, for a store or a company, the effective inventory ratio should be monitored at least once a week, and it can even be used as a performance indicator for purchasing personnel. The study of effective inventory ratio is to focus on products that can bring continuous sales in the future. Only products that can continuously contribute to sales are the most meaningful inventory; otherwise, it's just nonsense. Additionally, special attention should be paid to virtual inventory, which is inventory that the system shows as available but actually does not exist. Losses, shipping errors, etc., can all cause virtual inventory. In essence, store or regional managers are unwilling to proactively deal with virtual inventory because it lowers profit indicators and affects performance scores, so many people let this part of inventory remain virtual, but this is very harmful to inventory management.
- Finally, look at special inventory Sales often encounter special events, such as promotions, group buying, public events, etc. Special events are not scary; what's scary is being unprepared. Therefore, every company's merchandise department must maintain close communication with the sales team, and cannot shirk responsibility by saying the other party didn't inform them in advance after a stockout, while sales are actually affected. The analysis of special inventory mainly includes the following:
Analyze products with zero sales but existing inventory. 2. Analyze products with zero inventory but with sales records (not due to discontinued sales). 3. Analyze products with abnormal days of stock, including abnormally large, abnormally small, constant over time, mismatch between actual and physical inventory, negative inventory, etc. 4. Analyze ineffective inventory, including false inventory and dead inventory. 5. Analyze seasonal product inventory. 6. Analyze promotional product inventory. 7. Analyze inventory of products that account for 80% of sales, or top 10, top 20, to ensure key selling products are guaranteed. 8. Analyze inventory that accounts for 80% of total inventory. 9. Analyze inventory of products about to be discontinued. 10. Analyze negative gross margin product inventory. The purpose of special inventory analysis is both to ensure continuous sales are not affected and to prevent excessive inventory. Of course, inventory management is not only about product management; the supply chain itself also affects sales maximization. I'll discuss that another day. -END- Content Selection Reply with the following keywords to search and read related articles: Sales Supervisor, Second-tier Management, Regional Manager, Distributor Management, New Channels, City Manager, Competition, 2015, Manufacturer-Dealer Game, Product Slow-moving, Terminal Visit Management, Route Management, Deep Distribution, Internal Management, Sales Skills, Profit Improvement, Recruitment, Distribution, Daily Management, Team Motivation, Trade Promotion, Sales Misconceptions, New Product Launch, Township Market, New Product Pricing, Sales Target Achievement, Closing, Market Visit Inspection, Baijiu, Beer, Sales Increase, Agency Products, Channel Crossing, KA, Terminal Merchandising, New Market, Market Operation, Learning, Book Recommendations, Inventory Management, Sales Novice, Consumer Promotion, Execution, Old Products, Expired Product Handling, Model Market, Investment Promotion, New Media, Distributor Development, Performance Appraisal, Assessment, Annual Planning, Shopping Guide, Morning Meeting, Display, Transformation, Pressure Stock, Holidays, Distributor Cost Control Channel Operation, Marketing Theory and Laws, Brand Truth, Order Meeting, Team Management, Training, Debriefing, Debriefing Report.