Think Like an Inventory Investor, Not a Buyer
In the old world of replenishment, retail and wholesale inventory teams worked to keep store shelves stocked, holes filled in the warehouse, and hoped they could stay out of trouble and avoid attention. My, how times have changed!
Today’s savvy inventory professionals are no longer just buyers. They welcome the spotlight. They are strategic inventory investors who can proactively impact the company’s income statement. Today we’re talking about that new role, plus 4 key steps for being successful at it.
Buying is investing, and our community recognizes today’s planners and buyers as Inventory Investors. You manage a complex inventory portfolio and your success is measured in the company’s bottom line. Success requires that you know your inventory analytics numbers and manage your portfolio as a business. Yes, you are a business owner within your organization.
All-star inventory analysts stand and deliver the state of their businesses
It is the benchmark of excellence when an all-star inventory professional has the opportunity to speak to the stakeholders of their organizations. What might this look like? Could be any number of these scenarios:
“I manage an inventory portfolio of 8,900 items.
My $8,500,000 invested in inventory delivers $47,000,000 in annual sales. I achieved my overall service goal of 98.2% for the third period in a row.
Despite our overall success, I have found three inventory sectors that require further attention. I will invest time this week refining these sectors of New Items, Short Order Cycle Items & Slow-Moving/Items with Seasonality. This work should result in an additional 0.5% of service and over $200,000 in annual sales.”
“My portfolio delivers a 3.3% bottom-line profit to the stakeholders of our organization. My main KPIs are service and profit. Our replenishment system calculates our core inventory components, including:
- Demand Forecasting
- Lead Time Forecasting
- Safety Stocks
- Profitable Order Cycles
… which allow me time to continue to find the smartest service level goals that balance item popularity with net margin opportunity.”
“I work to always know my numbers, and turn data into action.
Currently 7% of my SKUs are new in the past 6 months. I focus at least 20% of my non-replenishment time refining these items. They currently drive 5% of my sales, but require 10% of my inventory investment. I will collaborate more closely with Merchandising and suppliers to make these items more profitable, more quickly.”
“Rising Lead Times are currently an area of concern and financial pain.
Supplier issues, driver shortages and warehouse vacations have increased delivery lead times by an average of 4 days, which also increases our Safety Stock investments. This has driven my portfolio’s Inventory Operating Expense from 1.6% to 1.8%.”
“Here are three surprising facts about my items that have inspired new projects:
– 27% of my SKUs move LT 1/week, but deliver 4.5% net profit return
– 7% of my SKUs move GT 250/week, but deliver a 2.1% profit return
– Those 7% new items, though inefficient, deliver 5.2% profit return!
I am providing continuous feedback to our Category Management team on these unique cost and profit pictures to enhance our merchandising strategy. Together.”
That would be a nice position to get to, now wouldn’t it?
To have the intel and make proactive improvements to create real, measurable value – tied directly to your department.
Achieving that mind-set is actually very easy.
To get your team thinking like Inventory Investors vs. Buyers, follow these 4 steps:
- Know your numbers. You are running a business within your organization.
Start by knowing the basics of your SKU count, inventory level and amount on order. Now go deeper. Realize that your unique inventory portfolio is made up of sectors or pockets, each of which have important patterns and trends around them.
Always know the amount of your investment that is tied up in New Items and Promotion products, and see how these items are performing. This breakthrough will help you find additional sectors like long lead times, slow-movers, high price point, private label and more.
Now you are thinking like an Inventory Investor!
- Stop playing defense by playing more offense. It is common for inventory teams to feel the pressure and be in a mode of constant reaction and explaining. It is common, but not necessary.
You can completely change your culture by proactively sharing information. Tell them before they ask, and show that you have plans and answers in place. You will always have issues, but you can show that you anticipate and have inventory optimization strategies for those issues.
Create email templates and rhythms, as well as Web pages which your partnering departments can visit to learn more. Leaders should ask to be in meetings of other departments to provide updates and education.
- Educate your organization
Set a vision to increase the Inventory IQ of the entire organization. They won’t realize how complex and sophisticated your world is if you don’t tell them. Educate your organization that you are not just filling holes in the stores and warehouses.
Here are a few tips on how to do this:
- Invite yourself into their meetings
- Organize 90-minute educational sessions
- Send weekly infographic emails that cover a key area
- Invite them to view online tutorial videos about inventory planning
Remember, selling generates revenue, but buying right generates profit!
- Stand and deliver!
Every period, present your business. Set the tone quickly that it is a financial presentation. Tie your information to your company’s income statement.
How about you and your organization? Do you have additional ideas or examples of how you turned traditional buying into investing? Do you want to become part of buying community group of 5 or 6 companies that share insight and drive improvement? If so, send us your ideas now.