Why Inventory Needs a Seat at the Table
- In-stock inventory grows sales. A 1 percent increase in sales will add $250,000 in annual sales and approximately $100,000 in annual profits to the business.
- More accurate demand planning reduces overstocks and corresponding markdowns. A 1 percent reduction in overstocks will increase annual profits by $50,000.
- Inventory planning improves inventory turnover. A 5 percent improvement in inventory turnover will improve profits by $20,000 and increase cash flow by $100,000.
- Inventory planning reduces overall inventory expense to the business. A .5 percent reduction in overall cost of inventory through planning efficiencies will increase annual profits by $55,000.
- Inventory planning reduces back orders. A 1 percent reduction in back orders will increase profits by $40,000.
Taken together, the figures reveal that annual profits can easily increase by a full point with no other changes to marketing or operating plans. And over five years, optimized inventory planning can add more than $1 million in profits to a $25 million business. I’d call that a significant lift. All you have to do to capitalize on these sales and profit opportunities is to give inventory planners a seat at the table.
Joe is Vice President of Product Solutions at Software Paradigms International (SPI), an award-winning provider of technology solutions, including merchandise planning applications, mobile applications, eCommerce development and hosting and integration services, to retailers for more than 20 years.
Joe is a 34-year veteran of the retail industry with hands-on experience in marketing, merchandising, inventory management and business development at multichannel retail companies including Lands’ End, LifeSketch.com, Nordstrom.com and Duluth Trading Company. At SPI, Joe uses his experience to help customers and prospects understand how to improve sales and profits through applying industry best practices in merchandise planning and inventory management systems and processes.