Inventory Management - Fill-ins
Many retailers will tell you that the ability to manage inventory effectively is the key to success. The truth is, inventory sitting on your shelves or in your your back room actually costs you money. Often times, when analyzing a struggling retailer, I find that too little inventory is the cause versus too much inventory. How of you know the difference? Good question.
The most effective way to manage inventory is to use an open-to-buy system. Whether you use software or an Excel spreadsheet is not the focus of the conversation. In other words what system or type you use is not the issue - just use one! An open to buy system essentials tracks your sales and shows you how much money you have to spend on new inventory. It keeps you from getting overstocked and eve understocked. Always set aside at least 10% of your open to buy dollars for special goods or one of kind items that keep your store looking fresh and inviting to customers.
The most critical element to manage in your inventory is not turnover or markdowns (which are really important), but controlling fill-ins. Fill-ins are the part of your inventory that are considered "open stock" from your vendor. These items are readily available from your vendor and fulfill quickly when you order. So, for example, "at once" merchandise refers to the list of items the vendor is going to keep deep stock on so you do not have too. Many retailers make the mistake of stocking too much of a sku because it is a good seller. The better solution is to plan your fulfillment or fill-ins to match your sales rate.
Let's say your turnover rate for a product means you sell 2 of them per month and the vendor can restock you on this product within 10 days. If this is the case, then you only need 2 in backstock. Many retailers would stock 4 to have enough for 2 months. While this makes sense for items that cannot be fill-ins like your vendors short run items (not open stock) the best way to manage your inventory is to use the vendor's warehouse versus yours. Since the fill-in can be in your store within 10 days of ordering, you only need enough backstock to cover those 10 days. (Actually, you want to cover 20 days since there are always issues like midshipmen's or freight delays.)
When consider the dating your vendor gives you on purchases and you are taking advantage of the partnership all vendors speak of. How? First, you use their warehouse versus yours by taking advantage of the fill-ins and second, you get 30 days (or better) dating and you are not paying for the inventory until after you sold it. The truth is most inventory in a retail store is paid for before you sell it, so this system is brilliant for retail.
The important consideration for a fill-in strategy to work for you is to maintain open to buy and cash flow to pay for them. Often times, retailers will spend their open to buy for a season at market and leave nothing for fill-ins. You have to receive money from your open to buy for fill-ins. I recommend 15% minimum, but this is really driven by how many items you can get into the program. Not every vendor has a open stock program for you to use them as a fill-in vendor - meaning the inventory takes to long to replenish for you ro use the vendors warehouse.
A fill-in strategy will only work if you stay on top of it. If you handle everything manually, then it is very tough to do this. It really requires a software program to work effectively. You set the stocking levels in the software for a sku and then the software automatically orders the fill-in for replenishment.
I remember early in my retail career thinking I was smart enough to monitor the sales and reorder from memory. But it never worked. Having an automated system to help you is a must for today's competitive retail climate. Plus it will go a long way in helping maintain your customer experience.