We’re honored to welcome guest author Curt Barry to the Jay Group blog. Read how successfully managing inventory lets multichannel businesses reduce the total amount of inventory maintained on hand, free their capital, improve cash flow and reduce operating expenses.
Often times we meet with multichannel companies that don’t have reporting that accurately reflects the inventory turns, or they debate how significant this KPI is, and the need to analyze turns. By taking a financial view of inventory turns, companies can manage the inventory asset even better, which in turn leads to stronger profitability. Larger retail and multichannel businesses manage turns tightly in order to remain competitive and drive profit margins. Companies must bear in mind that on the balance sheet, inventory is typically one of the largest assets.
- Reduce the total amount of inventory maintained on hand. This reduction in inventory means less capital invested in inventory, which can be invested in other aspects of the business.
- Reduce the overall operating expenses, and carrying costs associated with the storage and maintenance of the inventory throughout the supply chain. These costs can range from 12% to as high as 25% of the net sales in some organizations.
- With the reduction of inventory, companies are able to run a more lean supply chain, and reduce the size and expense within the distribution centers.
In contrast to the above businesses, the growth of many large multi-channel businesses and retailers hinge on managing the inventory turns. The chart below reflects the inventory turns for publicly traded companies based on their 10K filings. As you can see, many of these businesses are turning the inventory every 60 days to as much as every 30 days or so.