Inventory Control and Turnover
Stock Structure and Size
The total stock should consist of:
- Presentation Stock: Stock items on display in the aisle.
- Reserve Stock (Normal Cycle): Stock unlocked to meet normal customer demand between the receipt of two orders.
- Safety Stock: A protection stock that seeks to prevent the shelf from being empty because of unexpected changes in supplier supply and/or customer demand.
Inventory Management Costs
1. Acquisition Cost
The purchase price on the invoice plus all expenses paid by the buyer.
2. Storage or Maintenance Costs
These costs are incurred as a result of keeping items in stock.
- Costs of Investing in Stocks: The existence of products in stock represents an investment of money left immobilized for some time without producing company benefits.
- Costs of Risk: Includes costs such as premises or warehouse costs, depreciation, preservation and maintenance costs, and salaries.
3. Ordering or Supply Costs
Costs associated with placing and receiving orders.
4. Broken Stock Costs
Costs incurred when stock runs out, leading to lost sales and customer dissatisfaction.
Supplier Delivery Process
The process involves several steps:
- Placing an order.
- Sending and receiving the order by the supplier.
- Preparation of the order by the supplier.
- Transport from the supplier until it reaches the buyer.
- Making the stock available for sale from receipt of the order.
Stock Turnover: Advantages and Risks
A high turnover of stocks is a sign of efficient management of the retail outlet that favors its profitability in several ways:
- A high turnover can mean less investment of money in stocks, allowing investment in other areas (large stores have expanded drawing in part on such surplus capital).
- A lower investment in stocks means lower maintenance costs.
- If the products are sold quickly, there is less need to lower their prices or run the risk of deteriorating or going out of fashion.
- Renewing stock quickly allows the outlet to provide new and existing products, thereby improving its business image.
However, if the rotation is too high, it can present difficulties and dangers:
- The higher the turnover, the lower the amount of stock stored, and therefore the company will have a greater risk of suffering broken stocks and consequent customer dissatisfaction.
- A high turnover may be stimulated by very competitive pricing that benefits customers but reduces margins.
- High rotation also means more work on the tasks of issuing orders and reception.
Improving Stock Turnover
Possible measures to facilitate the rotation of items include:
- Improved Purchasing Policy: Properly selecting items to buy, focusing on those that best suit the needs of customers and therefore have greater acceptance and sell more easily and quickly.
- Develop a Pricing Policy: Implementing a policy that is convenient for the company and acceptable and attractive to customers.
- Professionalism and Motivation: Ensuring the sales team is professional and motivated.
- Advertising and Merchandising: Conducting advertising campaigns and merchandising activities to boost sales.
- Rigorous Inventory Control: Distinguishing products that sell well from those that do not and acting accordingly.