Inventory management is your most important responsibility. At any time there are three assumptions that apply to your inventory - each followed by the same basic question:

• you bought some wrong stuff - now what?
• you bought too much of some stuff - now what?
• you bought lots of right stuff in the right amount and it is selling - now what?

Managing inventory means using data to make a continuing stream of decisions. The decisions, in turn, require a continuing series of actions. Those actions respond to the question "now what?"

Long ago merchandising people developed the tool which both guides and measures the cumulative impact of decisions you make in answer to the "now what?" question. The tool is called turnover.

Turnover regards the inventory you manage as a financial investment. It measures how well that investment is performing under your stewardship. Not only does it let you know how you are doing, it can also prod you into making better decisions. Consider turnover as the merchant's friend.

Turnover quantifies how many times the initial investment was recycled through the process of ordering, selling and then reordering (reinvesting) the proceeds from sales. The keys to a successful store are 1) making wise initial investments in merchandise and 2) thereafter buying all additional merchandise with the proceeds from sales. Whether you are reordering to fill in your current stock or ordering new items, you are spending money recycled from sales. No new investment is needed.

Somehow the Extranet Store that served the national sales force of a major company managed to accumulate about $4 million in inventory to support about $4 million in annual sales. An investment of only $750K should have done the trick. Instead, poor management let $3.25 million gather dust on the store's shelves. Don't let this happen to your store.

Once you understand that concept - and achieve it in practice - the next major issue is how fast you recycle that investment .....or how many times you turn it over. Thus, the phrase turnover!

High turnover means you managed your investment aggressively. Low turnover means the merchandise sat gathering dust and the money invested in it could have been put to more productive use. If it is too low, sales are sluggish and you own too much inventory. If turnover is too high, you are selling faster than you are replenishing and some sales are inevitably lost because of shallow stock.

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• order conservatively
• reorder frequently
• spend most of your money on staple goods
• mark down aggressively all products that do not sell at an acceptable pace

Now consider an example on steroids: two stores are located side by side. Each sells one product - the same product - $1 packages of bubble gum. Both buy the packages for $.60 each from the same supplier - conveniently located across the street from their stores. In a one-year period each store had identical numbers - $50K in bubble gum revenue, $30K spent on cost of goods sold and $20K of gross margin to cover expenses.

But, even though they had identical sales, identical cost of inventory and identical gross margin - there is a vast difference between the performance of these two store managers. One of them is a dope. On January 2 he bought enough bubble gum to cover sales for the entire year. The other manager was smart. On the same day she purchased her opening inventory - only two packages of bubble gum! Each time one was sold she ran across the street and bought another package from the wholesale house. At the end of the year she had the same revenue ($50K), the same inventory cost ($30K) and the same gross margin ($20K) as he had.

One store manager did the job by tying up $30,000on the first day of the year. The other did it with an investment of only $1.20. But that manager backed the opening inventory with consistent reorders! Now THAT'S how turnover happens!

One store manager is a dope. At the beginning of the year he bought a year's supply of bubble gum. The other guy was smart - and bought only two packages of bubble gum. Both stores generated the same revenue and produced the same$30K gross margin. Only one understood turnover - and earned its gross margin with an investment of $1.20!

Each kind of store and each category of products has a different optimum turnover rate. There is no absolute rule, but on average, a 75-day supply (on hand and on order) is a reasonable stock level. That's an average that covers the entire merchandise assortment; in practice, turnover will be different, sometimes substantially different, for each product category.

This Cyber-Seminar advises you to:

• order conservatively
• reorder frequently
• spend most of your money on staple goods with a dependable selling rate
• mark down aggressively all products that do not sell at an acceptable pace so you can get your money back and invest in different products that do sell.

Do these things - all of them - and you will have a turnover rate that will impress your boss without leaving so many holes in your inventory that your customers are offended.
With proper management, effective merchandising and frequent stock replenishment through small reorders, it is reasonable to expect an inventory turnover of 5-6X per year in an efficient Company Store of either Retail Ecommerce type or the Extranet Supply Depot type.

Caution - the following example is more realistic and may be more helpful to you. But if sixth grade math makes you cranky - skip it! If you are serious about company stores, click here and read a little more about turnover.