Subscribe to Inc. magazine

Want to Increase Revenue? Reduce Your Inventory

Advertisement

Every time I've ever had a client tell me how important their inventory is to them, I respond by asking them if there were a way to do business without carrying any inventory, would they? It brings them up short every time. The fact is that there isn't a small retailer alive who wouldn't love to find a way to do business without having to carry any inventory.

It's an important point to consider in these difficult economic times. Retailers of all shapes and sizes have had to re-adjust their inventories to reflect new sales levels and build their cash balances. For many, it has been a challenge to find the right balance between reducing inventories and maintaining full assortments.

One of the ways that a small retailer can find an acceptable balance is to review those items that might be able to be supported through special orders rather than standing stock. When I review assortments with new clients, I almost always find a group of items or programs that could effectively be converted to special order.

The key consideration in these stock-versus-non-stock decisions is your customer's expectations. If a customer comes into your store and expects to find the item they're looking for in stock, then it needs to be in-stock. All too often, however, small retailers think that a customer expects every item to be in stock. Clearly, that's not the case, especially for those small retailers who are focused on servicing a very narrowly defined niche. The first step, therefore, is to identify those items that customers would be perfectly willing to special order.

The next step is to determine whether your vendor base can effectively service special orders. Most every vendor would prefer to ship in multiples or pre-packs and have their items inventoried (and paid for!), but most understand that some of their items lend themselves more to special orders than stocking.

The third step is to understand how long a customer would expect to wait for delivery, and to be sure that each vendor can turn around your special orders on a timely basis. Customers, for the most part, are going to be willing to accept whatever lead time you quote them, so long as it's reasonable, and you deliver when you said you would.

Finally, in a time when sales are not easy to come by, examine your assortments and consider whether there are any additional items or categories that you could offer on a special order basis that are complementary to your current offerings. Work with your vendors to identify opportunities for additional business that don't require you to bring additional inventories into stock, and consume valuable cash.

Increasing the percentage of business that you conduct through special orders is an excellent way to maximize your revenues without incurring the financial burden of carrying additional inventory. It's also an excellent reminder that carrying inventory has its costs -- and that carrying too much is never a good thing.

Last updated: Apr 27, 2009




Register on Inc.com today to get full access to:
All articles  |  Magazine archives | Livestream events | Comments
EMAIL
PASSWORD
EMAIL
FIRST NAME
LAST NAME
EMAIL
PASSWORD

Or sign up using: