money matters
B y t o m s h ay
INvENTORY CONTROL
The key to improving cashflow?
Inventory management.
Whether you’re a vendor who sells online or a spa with a retail space,
all forms of retailing must confront the challenge of inventory control.
and while internet retailing has
changed the way all of retailing works,
far too many retailers think that
dealing with inventory must be done
the same way it has for years. The lone
change that has occurred has been the
advent of the point of sale (PoS)
system, which allows a machine to do
what the buyer used to do. This only
works, though, if the parameters are
properly established for the reordering
of merchandise and the buyer knows
how to read the information the point
of sale system provides.
The reality, though, is that the proper
and most profitable way of dealing
with inventory has been around for
decades, but many retailers do not
utilize the correct methodology.
have you ever taken a look at your
checking account and found it to have
less money than you need to cover bills
over the coming month? if so, have
you ever then walked over to the
merchandise display in your spa and
had this conversation with yourself?
“if i had not ordered as much of
these three products, or not brought in
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this new line, or had let these items
run out, that money would be in the
checking account.”
Perhaps the conversation went the
other way. you think about your trip to
the iSPa conference & Expo last year
and the conservative approach you
took to ordering. Perhaps there were
products you decided to order much
less of than you thought you needed
because of cash concerns.
all of these are legitimate concerns
you can have in your spa. While
budgeting and cashflow planning are
important components in resolving
these worries, a proper inventory
control system is the first tool that you
should use.
Some retailers use a concept of
“stock replenishment” to order. you
take the dollar amount of sales in any
category, look at the margin (for
example, 55 percent), multiply the
amount of sales by 55 percent and
that’s how much money you spend to
replenish what you sold. it’s a great
concept, but with one sizable fallacy:
stock replenishment makes the
incorrect assumption that you need all
the inventory sold to be replaced.
The error? no consideration for the
four seasons of the year. if you are a
spa in florida, the big tourist and
seasonal resident season ends in the
early spring and the family tourist
season does not start for several
months.
you need a method, called “open to
buy,” that does consider seasonality.
While the open to buy method takes a
bit more effort, i anticipate you will
quickly see that this is the correct, best
and most accurate method for
managing inventory for a spa.
To get started, consider a
moisturizer. are you buying for the
sales you anticipate in the next month,
or the next six months? not all vendors
are the same. They have minimum
quantities, weights or dollar amounts
that need to be considered.
how long does it take for the
inventory to arrive? can you reorder
this moisturizer, or will this be a one-
time order for the season? is this a
moisturizer that you stock year-round,