What is good inventory management? Reduce your costs by managing your inventory.
Inventory management is as much about careful procurement strategies as it is about taking care of it once it’s in your establishment. Once there, it’s yours and that’s your money tied up in inventory on hand. You should be concerned about managing it so that it’s in its most optimal condition to use and sell.
Over the years I have found the most amazing things lurking on the back of a shelf that have gone unnoticed and have rapidly gone from deadstock to unusable garbage. If you paid $500 for it and it was unusable, you’re tossing out $1,500 in lost sales (assuming a 33% COS). At only a 4 or 5 percent profit, how much in sales are you going to have to generate in order to recover from the loss?
Put down what you’re doing and go and walk through your storerooms, coolers, fridges and freezers right now. Take a pad of paper and pencil with you: better yet, take your cell phone too and photograph each and every deadstock item you find as well as recording it on your note pad.
Calculate its inventory value plus its resell value. Using your current rate of profit, calculate how many dollars in sales you will have to sell just to recoup the loss.
The math at a 4% profit rate:
$1.00 / 0.04 = 25 X $500 = $12,500
The math at 5%:
$1.00 / 0.05 = 20 X $500 = $10,000
The lesson here is that the lower your percentage of profit, the more it will take to pay off the loss.