Inventory management is difficult
By following these tips below, you will be able to minimize errors and avoid making any big mistakes with your inventory planning.
Figure out your Open To Buy (OTB) plan
Using an Open to Buy system will streamline your inventory planning. Open to Buy (OTB) refers to the amount of money that should be spent on inventory per location. It takes into account the inventory on hand, on order, and in transit from other locations.
How does it work?
This may vary based on your computer system used for inventory management. Some programs have a feature built in to automatically calculate the OTB per location and even recommend orders per store. Others don’t have this functionality but don’t despair. I’ve known companies with $10 million purchasing budgets that do this calculation in Excel.
Start with a column for each store. Add rows for inventory $ on hand, inventory $ on order, and inventory $ in transit (from the warehouse or other stores). Then add a row showing the target inventory balance. With the simple calculation of:
Target ending inventory – (On hand + on order + in transit – estimated sales) = OTB
Remember to calculate all figures in either retail $ or inventory cost $. For example, if you’re using the purchased cost of inventory, you don’t want to use the retail value of sales. Transfer those sales into cost $ for an apples to apples comparison.
Stay up to date on receiving & inventory adjustments
It will not do any good to be diligent with your OTB calculation if the On Order and In Transit numbers are incorrect. Many retail stores have a hard time following procedure to receive items correctly in the system. Make sure to stress the importance of this with your employees.
Additionally, if inventory adjustments have to be made (and you should keep a close eye on these) make sure these are also done in a timely manner.
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Your team should meet weekly (or more often) to discuss the OTB planning. It’s helpful to always calculate the ordering needs on the same day, and it’s advisable to do this earlier in the week so there is time for stores to receive inventory before the upcoming weekend.
Be diligent with markdowns
Stagnant inventory does no favors for anybody. Set up a plan for markdowns and stick to it. This is a company-wide conversation as any sales or discounts reflect considerably on the brand. Work with the marketing team to create an aligned strategy.
Analyze and adjust constantly
As with anything else, inventory management is about trial and error. You test a product and order. It didn’t work. You mark it down. Repeat. You order too much for a store. They transfer it elsewhere. Repeat.
You must always be watching, analyzing, and adjusting the plan.
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