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You can trim your inventory but still maintain a high level of customer service. Here's how.
Because of the current economic conditions, many distributors are suffering from decreased sales and lower profit margins. While there is less money available to invest in inventory, to remain competitive distributors must maintain a high level of customer service. In this economic climate, it's critical that every dollar invested in inventory is working to achieve the goal of effective inventory management.
When forced to reduce inventory many distributors first look to get rid of dead stock and remove slow-moving inventory from warehouse. But this course of action presents several challenges:
* It's often difficult to liquidate dead stock. After all, if your customers don't want this material it probably will take a lot of effort to find someone who does want it.
* Your customers may depend on you having some slow-moving products always on the shelf just in case they need them. The availability of these products contributes to your reputation as a reliable supplier and helps differentiate you from your competitors.
I have found that a more effective way to trim your inventory is to micromanage your fast-moving products that also have a high cost-of-goods-sold value. These products not only sell frequently, but also represent a lot of dollars moving through your inventory. Reducing the stock of these products in most cases will substantially reduce your inventory investment while increasing turnover (your opportunities for earning a profit). The challenge is to ensure that any stock reduction does not negatively affect customer service. Here are a few ideas to help you achieve this goal:
Identify the products with the highest potential to effectively reduce your inventory. Most distribution software will rank products based on cost of goods sold. For example:
* "A" ranked items produce die top 80 percent of sales.
* "B" ranked items contribute to die next 15 percent of sales.
* "C" ranked items are responsible for the last 5 percent of sales.
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