Intro to Inventory Management: What about product A?

A healthy inventory is the life blood of any product-based business. Seems simple right? Without product, you have no way to make money. However, the challenge comes in keeping up with current trends, seasonal items, and economic conditions. It’s simple to buy up a bunch of stock on Product A but what happens when everybody wants Product B? You also have to consider things like; measuring Cash Flow Assumption, Tax liabilities, Categorization, and the list goes on. 43% of Small Businesses say inventory management is their biggest day-to-day concern. Anchor Solutions will be releasing a series of helpful recourses to assist you in navigating the exciting (and sometimes tedious) world of Inventory Management.

So what does happen when your Product A stops moving? Do you just take the hit and order Product B and add it to your shelves? Well, doing that means you’re stuck with a bunch of unmoving, product A, taking up space so you can’t even think about Product C! Well if that doesn’t work, do you just stick to your guns and say product A is still better, even though sales won’t be as high compared to Product B? At least this way you’re not shelling out extra money on more product… that’s good right? The real problem with inventory is, there is no easy answer, and every situation comes with a different set of variables. The good news is, when you really boil it all down to the simplest form, there are only two issues we need to navigate,

A: Why is this happening?

B: How do I get rid of my old stock?

The Why

First question you should ask yourself is the why. Why is Product B selling more than Product A? Sometimes it’s as simple as seasonal changes, it’s safe to say that nobody is buying pool supplies when it’s snowing outside! Maybe Product B is an improvement, a 2.0 of Product A, we see this situation in the tech industry. Because things are upgrading faster than most of us can even keep up with. Also, if you sell any type of clothing, furniture, or décor you will always be faced with constantly changing style trends. At least the 80’s are coming back…right?

Okay, so after doing your research you know the why… but that doesn’t change your current situation. However, now that you know the why, you can (hopefully) learn from the experience and avoid making a similar choice next time around. Unfortunately, your still stuck with this old, unmoving inventory. Let’s figure out some options.

The How

The easy way out is to simply discount the old inventory and get it moving out of your store. While physically this is a simple solution, this may not always be easy on your wallet. However, there are steps you can take to ensure you are discounting appropriately and not throwing all your profit out the window… at least in the beginning. The key here, is to slowly increase the discount the longer you’re holding on to the product. If you have a 50% mark up on your product don’t jump straight to breaking even. Let’s start at a modest 10% – 15%. Sometimes it just takes consumers seeing a discount that will greatly help you move that product.

Take a shoe store for example, if you never sell Size 8s in a particular shoe, but you know “John’s Shoes” can’t keep them on their shelves, it just makes sense to trade.

At Anchor Solutions we advise our clients to take a different approach. Our ideal way of getting rid of non-moving inventory is to partner up with another business. This option is great for franchisees with neighboring locations. You don’t have to own multiple locations to transfer out inventory! If you can gain a good relationship with a fellow franchisee either with the same company or a similar one, you can usually find a win – win situation. Take a shoe store for example, if you never sell Size 8s in a particular shoe, but you know “John’s Shoes” can’t keep them on their shelves, it just makes sense to trade. They get more inventory, and you get to wipe your hands clean. Taking this rout, you also gain a stronger business relationship and a great overview about management, plus you may take advantage of the reverse situation, later down the road.