Intro to Inventory Management: What about product A?

A Healthy Inventory is the lifeblood of any product based business.

A thriving inventory serves as the lifeblood of any product-based business, yet its management is far from straightforward. While the concept appears simple – no products, no revenue – the real challenge lies in staying attuned to current trends, seasonal variations, and economic shifts. It’s easy to accumulate stock for Product A, but what happens when the demand surges for Product B? Inventory management extends beyond mere stockpiling; it involves aspects such as evaluating cash flow assumptions, addressing tax liabilities, effective categorization, and a plethora of other considerations.

Remarkably, a substantial 43% of small businesses identify inventory management as their primary day-to-day concern. At Anchor Solutions, we understand the intricacies of this exciting, albeit at times, tedious realm of inventory management. That’s why we’re soon releasing a series of invaluable resources to guide you through the complexities of this crucial business facet. Our aim is to empower you with the knowledge and tools needed to navigate the world of inventory management successfully.

What do you do when Product A suddenly stops moving? Is the solution to simply switch to Product B and fill your shelves with it? Well, taking that route results in being burdened with unsold Product A, consuming valuable storage space and hindering any consideration for Product C. On the other hand, persisting with Product A, despite its lower sales compared to Product B, might seem like a cost-saving approach. After all, you won’t be spending extra money on a new product. However, inventory management is a complex puzzle with no one-size-fits-all answer. Each situation presents a unique set of variables and challenges.

The good news is, when we break it down to its simplest form, there are just two core issues we need to navigate.

A: Why is this happening?

And

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

The Why

The initial question to ponder revolves around the “why.” Why is Product B outselling Product A? Sometimes, it’s as straightforward as seasonal shifts – for instance, people aren’t inclined to purchase pool supplies during the snowy months. Alternatively, Product B might be an upgraded version, a 2.0 iteration of Product A, as often observed in the fast-evolving tech industry. The ever-accelerating pace of technological advancements leaves many struggling to keep up. Moreover, if your business deals with clothing, furniture, or decor, you’re frequently challenged by the ever-changing tides of style trends. The good news is that, perhaps, the ’80s fashion is making a comeback, right?

With a firm understanding of the “why” derived from your research, you’re better equipped to tackle the current situation. Although it may not alter your present circumstances, this knowledge provides invaluable lessons to prevent making similar choices in the future. Nonetheless, you’re still faced with the challenge of dealing with stagnant inventory. Let’s explore some viable solutions.

The How

The straightforward approach to dealing with stagnant inventory is to offer discounts and clear it out of your store. While this might seem simple on the surface, it’s not always easy on your finances. Nevertheless, there are strategic steps you can take to ensure you’re offering discounts wisely, without sacrificing your profits prematurely.

The key strategy here is gradual discounting based on how long you’ve held the product. If your product has a 50% markup, resist the temptation to immediately break even. Start with a modest 10% to 15% discount. Sometimes, even a slight discount can trigger consumer interest and significantly assist in moving the product off your shelves.

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 route, you also gain a stronger business relationship and a great overview of management, plus you may take advantage of the reverse situation, later down the road.