4-15% of total inventory dollars are tied up in non-saleable merchandise. Problems include manufacturing defects, missing parts, freight claims and damage caused by poor warehouse handling practices. Shop areas also typically have some customer merchandise in for warranty repair.
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What do you do with inventory you can't sell?
How much cash do you have tied up in inventory you cannot sell? Do you know how many pieces and how much warehouse space is involved with this ongoing problem? Do you know how much of this inventory is less than a week old, a month old, two months old, etc.? Do you know the reasons why the inventory is non-saleable?
Research earlier this year shows a range of 4-15 per cent of total inventory dollars tied up in non-saleable merchandise. One retailer that talked with me after our seminar at April's High Point Market commented that $300,000 of their $3,000,000 inventory was non-saleable and at least another $50,000 in acceptable matching pieces couldn't be delivered until the balance were replaced or repaired.
Problems we routinely see include manufacturing defects, missing parts, freight claims and damage caused by poor warehouse handling practices. In addition, shop areas typically have some customer owned products in for warranty repair.
Resolution of these problems has always been important but it is even more important today when many customers are buying special order merchandise on quick ship programs. Today's customer also has higher expectations for customer service and is less patient. They want the products they ordered, and are not interested in hearing excuses. Since non-saleable problems won't simply disappear, the only way to gain control is with appropriate management attention.
The solution involves steps you take within your own retailing unit, joint efforts with your manufacturers, and working with the trucking companies that deliver the goods. The overall goal is to improve the partnership you have with them, and ultimately to reduce the hassles and excess costs. Talk with your manufacturers and carriers as you implement this effort.
Step one: Establish a process to measure performance: Keep a file folder for each manufacturer and carrier, or a computer file. For smaller retailers, a spreadsheet program such as Excel or Lotus can be very useful. Every major furniture retailer inventory package has capabilities for segregating non-saleable inventory... but many retailers either don't know of it's existence or don't recognize the significance.
Step two: You can immediately reduce damage caused in your own warehouse by training personnel in proper handling and storage techniques. This isn't a rocket science business. Rough handling causes damage. There are videos available that cover the basics in about a half hour, but you have to follow up so people do the right things.
Few retailers inspect every piece during the receiving process, most only open the packaging before delivery. But if you are having problems with a particular vendor, it makes sense to verify their quality at the receiving dock. If the packaging appears damaged when the merchandise comes off the truck, note it on the trucker's bill of lading and inspect the product promptly.
Step three: When a product defect is identified, start action promptly. If a part is needed, can you get it ordered that day or does it take a week? If a freight claim is required, what is your internal timetable to get it done? If a manufacturing defect is the problem, give them accurate information so they can send you the right parts. What is the backlog in your shop? If there is a customer promise date, what steps do you have to take to expedite the process or notify the customer?
Step four: Review the status of each open item at least weekly until resolution. Sum up the costs associated with the problem and file for cost recovery, if applicable. Discuss the performance with the manufacturer or carrier representative, focusing on two things.
You may find that some manufacturers and carriers deserve a greater share of your business.... or just the opposite.
Use the same review process with work required if the situation was a result of poor handling inside your own operation.
Bottom line, there is a genuine opportunity to improve customer satisfaction and improve profits by managing the details of non-saleable inventory.
Daniel Bolger of The Bolger Group helps companies achieve improved transportation, warehousing and logistics. Questions can be directed to Mr. Bolger care of FURNITURE WORLD at firstname.lastname@example.org.
Contributing editor Dan Bolger of The Bolger Group helps companies achieve improved transportation, warehousing and logistics. See many other articles by Dan in the Operations Management article archives on the furninfo.com website. You can send inquiries on any aspect of transportation, warehousing or logistics issues to Dan Bolger care of Furniture World Magazine at email@example.com or call him direct at 740-503-8875.
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