Dynamic Inventory Management - Part 3
Furniture World Magazine
By David McMahon
Part 3- A buyer’s job does not end with the filing of a purchase order.
Home Furnishings buyers are your most important inventory managers. They control the tap that determines merchandise flow. Since in many operations, inventory makes up the largest proportion of balance sheet value, this flow has the greatest impact on cash flow. It is, therefore, critical that all buyers become expert inventory managers and that their duties do not end at the time when they file a Purchase Order.
Buyers, who are not involved in the inventory management process, produce lower GMROI. This is the result of the production of fewer Gross Margin dollars and also slower turns. Gross Margin is less because these buyers fail to set pricing levels that account for “perceived product values” with the goal of selling at ideal price points. As well, a buyer who adds new merchandise too quickly, adversely effects turns and Gross Margin percent. That’s because this practice invariably results in large, semiannual clearance sales to move excess inventory. Turns are slower because of the infrequency of the sales, and deep margin cuts occur due to their scope. Focusing 100% on purchasing causes a company to become over inventoried and experience cash shortages. If purchases of new merchandise are made prior to the sale, and older or non-performing items (dogs) accumulate, the balance sheet will show a tradeoff of cash for inventory.
Systems define outcomes. Buyers can only become true inventory managers, maximizing GMROI and cash flow, when they work closely with the following key aspects and systems in the inventory lifecycle:
•The Purchase Order
•Purchase Order follow-up
•Display of merchandise
•Sales and analysis for reorder or move
•Performance tracking of vendors and categories
The Purchase Order
It is the buyer’s’ responsibility to make sure that all item orders are created properly, and categorized appropriately. The buyer should also double check to make sure that costs are correctly noted to allow for the best inventory analysis later on. For example, all your upholstery needs to be in the upholstery category, leather in your leather category, and so on. Buyers should give Purchase Orders to the vendor representative and reference the correct system Purchase Order number, not vice versa. Operations where Purchase Orders are made by representatives usually experience procedural breakdown due to Purchase Orders not being entered properly in the inventory tracking system. Companies are accomplishing this process through EDI or web interface.
Purchase Order Follow-up
Next, the buyer should oversee the follow-up process. Once a Purchase Order is sent, the vendor should acknowledge your order. If they don’t do this, require that they do so. A purchase order confirmation allows you to check the accuracy of items ordered, quantities and cost. It also gives a possible ship date so that all employees can speak intelligently to customers about when their furniture items might be scheduled for delivery. By entering realistic arrival information into your system, salespeople can more easily follow-up with both vendors and customers when a shipment is overdue.
Buyers who communicate well with warehouse managers regarding expected delivery dates help the warehouse to efficiently receive inventory into the system. All bar code labels can be printed a day in advance and reports generated for items already sold to customers and inventory arrivals for stock. Good communications cut merchandise handling time and errors so that the time inventory is in the warehouse can be kept to a minimum.
Buyer should also be responsible for working with merchandisers to create immediate merchandise transfer orders. They need to take the time to physically look at the product arrivals to establish proper pricing. This interaction between buyer and merchandiser helps to more accurately establish which items can fetch a higher retail price and which items must be priced lower for competitive reasons. Operations that have this personal approach to pricing and displaying merchandise maximize their margin. These operations also remain competitive and experience fewer gaps in price point.
Great buyers work with sales managers to identify both best sellers and dogs on a routine basis. This team approach is the key to turning merchandise faster and keeping your best mix on the floor. Once identified, popular items can be re-ordered at the appropriate time and quantity to ensure “just in time” inventory. Stores that take this approach have higher sales, because the best sellers are in stock a greater percentage of time. These stores also take action sooner to move out slow movers. Once slow moving items are sold, new merchandise can be tested. Great buyers do not wait until the semi annual clearance sale to ID and move dogs.
Sales, analysis & Vendor Tracking
Improvement starts with measuring performance. Exceptional buyers seek to improve return on investment produced by the various vendors and categories. They analyze each of them on a monthly basis and track sales, cost, merchandise in stock, on order, Gross Margin, turns, price points displayed, best seller in stock days, and most importantly GMROI. Vendors and categories that are under performing are focused on. Constant improvements are sought. Vendor partners that improve and produce are embraced and expanded while those that do not are phased out. Emotion and loyalty for them does not eclipse the trends and numbers.
Finally, prior to purchasing new merchandise, these analyses should be used to determine when the inventory flow tap for purchasing new products needs to be turned on or off. When inventory is too great for the current sales level, good buyers do not purchase new products. If inventory is at a favorable level to sales, then new buying commences. This way buyers do not put excessive strain on cash flow.
Use the job description below to assist in the development of your most important inventory manager, your head buyer:
Head Buyer Job Description
Inventory Management Co-coordinator
The following statements are intended to describe the general nature and level of work being performed. They are not intended to be construed as an exhaustive list of all responsibilities, duties, and skills required of personnel so classified.
Under supervision of the General Manager, the Head Buyer will ensure that special order merchandise is correctly ordered, stock merchandise is replenished in accordance with approved guidelines, on order merchandise is tracked and inventory excesses are eliminated. Analysis and reports will be sent to management on all aspects of purchasing/ inventory management functions.
DUTIES AND RESPONSIBILITIES
- On a daily basis, reviews all system generated purchase orders of special order merchandise, ensures that the correct merchandise order is being placed, and checks both stock and open stock purchase orders for availability of the identical merchandise.
- Generates purchasing reports for the replenishment of regular stock merchandise.
- Reviews purchasing reports and creates stock purchase orders, based on a pre-determined schedule for each applicable vendor.
- Ensures that purchase order acknowledgements are reviewed and entered in the system daily and that all costs and arrival times are confirmed and updated.
- Follows up on the status of all open purchase orders, including those which are non-acknowledged or those which are late in arrival.
- On a monthly basis, runs the system generated inventory aging report to identify and price inactive inventory.
- Maintains the complete inventory aging system to efficiently and economically move the inventory dogs.
- Produces sales analysis reports to identify best sellers and communicate with the sales manager.
- Tracks performance of vendors and categories.
- Implements strategies to improve GMROI.
- Performs miscellaneous job-related duties as assigned.
MINIMUM JOB REQUIREMENTS
High school diploma or GED with a minimum of 2 years of experience directly related to the duties and responsibilities specified, as practiced in the retail furniture industry.
REQUIRED KNOWLEDGE, SKILLS, AND ABILITIES
Ability to co-ordinate with/and train staff, including organizing, prioritizing, and scheduling work assignments.
- Records maintenance skills.
- Knowledge of inventory management standards and procedures.
- Knowledge of purchasing practices in a retail environment.
- Ability to operate a computerized business management system.
- Strong communication and interpersonal skills.
- Ability to analyze and solve problems.
- Knowledge of retail procedures, systems, and standards.
- Ability to gather data, compile information, and prepare reports.
David McMahon is a Senior Business Consultant for PROFITsystems, Inc. PROFITsystems delivers a "Total Success System" through PROFIT professional, PROFITconsulting, PROFITgroups, PROFITuniversity, PROFITfreight, and PROFITservices. These business units offer best-practice solutions designed to maximize cash flow and profitability. Questions can be sent to David care of FURNITURE WORLD at email@example.com
David McMahon is a Certified Management Accountant and Consultant with PROFITconsulting, a Division of PROFITsystems. Questions about this article, or to request a similar analysis on your financial statements contact him at Davidm@furninfo.com or call 8oo-888-5565.
Read other articles by David McMahon