Optimizing Inventory with XpertMart^TM

Minimums Are Still Useful Even Without Recurring Purchases

Another popular myth that keeps retailers from using Minimums is that these do not apply to one-time-only styles. The logic behind this myth is that Minimums are only useful if you are going to be reordering the same style from your vendor. Those retailers who carry unique or seasonal styles tend not to use Minimums. Once again, we believe Minimums are still useful, even for those styles that cannot be reordered.

Suppose you place a large order of men’s dress loafers from a vendor in Hong Kong, and it takes three to six months to order and get them delivered. Furthermore, you know from prior experience that this vendor will not make more pairs of the particular loafer you are ordering. This seems like a clear-cut case for not using Minimums, right? Wrong. Once you do receive the container of loafers, your central warehouse should act like your own “just-in-time” supplier to your stores. We suggest delivering only part of the total shipment to your stores and holding back 20 - 40% of the stock in the warehouse. This reserve inventory would be used to ship out to stores that need particular items, or size/color combinations. Use XpertMart^TM to monitor sales in each store on a daily basis to determine which items to ship out to which stores. The stores could be resupplied twice weekly. As we’ve already discussed, you can quickly establish Minimums based on a limited sales history and use these to determine how you allocate your inventory reserve.

Now suppose you’ve exhausted the reserve stock you put aside, stock is dwindling in each of the stores and consequently, sales are slowing. Each store no longer carries a full size run of the loafer. This is the time retailers usually start marking-down the items that are left. At this point we suggest concentrating the stock that is left over, for example, moving the remaining items in your 40 stores to the 5 or 10 stores where the loafer has sold the best. This way you can stock full size runs in each of the 5 or 10 stores and continue to sell at full price.

Note that one of the problems that is quite common in retail distribution is that many pairs of shoes get lost or misplaced every time merchandise is moved since it is usually too expensive to put bar codes on each individual shoe. (At most, one of the two shoes in a pair will have a bar code, but usually it’s just the box). One of the advantages of XpertMart^TM is that every item in the Items Catalogue can have a photo. The Items Catalogue can be easily accessed at the point-of-sale by simply pressing F8, allowing store personnel to return misplaced merchandise to its proper box, saving the retailer lots of money. (The item can be looked up by any combination of style, color, size or bar code). The two alternatives, sending all lost shoes back to the central warehouse for sorting or throwing away all mismatched shoes, are too expensive.

As we’ve seen, Minimums can still be used to optimize supply of unique styles. Even though we have a slow, one-time delivery of the loafers in our example, within our chain of stores we have fast distribution, sales and feedback from sales. The end result is being able to sell the whole shipment of shoes a lot faster, with fewer markdowns.

Optimizing Inventory with XpertMartTM

Minimums Are Still Useful Even Without Recurring Purchases

Optimizing Inventory with XpertMart^TM