There are three powerful forces at work in the retail sector that are driving changes in the way manufacturers manage their stock:
- The need to supply an increasingly wider range of products, often with narrower, specialist appeals
- The need to cut the cost of holding stock to a minimum
- The need to be able to order and reorder at short notice in response to fluctuations in increasingly volatile markets
In other words, retailers are requiring more frequent, smaller deliveries, while manufacturers would prefer to deliver larger consignments with longer lead times.
The onus shifts to manufacturers
The retailers seem to be winning, and gradually the onus and cost of holding and managing stock is being transferred to manufacturers.
Since holding stock is no less expensive for manufacturers than it is for retailers, manufacturers need to develop effective stock management procedures if they are not to see their margins corroded by this trend. The key is to analyse your stock into individual stock keeping units (SKUs) and then to monitor the movement and performance of each.
For example you might discover that a particular size or colour of a garment outsells all others and adjust stock levels accordingly. Indeed, this approach enables you to mix and match SKUs to optimise sales with different customers and in different markets.
Focus on profitability not volume
The secret is to focus on the profitability of each SKU rather than its volume. For example, high volume low margin products might turn out to be less profitable than relatively low volume high margin ones, and you might want to reflect this in your stock management priorities.
Stock management audit
Stock management can be a complex and time-consuming area for business owners. We are always happy to help you conduct an audit of your stock management procedures and develop a more effective and profitable approach.
Contact Us to arrange a preliminary review.