Bruce Merrifield, President — Merrifield Consulting
•profit analytics •distribution management best practices •profit strategy •supply chain issues •Randy MacLean •cost to serve analytics •wholesale distribution •Bruce Merrifield •inventory management •optimizing inventory
Wednesday, May 17, 2017—Why You Should Be Optimizing Inventory
Listen in as Randy MacLean and Bruce Merrifield, both of WayPoint Analytics, discuss a novel approach to optimizing inventory and increasing profit.
Inventory management is an often-overlooked profit opportunity. Randy and Bruce explain why it's important to optimize inventory in the same way you optimize personnel and other resources toward the best profit opportunities.
The purpose of having inventory is to provide service to the customer. This is measured by fill rates, and from a truly financial dimension fill rates have diminishing returns. In other words, adding more inventory dollars increases your fill rate, but at a certain point, usually about 92%, you will start to experience diminishing returns on your inventory investment.
One of the problems with this high-level approach is that not all SKUs are equal. Popular SKUs deserve high fill rates. Very profitable SKUs deserve high fill rates. Using the WayPoint Popularity vs. Profitability Report, you can beef up the most popular and profitable items for a particular niche.
The idea is not to simply raise inventory on a just-in-case basis. Be smart, and instead narrow the focus to the products that actually affect the bottom line, based on the most profitable customers, most of the time.
The benefit of this is that you can provide one stop shopping to your customers. You can tell them you have everything they need and it's in stock. No partial fulfillment. No delays.
With this focused approach you now have an answer for the numbers guys, who think you are just spending more money on inventory and will want to put the brakes on at a 92% fill rate. A look at the other dimensions reveals you are saving money on personnel costs, infrastructure costs, and delivery costs. You are increasing customer satisfaction and doing the most important marketing you can: Being reliable based on your actions, not an ad.
It's time to ditch one-dimensional financial thinking, own the sales for a niche with super customer service, and create higher profits.
For more information about Bruce Merrifield, visit: www.merrifieldact2.com
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