how to manage inventory for maximum profit by george hines – president of george’s music

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How to Manage Inventory For Maximum Profit By George Hines – President of George’s Music

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How to Manage Inventory For Maximum Profit By George Hines – President of George’s Music. “ No Retailer ever filed bankruptcy because their turns were too high” -Michael Gould Chairman of Bloomingdales. Question. Is Inventory: an Asset a Liability. Problem: Too Much Inventory. - PowerPoint PPT Presentation

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Page 1: How to Manage Inventory  For Maximum Profit By George Hines – President of George’s Music

How to Manage Inventory For

Maximum Profit By George Hines – President of George’s Music

Page 2: How to Manage Inventory  For Maximum Profit By George Hines – President of George’s Music

“No Retailer ever filed bankruptcy because their turns were too high”

-Michael GouldChairman of Bloomingdales

Page 3: How to Manage Inventory  For Maximum Profit By George Hines – President of George’s Music

Question

Is Inventory:A. an AssetB. a Liability

Page 4: How to Manage Inventory  For Maximum Profit By George Hines – President of George’s Music

Problem: Too Much Inventory

• Reduces Available Cash• Increased Freight • Increased Handling and Storage• Increased Shrinkage• Increased Costs in Obsolescence• Increased Markdowns to Reduce

levels• Increased Costs to Promote and Sell

Inventory Management

Page 5: How to Manage Inventory  For Maximum Profit By George Hines – President of George’s Music

PROFITS

Diamond of DOOM

Page 6: How to Manage Inventory  For Maximum Profit By George Hines – President of George’s Music

We need to turn the

into

Page 7: How to Manage Inventory  For Maximum Profit By George Hines – President of George’s Music

Solution:

• Step One: Understand GMROI

• Step Two: Invest Wisely – Focus on Profits

• Step Three: Measure with Key Indicators

Inventory Management

Page 8: How to Manage Inventory  For Maximum Profit By George Hines – President of George’s Music

Universal Laws:

“Law of Expectation”Make a decision

Page 9: How to Manage Inventory  For Maximum Profit By George Hines – President of George’s Music

$10,000

Page 10: How to Manage Inventory  For Maximum Profit By George Hines – President of George’s Music

Step 1 – Understanding GMROI

Gross Margin Return on Investment

Formula:

(Annual GM$) ÷ (Avg. Annual BOH$)

= GMROI

Page 11: How to Manage Inventory  For Maximum Profit By George Hines – President of George’s Music

Example 1

Store Sales for the year are 1 millionGross margin % is 30%

Gross Margin $ for the year is $300,000Avg. Annual BOH Inventory is $300,000

$300,000 (GM$) ÷ $300,000 (Avg. BOH$)

= 1 (GMROI)

Gross Margin Return on Investment

Page 12: How to Manage Inventory  For Maximum Profit By George Hines – President of George’s Music

Two Ways to Increase GMROI:

1. Increase GM$

2. Increase Turn

Page 13: How to Manage Inventory  For Maximum Profit By George Hines – President of George’s Music

1% increase in Gross Margin on

1 million dollars in sales =

$10,000 extra profit

Page 14: How to Manage Inventory  For Maximum Profit By George Hines – President of George’s Music

Example 2 – Increase Margin

Store Sales for the year are 1 millionGross margin % is 40%

Gross Margin $ for the year is $400,000Avg. Annual BOH Inventory is $300,000

$400,000 (GM$) ÷ $300,000 (Avg. BOH$)

= 1.33 (GMROI)

Gross Margin Return on Investment

Page 15: How to Manage Inventory  For Maximum Profit By George Hines – President of George’s Music

The NEW Norm:

More from LessEmbrace the 80/20 Rule

Page 16: How to Manage Inventory  For Maximum Profit By George Hines – President of George’s Music

Example 3 – Increase Turn

Store Sales for the year are 1 millionGross margin % is 40% - Increase Turn

Gross Margin $ for the year is $400,000Avg. Annual BOH Inventory is $200,000

$400,000 (GM$) ÷ $200,000 (Avg. BOH$)

= 2 (GMROI)

Gross Margin Return on Investment

Page 17: How to Manage Inventory  For Maximum Profit By George Hines – President of George’s Music

REVIEW

Example 1:GMROI is: $300,000 (GM$) ÷ $300,000 (Avg. BOH$) = 1

Example 2: Increase Gross Margin $GMROI is: $400,000 (GM$) ÷ $300,000 (Avg. BOH$) = 1.33

Example 3: Increase Gross Margin and TurnGMROI is: $400,000 (GM$) ÷ $200,000 (Avg. BOH$) = 2.0

Gross Margin Return on Investment

Page 18: How to Manage Inventory  For Maximum Profit By George Hines – President of George’s Music

Step 2: Invest Wisely – Focus On

Profits

1. Cleansing the InventoryThe 80/20 Rule

2. Budget and Purchasing Worksheet

3. Purchase Inventory by GMROI

Page 19: How to Manage Inventory  For Maximum Profit By George Hines – President of George’s Music

Cleansing the Inventory

1. Ranking Inventory… 80/20 Rule…A List

2. YTD Gross Margin Dollars (Descending)

3. YTD Units Sold (Descending)

4. Eliminate Old and Bad Stock

Page 20: How to Manage Inventory  For Maximum Profit By George Hines – President of George’s Music

BudgetingDate Budgeting and Purchase Tracker -

BasicInventory Change

InventoryLevel

June

Week 1 Beginning Monthly Inventory 300,000

Cost of Goods Sold 15,000 285,000

Budget for Purchases 10,000 295,000

Week 2 Beginning Monthly Inventory 295,000

Cost of Goods Sold 12,000 283,000

Budget for Purchases 10,000 293,000

Week 3 Continue Same as above…..

Page 21: How to Manage Inventory  For Maximum Profit By George Hines – President of George’s Music

Purchase Inventory by

GMROI

1. MIX Large vs. Small Goods by GMROI

2. Rank Vendors by GMROI

3. Rank Departments by GMROI

4. Rank Items by GMROI

Page 22: How to Manage Inventory  For Maximum Profit By George Hines – President of George’s Music

It’s all about the

Page 23: How to Manage Inventory  For Maximum Profit By George Hines – President of George’s Music

Funnel Down

Page 24: How to Manage Inventory  For Maximum Profit By George Hines – President of George’s Music

What is your Mix of Goods?

GM$ and TurnLarge Goods

GM$ and TurnSmall Goods

Page 25: How to Manage Inventory  For Maximum Profit By George Hines – President of George’s Music

Large Goods vs Small Goods

Dep’tName

AnnualSales

AnnualC.O.G.

AnnualGM $

Approx.AnnualBOH $

TurnoverRate

GMROI $

Total Sales

1,000,000

630,000 370,000 285,000 2.21 1.30

Large Goods

700,000 490,000 210,000 245,000 2.00 .86

SmallGoods

300,000 140,000 160,000 40,000 3.50 4.00

The Power of GMROI

Page 26: How to Manage Inventory  For Maximum Profit By George Hines – President of George’s Music

• 35% Margin• 3 Turns

Vendor

• 30% Margin• 2 Turns

WINNER!

Vendor

What is your Vendor Mix?

Page 27: How to Manage Inventory  For Maximum Profit By George Hines – President of George’s Music

Vendor vs Vendor

Dep’tName

AnnualSales

AnnualC.O.G.

AnnualGM $

Approx.AnnualBOH $

TurnoverRate

GMROI $

Total Sales

1,000,000

630,000 370,000 285,000 2.21 1.30

Vendor A

30,000 24,000 6,000 8,000 3.00 .75

Vendor B

36,000 24,000 12,000 8,000 3.00 1.50

The Power of GMROI

Page 28: How to Manage Inventory  For Maximum Profit By George Hines – President of George’s Music

Guitars – Dept A

Keyboards – Dept. B

What is your Dept Mix?

Page 29: How to Manage Inventory  For Maximum Profit By George Hines – President of George’s Music

Department vs Department

Dep’tName

AnnualSales

AnnualC.O.G.

AnnualGM $

Approx.AnnualBOH $

TurnoverRate

GMROI $

Total Sales

1,000,000

630,000 370,000 285,000 2.21 1.30

Dept A 50,000 25,000 25,000 12,500 2.00 2.0

Dept B 100,000 65,000 35,000 25,000 2.6 1.4

The Power of GMROI

Page 30: How to Manage Inventory  For Maximum Profit By George Hines – President of George’s Music

What is your Item Mix?

25’ XLR Cable Studio Mic Pack

• Cost $5 estimate

• Sell $15 estimate

• Invest $65 (13 units)

• Profit : $195 estimate

• Cost $65 estimate

• Sell $99 estimate

• Invest $65

• Profit : $34 estimate

Page 31: How to Manage Inventory  For Maximum Profit By George Hines – President of George’s Music

Item vs Item

Dep’tName

AnnualSales

AnnualC.O.G.

AnnualGM $

Approx.AnnualBOH $

TurnoverRate

GMROI $

Total Sales

1,000,000

630,000 370,000 285,000 2.21 1.30

Item AExample

6,000 2,000 4,000 1,000 2.00 4.00

Item BExample

10,000 7,500 2,500 2,500 3.00 1.00

The Power of GMROI

Page 32: How to Manage Inventory  For Maximum Profit By George Hines – President of George’s Music

Measure: Key Indicators Chart

Jan

Feb

Mar

Apr

May

Jun Jul Aug

Sep

Oct Nov

Dec

Tot

Gross Sales

GM%

GM$

INV.BOH $

GMROI

The Power of GMROI

Page 33: How to Manage Inventory  For Maximum Profit By George Hines – President of George’s Music

Review

1. Make a Decision on how much you want to earn

$_________________

2. Invest Wisely – Focus on ProfitChoose your method

3. Measure Progress with Key Indicator Worksheets

Page 34: How to Manage Inventory  For Maximum Profit By George Hines – President of George’s Music

Make Inventory an

ASSETNot a Liability

Page 35: How to Manage Inventory  For Maximum Profit By George Hines – President of George’s Music

Retail Owners Institutehttp://www.retailowner.com/

• Look at GMROI Calculators• Financial Cash Flow Worksheets• Training Tools• Benchmarks for the industry

George Hines – President, George’s Music

[email protected]

Page 36: How to Manage Inventory  For Maximum Profit By George Hines – President of George’s Music

Result: Happy Store Owner