Meticulously computing inventory sounds like a laborious, time suck that no one looks forward to. Yet over and over again, we see proper inventory management as the key to business survival. Just take a look at Ralph Lauren’s recent colossal profit decline of 50 percent in the past two years all because of a lack of inventory control. Or Walmart’s $ 3 billion going down the drain in 2013 when misplaced goods resulted in the giant retailer’s inventory growing faster than its sales.
Proven repeatedly, companies—big and small—that implement inventory management technique to properly control quality, data, sales processes, among other vital business operations can significantly reduce costs and increase profits. What do the best and brightest CEOs and other influential business leaders think about inventory control?
Stefan Larsson, CEO of Ralph Lauren
American sportswear Ralph Lauren might be proudly donning TEAM USA athletes during the opening ceremony of the Olympics, but since 2012, the iconic clothing company has been in the red. In the past two years, profits have plummeted by 50 percent and the company, which was worth $ 16 billion just four years ago, is now worth half of that.
The reason? A lack of inventory control, leading to an imbalance in the supply and demand chain and excess merchandise sitting and piling up in bargain bins and outlet stores. To improve margins, the company appointed Stefan Larsson as CEO on June 7, 2016, to replace founder Ralph Lauren’s spot.
Larsson’s solution? To trim inventory fat.
“Continuing with this vicious cycle is going to hurt the brand,” Larsson said at a meeting with investors, so the new plan is to “ focus in on the core of what made us great,” This means a bigger emphasis on the brand’s best-selling labels, like its casual men’s label, Polo Ralph Lauren and women’s line, Lauren Ralph Lauren. The company also plans to reduce production time by six months, from 15 to nine months, combined with an eight-week test pipeline, meaning garments are introduced at a small scale to determine customers demands. Additionally, the brand plans to cut three layers of management, eliminate 1,000 jobs (less costs-per-touch) and close 50 under performing stores.
Jeff Karrenbauer, co-founder of INSIGHT, Inc.
According to Karrenbauer, the single, most effective inventory management technique is an accurate, timely demand and supply information sharing system that’s accessible among all supply chain partners. This kind of implementation, according to Karrenbauer, keeps the focus on the big picture.
Only through “better data collection, increased computing power, and mathematical innovations” can corporations with complex, often solid departments “find efficiencies in sourcing, scheduling, and routing that no human would ever spot (everything from raw materials costs to import taxes). These network design studies can, Karrenbauer claims, cut supply chain costs by up to 15 percent.”
Bob Scanlon, CEO of the Alaska’s Blood Bank
Blood has a shelf life of 42 days and in less densely populated areas where there are more donors compared to demand, a system that consistently keeps an optimal level of inventory in place at all times is crucial. Hence, a careful inventory rotation system much like a grocery store dairy fridge rotation following FIFO, an industry jargon for “first in, first out” is used, Scanlon explains to the Alaska Journal of Commerce.
Gary W. Patterson, CPA/MBA at the FiscalDoctor
Patterson authored the book Million Dollar Blind Spots: 20/20 Vision for Financial Growth which helps you identify blind spots costing you millions before it ruins your business. His advice is that your million dollar blind spot is a when-it-happens situation, not an if-it-happens problem. To prepare and prevent the inevitable, Patterson suggests following this seven-step proactive plan:
- Commit to contingency planning.
- Establish a risk-tolerance framework.
- Identify potential risks that your company may be up against.
- Highlight worst-case catastrophic and critical risks.
- Identify the top five to ten risks that are not included in your financial statements.
- Develop a coherent action plan that is approved by your executive team.
- Establish a proactive media policy.
Dan Schmidt, founder and CEO of The Emerging Business CFO
The secret to profits, says Schmidt, is to plan an optimal warehouse layout that suits your business.
“Restructure your warehouse so that fast-moving items are closest to the fulfilment area, and put them on flow racks or other high-accessibility storage solutions – not just boxes or pallets on racks,” he says. “You could even consider implementing a barcode scanning system to improve efficiencies on handling and fulfilment.”
Dave Allred, CEO of Bar Patrol, Blogger at TheRealBarman.com
The bar industry loses more than $ 10 billion each year all because of a lack of inventory management systems.
“Without a modern liquor inventory management system, life will go on, even if you continue to grind out your inventory counts on your trusty old clipboard and prehistoric count sheets” writes Allred on LinkedIn, but “if you want real success with your inventory management, there are three steps you need to follow on a consistent basis, and though they heavily apply to inventory management, you should use these three steps throughout your business model, and they are: 1. Set the standards, 2. Monitor the standards and 3. Enforce the standards.”
“And it’s #2 that you cannot do if you don’t have a proper system in place. Without #2, $ 10 BILLION happens. Without #2, your bartenders do #1 which is set the standards, and then all you have left is #3, enforcing the standards, and how in the hell are you supposed to that now???”
According to the successful business leaders above, properly managing goods is key to profitability. Companies that properly have an effective inventory software, usually with barcode and barcode scanners, have tighter reigns on long-term growth and preventing any self-inflicting, human errors that risks running the company into the ground.Business & Finance Articles on Business 2 Community