As you may have noticed from some of my previous writings, I have a tendency to look askance at research findings. You should not, however, mistake what I feel is healthy scepticism for the belief that there is no value in research.
On the contrary, I believe research is the foundation on which some solid decisions can be made. At least the right research can be. In the past, Jobber News has done some pretty solid research on the market. Sometimes we just wanted to find out what people liked to read; other times we wanted to find out about their businesses: how much they sell, how much they buy, how fast they turn their inventory, etc.
In our 1998 survey–which surely needs updating–44% of jobber outlets surveyed were under $300,000 in sales, and about half that percentage was above the million-dollar mark.
Still, these two diverse groups have much in common: both are faced with rising inventory costs and tremendous margin pressures.
These financial concerns are critical to both the current health and future outlook of business–yes, it is important to know where your business is financially–but once you know that, it is what you do next that counts.
Is your immediate reaction, when faced with a bad month or quarter, to cut costs? Do you look at ways to increase productivity and sales? Or do you look at ways to do both? It can be done, but it only works in the long term if you do it right.
Five years ago, jobbers told us that they carried a mean of $295,000 in inventory and turned this 3.8 times. But these same jobbers told us that they had a mean of $780,000 in sales. My math may be a bit rusty, but I can’t quite make that work. It does show some interesting facts, not the least of which is an inconsistency in the way numbers are being measured, or at least reported.
Still, you probably have a couple of hundred thousand dollars invested in inventory and are faced every day with how to make that work for you.
Let me offer a suggestion: stop thinking about inventory as a burden, and start thinking about it as a warehouse of possibilities.
If you look at current sales and inventory levels and are feeling the squeeze, the natural reaction is to go into cost-control mode. If you’re not careful, you soon make this the philosophy of your business and will be unable to compete with businesses that are spending money and time to keep and win customers.
With the current state of flux in the market, it is my firm belief that you should not be looking for ways just to maintain or increase your 3.8 inventory turns (or whatever you might have; one-third reported less than three), but be looking at ways to build inventory and margin, so that your turns may decrease, but your sales go up. It doesn’t take much to go from one place to the next, and you do have to be careful. But in the long run I believe that you’ll need that margin to build your customer base, and you’ll need the inventory to serve it. To make that work, we’re all going to need to get a bit more sophisticated. Wholesale approaches, if you pardon the phrase, just won’t work.
I’m hopeful the coming inventory study by Northwood University will shed some light on the topic. Back in November, during the AAPEX show, some clues were offered. To succeed, the researchers said, would take a more sophisticated approach to forecasting, pricing, information and control systems, along with increased sharing of data and a great focus on differentiation. “Companies have been able to succeed with less than state-of-the-art logistic systems,” said lead researcher Jim Busby, implying that this is no longer the case.