In the jewelry supply business and in the jewelry business in general inventory management is often the very key to success. Inventory management has a variety of challenges and is always fluctuating. As the inventory manager at Nina Designs, I would like to share some of my current approaches to inventory management that may help you or inspire a dialogue of further discussion on the topic. In October, I discussed “New Items and Opening Orders.” In December, I discussed “Reviewing Past Sales and Projecting Into The Future,” now I will discuss “Being Careful of the Outliers.”
If you are regularly reviewing your inventory and sales, you can determine when there is a spike in sales on a normally slow item. I call these items “outliers” and give them additional scrutiny. While this spike is exciting, you don’t want to over order or invest too much of your budget into an item with sales that may crash. It’s worthwhile to take the time to do an inventory report for that item to determine how many customers are purchasing it, who is purchasing it, and how often each customer is purchasing it.
Example of an outlier: Snowflake Mandala
I will usually look at a year’s worth of the past sales. If only a small number of customers are purchasing the outlier and there is one large volume purchase, I may reduce my re-order for that reason, especially if the large purchase is made by a new customer or if this particular customer has never ordered this item before. I cannot depend on that customer re-ordering in the same volume or even re-ordering the outlier ever again. It isn’t a wise financial decision to order a large volume based on one customer’s sales because we may be stuck with that inventory and unable to use those funds to re-order other items that are selling frequently to multiple customers.
There is the possibility that the customer who purchased the large volume is one of your regular customers so you may want to increase your re-order volume to have sufficient inventory available for them but still reduce your re-order to what you are willing to sacrifice financially if your customer doesn’t purchase this item again. If you discover a pattern with your regular customer purchasing a particular item in large volumes then it can be helpful to talk to the customer to get a better feel for their expected inventory needs and discuss production lead times. Based on your conversation, you may decide on an order quantity that will allow you to ship a partial quantity to the customer, and then re-order specifically to fill their exact backorder needs. If you do not have an opportunity to speak with the customer you may want to determine your order volumes with just them in mind but maybe only order half of what you would normally order. This will give you some inventory for them, but will reduce your over-stock exposure if they end up not re-ordering as they expected.
It’s a balancing act – you want to be able to fill orders, but you can very quickly be stuck with excess inventory in a slow selling style if you order to always be able to fill complete quantities on every order received. The more information you have on the sales pattern for the outlier, and the more details you can gather from your customers who are purchasing the outliers, the better positioned you will be to meet customer expectations as well as prevent overstock problems.
I hope this blog series will help you with your next order or re-order. Please feel free to post your questions or comments. We would love to know your ideas too.
May we all have a successful and prosperous 2010!
