For promo distributors, managing inventory in online company stores is a balancing act. While it’s tempting to let clients buy large quantities upfront to secure lower unit prices, this approach can lead to costly pitfalls like dead stock and high storage fees. On the other hand, ordering too frequently can increase inbound shipping and receiving costs, eroding the savings from bulk purchases. This article will provide some ideas on how to optimize inventory management for company stores, ensuring that your clients benefit from cost-effective, efficient operations without unnecessary risks.
We put together a free Google Sheets tool designed to help you optimize your inventory. Find it at the end of this article.
The Temptation of Bulk Buying and the Reality of Inventory Costs
The Temptation of Bulk Buying and the Reality of Inventory Costs
A common scenario in company store programs is the client’s desire to purchase large quantities of merchandise to secure lower unit prices. Economies of scale often mean that the more you buy, the less you pay per item. For clients, this can be an attractive proposition—after all, who doesn’t want to get more bang for their buck? On the distributor side, who doesn't like big sales and commissions?
However, this strategy comes with some risk. Overbuying can lead to dead stock—products that sit in the warehouse, unsold, incurring storage fees and tying up client budget that could be used elsewhere. This is particularly problematic if the products are time-sensitive. Moreover, in some cases, the savings gained from bulk purchasing are offset by the costs of storing and managing excess inventory.
When Equalized Pricing Levels the Playing Field
When Equalized Pricing Levels the Playing Field
In some cases, distributors can offer clients equalized pricing (EQP), which provides lower unit prices without the need for bulk purchasing. EQP can can change the game, allowing clients to order lower quantities, closer to when they need it, without worrying about losing out on bulk discounts. This pricing structure reduces the pressure to overcommit to large orders, making it easier to maintain optimal inventory levels.
Understanding Inventory Velocity and Stock-to-Sales Ratio
Understanding Inventory Velocity and Stock-to-Sales Ratio
A critical component of inventory management is understanding inventory velocity, often measured by the stock-to-sales ratio. This ratio compares your current inventory levels to your average monthly sales, giving you a clear picture of how quickly your stock is moving. A balanced stock-to-sales ratio ensures that inventory is fresh, relevant, and aligns with actual demand, reducing the risk of holding too much or too little stock.
In a B2B2X context—where "X" could be employees, intracompany departments, or franchisees—demand patterns can vary significantly. For instance, orders from intracompany departments might be more predictable, while franchisees may order sporadically based on local needs. Tailoring your inventory velocity expectations to these specific demand patterns is crucial. A well-calibrated stock-to-sales ratio helps ensure that you are not overcommitting to inventory for slower-moving items while maintaining sufficient stock for high-demand products.
Leveraging Data for Better Inventory Decisions
Leveraging Data for Better Inventory Decisions
The key to optimizing inventory is data. By analyzing historical sales data, distributors can forecast demand more accurately, ensuring that they hold just enough stock to meet anticipated needs without overbuying.
For B2B2X models, it’s important to segment demand based on the different types of end customers. For example, employee orders might follow a more consistent, predictable pattern, while franchisee orders could be more variable, influenced by factors such as local events or promotions. Understanding these nuances allows for more precise inventory planning.
This is where business intelligence platforms like Zoho Analytics come into play. These platforms centralize sales and inventory data, providing a comprehensive view of past performance and current stock levels. With tools like Zoho Analytics, distributors can generate detailed reports and visualizations that make it easier to forecast future needs and identify trends. By leveraging such technology, you can make informed decisions that balance inventory costs with demand, ultimately improving your inventory velocity.
Regular inventory audits are another essential practice. These audits help ensure that stock levels are aligned with actual sales trends, allowing for timely adjustments to avoid overstocking or stockouts.
Balancing Storage Costs with Supplier Pricing
Balancing Storage Costs with Supplier Pricing
When it comes to ordering inventory, one of the biggest challenges is balancing the savings from larger orders with the costs associated with storage and inbound logistics. While it might be cheaper to order large quantities, the resulting storage costs—and the risk of overstocking—can quickly erode those savings.
For clients benefiting from EQP pricing, more frequent, smaller orders might be the better approach. This strategy reduces storage costs while still taking advantage of the lower unit prices, especially when the savings from bulk purchasing are minimal or nonexistent. Be sure, however, to factor in the increase of inbound logistics and order processing costs. Ordering too frequently should be avoided as well.
Be mindful of turnaround times when opting to keep smaller quantities on hand. Even with reduced stock levels, knowing the lead times for replenishing your inventory is essential to avoid delays that could disrupt order fulfillment. Additionally, keep track of your larger, end-buyer orders for specific items. You don't want to find yourself in a situation where you’re unable to ship items due to unforeseen delays in restocking or a large order being placed by an end-buyer.
Setting Realistic Client Expectations
Setting Realistic Client Expectations
Transparent communication with clients is essential. Distributors should explain the trade-offs between lower unit pricing and the potential risks of holding too much inventory. Clients need to understand that while bulk purchasing might seem advantageous, it can lead to significant costs down the line if the inventory doesn’t move as expected.
A collaborative approach to demand forecasting can also help. By working closely with clients to forecast demand based on past performance and upcoming campaigns, distributors can help set realistic expectations for sales and inventory levels. This collaboration ensures that clients are not caught off guard by the costs associated with overbuying.
Conclusion: Tailoring Inventory Strategies for Success
In conclusion, the optimal inventory strategy depends on understanding your inventory velocity, tailoring your stock-to-sales ratio to match demand patterns, and balancing costs with strategic ordering. By focusing on inventory velocity and leveraging data-driven insights, distributors can help clients maintain lean and responsive inventory levels, ensuring their company stores remain efficient and cost-effective.
We put together a free Google Sheets tool designed to help you optimize your inventory. This tool is specifically set up to work with a Liftoff Product Usage report, allowing you to analyze inventory metrics like stock-to-sales ratio and inventory velocity with ease. Not using Liftoff? As long as you paste similar data into the green columns in the Data tab, the formulas will work. I hope you find it useful!
How to Use the Tool:
- Access the Tool:Click here to clone the tool to your own Google Drive. This will open a new Google Sheets document in your account.
- Paste Your Data:
- Open the Data sheet.
- Paste your Liftoff Product Usage report (or similar data) into this sheet, replacing any placeholder data.
- Copy Down Rows in the Analysis Sheet:
- Go to the Analysis sheet.
- Copy down the formulas in the rows to match the amount of data you’ve pasted in the Data sheet. The formulas will automatically calculate key inventory metrics for you.
