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Inventory is the single largest expense for direct retailers. It has a dramatic impact on all key financial metrics — e.g., sales, gross margin, operating expense and cash management. Effectively managed inventory significantly improves sales and profits, while poorly managed inventory significantly harms sales and profits. Minor improvements in order fulfillment and inventory turnover can be the difference in achieving annual sales and profit goals.
Given the importance of inventory planning and purchasing to an organization, companies should invest in financial training for the employees responsible for making inventory decisions. Inventory planning and purchasing decisions are complex. Decision factors can include the direct cost of inventory, freight, duties and import fees; interest rates; facility overhead charges; back order processing costs; staff time to create, manage, receive and put away purchase orders; and vendor minimums and discounts.
I've read studies indicating between 20 percent and 40 percent of the total value of inventory is in nonproduct costs. This creates complexity and opportunity in making good buying decisions. In the fast-paced retail world, these decisions must be made quickly. Without adequate financial training, it often leads to inventory planning and purchasing decisions that harm sales and profits.
It makes no sense for a company to ask undertrained employees to make fast, complex decisions regarding its single largest expense. Targeted training of inventory staff can lead to incremental gains in sales and profits that deliver a fast return on the training investment. Inventory planners need not be financial analysts, but the better they understand the total financial impact of inventory, the better positioned they'll be to make the important daily decisions that positively contribute to profit.
There are many organizations that provide "finance for nonfinancial managers" training. Find one that makes sense for your business and invest in your staff. Smart companies invest in their people. Smart direct retail companies train their inventory staff to better manage inventory for incremental sales and profit gains.
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