Don't fall in love with your inventory

By Mlke McCord President t ogansport Lumber Do-it Center

HROUGHOUT all of history tbere have been notable love affairs. At the same time many people have been accused ofbeing blinded by love or not being good enough for their betrothed. Today many hardware, lumber and home center opefators have fallen in love with their inventory. They have become blinded by love, thus ignoring the costs of carrying inventory that is not good for them.

If we look at each and every inventory item as a decision to invest money with the hope of achieving a reurn on that investment, why do we hold onto our DOG (datnaged and obsolete goods) items so srongly? Why don't we liquidate them and invest the money in a prodrct with a better renrrn? Many stores have trained their staffs to never sell anything below cost. Cost to most dealers is what Oey paid for the item, or what they see as cost on the unit inventory inqurry scfeen on the computer system.

They are not taking into account the interest expense they are paying their banker to hrow the money to buy the item; they are not considering what they are paying their staff to order it, check it, price it, stock it and dust iq they are not thinking of the money they pay their insurance company and state and local govemments for the honor of owning the producl

Many industry experts maintain that sitring in your stue for a one-year period without being sold can add between 24Vo and304o morc to the cost which you acnnlly paid for an item.

Sometimes, even selling something at cost will not get rid of ir You ask, "How much should I ask for when trying to sell DOG items?' As long as it is cash, don't refuse any offer! lpt me give you an exanple: You have a specialty haruner which you are selling for $22. You haven't sold it in the past year and it looks like you probably wm't sell it this yer either. You are offered $8 for it - do you take il? Your cost was $16 - you will take an $8 loss frm your cost nunbers. Lrt's ignore any consideration of you past holding cost and just look at wbat would happen if you took the $8 and purchased a faster moving product such as a 25# box of l6d CIC sinker nails which hes x cost of $8/caron, retail price of $I2lcarton and a history of selling one ctrton a month:

You would have bad !o borrow tbe $8 miginaly needed to buy the first box of nails ftom the bank, but instead )ou took the $8 received ftom the sale of the DOG hemmer and reinvested it in the nails which put $40 lowtrd tbe boom line after the lms was made up ftom the sale of tbe hmmer.

Inventory is an investmenL Do not fdl in love with iL You have a choice of which items o invest you money in. You will always receive a 0% return on investment on items that never sell. Take bad money and invest it in good invenory and it will make gmd money.

A good computer system will provide you with r€ports which will help you thorougDly analyzn your invenSory investment, including uncovering Oe bad it€ms. And, don't wait until winter to bave a cleranoe sale - do it now when your raffic is at its highest point Traditionally, you will tre able to get a higher pnce for clearance items during your busy season than any other time. Turn thoce DOGs into cash today.

Mike McCord, president of Logansport l-nber Do-it Ccnter, logansport, In., is an indcpendeu lutnbcryad owrur who llr.s been a user of tlu ProfttMaster system for over l0 ycan - Hitor.