Don't fall in love with your inventory

By Mlke McCord President [ogansport Lumber Do-it Center

}IaHROUGHOLI"I all of history there have been notable I 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 operators bave fallen in love with their inventory. They have become blinded by love, thus ignoring the cosB of ctrrying 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 renrn on that investment, why do we hold onto our DOG (danraged and obsolete goods) items so sfongly? Why don't we liquidate them and invest the money in a product with a better renrn? Many stores have trained their staffs to never sell anything below cost. Cost to most dealers is what they paid for tle item, or what they see as cost on the unit inventory inquny scr@n on the computer systen.

They are not taking into account &e interest expense they are paying their banker to bonow 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 it; they are not thinking of the money they pay their insurance company and state and local govemments for the honor of owning the product.

Many industry experts maintain that sifiing in your stce for a one-year period without being sold can add between 247o utd30Vo morc to the cost which you acflrally 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 rying to sell DOG items?" As long as it is cash, don't refuse any offer! kt me give you an example: You have a specialty hammer which you are selling tor $22. You haven't sold it in the past year and it looks like you probably won't sell it this year either. You are offered $8 for it - do you take it? You cost was $16 - you will take an $8 loss from your cost numbers. [rt's ignore any consideration of your past holding cost and just look at what would happen if you took the $8 and purchased a faster moving product such as a 25# box of 16d CC sinker nails which has a cost of $8/carton, retail price of $l?carton and a history of selling one carton a month:

You would bave had to borow the $8 originally needed to buy the first box of nails from the banh but instead you took the $8 received from the sale of the DOG hammer and reinvested it in the nails which put $40 toward the bottom line after the loss was made up from the sale of the hanmer.

Inventory is an invesmenl Do not fall in love with it. You have a choice of which items to invest you money in. You will always receive a 07o return on investnent on items that never sell. Take bad money and invest it in good inventory and it will make good money.

A good computer system will provide you with reports which will help you thoroughly analyze your inventory invesunent, including uncovering the bad ilems. And, dont wait until winter to have a clearance sale - do it now when your Eaffic is at its highest poinr Traditionally, you will be able to get a higher pnce for clearance items during your busy season than any other time. Turn those DOGs ino cash today.

Mikz McCord, president of Ioganspott Lwtber Do-it Center, Logansport, In., is an independent lwnberyard owner who has been a user of the ProJitMaster system for over 10 yearc - Editor..