Stay liquid

By George A. MacConnell Senior Vice President Georgia-Pacific Corp.

T HE KEY word for building

I products retailers used to be location. In these economic downtimes, it has changed: retailers need to stay liquid.

With economic uncertainty, retailers need to reexamine their cash flow. And since inventory represents 40% to 700/o of a retailer's assets, it makes sense to look at how that inventory is being managed.

Story at a Glance

Liquidity will be a keY to economic survival . . . inventory management can sweeten cash flow.

Cash can be "found" in inventory. Retailers can begin by examining how existing inventory was acquired and how it's being maintained. Dust off the dead or dying inventory and hold sales to raise cash. Next, look at delivery and inventorying options available from reloads, distribution centers and direct from manufacturers. Increasing turns by decreasing inventory on hand through more frequent deliveries from suppliers will free up much needed cash.

Even the savviest managers often base buying decisions on just two questions: "How much does the product cost?" and "Can I get it cheaper?" Purchase price is only one element of the cost of acquiring inventory. It makes sense to take a closer look at the "hidden costs" of acquiring and stocking product for resale.

Acquisition costs alwaYs get the first - and sometimes the onlYlook from purchasing agents, but possession costs can be just as expensive. Buying from the cheapest source can be an expensive proposition as well. That's especially true if it means sacrificing service. Errors, expediting delays and quality problems can seriously erode profits. Retailers who avoid the "lowest-price trap" and embrace the concePt of total procurement cost can improve turn/earn ratios and boost delivery time, customer service and ultimately, profits.

For some, definite advantages exist for buying large quantities of product directly from the mill. It's a tried-and-true method of economizing. But more often than not it requires a commitment to a huge suPply, which has a negative imPact on turn/earn ratios.

Buying mill-direct may make sense, but only after the true cost implications of buying and holding the materials until they're sold are analyzed. The initial savings typically must be paid out in a variety of longterm expenses such as increased shipping costs, storage, overhead and insurance costs of warehousing, added interest payments, taxes and shrinkage. After a hard look at the numbers, a reliable wholesaler-distributor relationship often proves to be the best bet for manY retailers.

In a world where keeping costs down and cash on hand is mandatory, retailers need to ask more questions about their suppliers' services. Too often, they forget or neglect the services local suppliers can provide: buying goods in quantitY, warehousing them, breaking them into economic order quantities, and delivering them just-in-time.