Sunday, June 29, 2008

Getting Rid of Stale Inventory

One area that my retail, manufacturing and distribution clients in my CFO practice need to do better and to understand better is getting rid of stale inventory as soon as possible. Business owners hate to admit when they make a mistake (i.e. when they buy or produce something that does not sell commonly known as a dog). We all do it, I used to do it. It is a peril of the game. DO NOT TAKE IT PERSONALLY. However, fail forward fast. Which means once you know it will not sell get rid of it, allow yourself to use the cash from the sale to purchase more productive assets and more productive inventory. You know; the stuff that really sells. Do not worry about the margin hit!! Take the margin hit, otherwise it is almost a guarantee you will sell it for less somewhere down the line. By selling the slow movers as soon as possible you will get more inventory turns which will result in less inventory and more profit. It should be one of the CFO Duties to manage inventory turns and to impress upon the business owner the extreme benefits of admitting inventory mistakes as soon as possible, converting them to cash and buying more productive inventory assets.