Page 131 - DMGT525_MATERIALS_MANAGEMENT

Materials Management

Notes 7. The flip side of stocking too much inventory because of a lack of ……………… is the
absence of a product for the same reasons.

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Caselet Why is Inventory Management Critical for a Merchant?

I nventory is often the largest asset on your balance sheet and can account for as much
as 75 percent or more of your total assets.
A major expense attributed to carrying inventory is ‘shrink.’ Shrink is what happens to
your inventory as a result of theft and administrative error and/or mismanagement –
your inventory shrinks or disappears. It stands to reason, if you can control and limit your
loss of inventory, you are saving money or increasing profits.
By having an accurate physical inventory and access to real time data analytics, you can
easily monitor stock levels and identify products or items with high levels of shrink.
Products identified with high levels of shrink can be monitored closely, packaged or
repackaged, marketed or merchandised and distributed differently to help reduce losses.

If you are unable to easily and quickly identify what your poorest and best selling products
are, in real time, you could be in for some heartache. Carrying products can be a significant
expense for merchants. By knowing what products you should mark down or otherwise
discount, you are able to clear out your inventory rather than have slow moving or
non-selling products languishing away in the dark recesses of your dusty backroom.
By knowing you are getting low on your best selling product, you can place the restock
order in time to ensure you are never without your best selling product on the shelves.

How important can that be? Say your store or chain is being plagued with losses from
higher than normal returns due to the poor economy. Let’s consider how your inventory
control policies can be affected by using an outdated system. Because things seem to be
picking up you’re very busy and a return takes at least 10 minutes or longer. Typically
your process was fraught with the danger of mistakes and fraud, chipping away at your
bottom line.
Paper-based management and transactions with receipts that are required to execute returns
are a perfect example of how costly mistakes are made. Let’s say you capture all of your
customer information on handwritten forms at the point of sale. You then transfer that
information by typing it into a computer, which produces a new receipt that reflects the
return transaction. The customer signs the receipt and you keep all of the paperwork for
reconciliation later.
This is a laborious process that is not designed to catch mistakes. Oftentimes customers
returning discounted merchandise receive full-price refunds because there are no reports
or records to consult.

Receipts should be bar-coded and a simple scan of that bar code pulls up the entire
transaction history, as it occurred in real time. The actual sale price is recorded and a
receipt cannot be used more than once for a return. A receipt can’t be faked and returns can
be processed in seconds.
Capitalizing on the available technology to efficiently monitor and control your inventory
can be done easily without breaking the bank. In fact, there are solutions that can easily

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