It’s the quintessential “chicken or the egg” riddle. On one end is the argument against holding inventory without sales. On the other end is the argument that there can be no sales without inventory. It’s the reason why a company’s sales team and its inventory management are sometimes at odds. Companies need inventory to increase market share, grow revenue and capture opportunistic sales. However, hold that inventory for too long and the company incurs high inventory holding costs, costs that increase with the risk of inventory damage and obsolescence. So, given these two extremes, what can companies do to finally put this issue to rest?
The Sales vs. Inventory Dilemma
Sales are tasked with the responsibility of increasing gross profit. To be successful means they often concentrate on those products that have the best cost structure. This just happens to be the company’s fastest moving product lines and ones where the holding costs of inventory are low. Unfortunately sales often ignores the costs associated with those parts that take longer to sell, parts that are a big concern for inventory because of their holding costs.
Hold product too long, and the company’s costs increase and the more likely that sales will concentrate less on selling these products because the gross profit per-sales transaction will be lower. Eventually those costs will become so high that a company may choose to run a tighter inventory – a move that often inhibits the sales team’s ability to grow sales. So, what’s the solution?
You can learn more about the bell curve of inventory management here.
1. Improved Product Introduction, Testing & Approval Tracking
One of the problems of reducing inventory costs is that it often includes reducing inventory counts. The problem with this is that it makes it difficult to capture opportunistic sales. To address this issue requires an approach where sales provides inventory with more visibility on the market and its customers. This means that sales must provide a full list of customers that have tested, approved and are willing to move forward with purchases. This list should be provided to inventory in order to alleviate their concerns. In essence, it’s a sales forecast with a guarantee and one that should address inventory’s concerns while holding the sales team to their promises. It could look something like the list below.
2. Support Inventory Counts With Product Grading System
Inventory moves quickly when there are multiple customers. Therefore, it simply stands to reason that a company should only carry inventory if it’s guaranteed to sell that inventory to multiple customers. This requires a product grading system that correlated to the number of customers who are willing to make a purchase. Decide upon the number of customers that your company needs in order to hold inventory. Make sure it is enough customers to guard against inventory obsolescence.
3. Reduce Inventory Costs
Reducing a company’s inventory holding costs requires an aggressive and proactive sales team. After all, sales drives inventory and as such, they are ultimately responsible for selling that inventory – regardless of whether it’s new or old. To reduce inventory costs requires the company enact strategies that force sales to respect these costs. To help guide you with this third step, I’ve included links to two articles that discuss how to force sales to sell slow moving or dead inventory.
The first discusses how to implement a small slow moving inventory “penalty” to the entire sales team. This puts the responsibility of selling slow moving inventory directly on the sales team as a whole.
Sales Management Strategies: Getting Sales to Sell Slow Moving Inventory
The second is about how companies can use an inventory analyst to manage both their sales and procurement departments. One position overseeing both allows it to make decisions in the best interest of the company, and not individual departments.
The above is taken from the article: Small Business Inventory Asset Management: Using an Inventory Analyst. The article explains how an asset manager can properly find the middle ground between high and low inventory levels.
A great number of companies struggle with the concern of having too much or too little inventory. If your company has incurred significant holding costs, and has become somewhat concerned with its inventory counts, then take a simple and straightforward approach to reducing these costs. Eliminate the conflicting objectives between your sales and procurement departments by ensuring your company has multiple customers for common products.
Your company should adopt strategies that ensure your sales team is selling slow moving inventory. The key is on bridging the differences between your company’s sales and procurement personnel. Sometimes it means implementing a small sales team penalty for not selling enough slow moving inventory. In other instances, it means using an inventory analyst that oversees both the company’s sales and procurement departments.
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