In our last post, we discussed inventory analysis and how to grade your inventory in a way that is meaningful, specific, and actionable. But if all you do is grade your inventory and stop there, all you’ll have is a spreadsheet full of letters.
An inventory grade without an action plan is like a weather report without the temperature. Sure, it’s good to know that it’s sunny outside, but do you need a winter coat or sunscreen? If you don’t know what to do with that information, it’s essentially useless.
In order for your inventory system to be effective and actually DO something for your business, your inventory grades need to have an action item attached to each letter or category.
The Action In Having A Plan
If your inventory grading system isn’t working for you – it’s likely because it’s either missing an action plan, or its action plan is ineffective.
When you have actions attached to your inventory grades, there’s a lot less guesswork involved in your inventory management. A written action plan makes it simpler and easier for your staff to understand what needs to happen next, and it gives clear answers to questions like:
What should we be ordering more of? Less of? How do we know when it’s time to cut our losses on an item?
Whether you’re grading your inventory twice a year or once a month, identifying the stock that is weighing you down and making a plan to get rid of it will make a massive difference in the way your inventory works for you.
AN ACTION PLAN IN ACTION
To give you an idea of what this could look like for your showroom – here’s a quick overview of how we take action on our inventory grades:
At our showroom, we give each of the items in our inventory a grade, A-F. Each of these grades has a specific definition that works for us, but most importantly, each grade also has an action item attached.
These grades help us identify which inventory items are good for our business and which ones are just taking up space. Then, equipped with our action plan and a fresh set of inventory grades, we get to work. (Want to know more about inventory grading? See Part 1)
Items given As and Bs are good earners, so their action plans usually involve ordering more stock. On the other end, items that earn a D or an F aren’t doing anything good for our business, so they get “fired” and moved into overstock. From there, we take several steps to get these “fired” items out of our warehouse to make room for more As and Bs:
- Offer an increased commission to our sales staff to sell them quickly.
- Put them on our website as Hot Deals and blow them out at huge discounts (usually 50% off or more).
- We have an overstock sale at the end of the year with the leftovers at massive discounts. We’ll even have a few items even discounted 100% (you read that right, we allow previous customers to come in and pick out some items for free as a “thank you” and to get them back into one of our stores again).
- After all of these steps, we write off the remaining “F” items and throw them out. At the very least, I want the tax write-off and the space back in our warehouse.
These grades and action plans play a HUGE role in our inventory management. There’s no guesswork or uncertainty – we have a clear definition for when an item is no longer needed in our warehouse, and a clear plan for how to make space for the things that we do sell.
No system is perfect, but having NO system is a perfect path to futility.
How to Create Your Action Plan
Take a look at your current system and give yourself an honest assessment. The action plans attached to your inventory grades should be three things: meaningful, specific, and actionable.
What I mean by that is this:
- Meaningful – Consider how you want to do business. What does your inventory need to look like to make that happen? Make sure your points are all aligned with that goal.
- Specific – The more specific the better, but specificity can come with time. Instead of “Grade A = best selling items, order more” try “Grade A = items we sell daily, order enough to have a three-month supply.”
- Actionable – It’s tempting to get tricky here, but don’t. If your action item isn’t something you can easily set into motion, it’s not going to work well for you.
If you find that the action plans for your inventory grades aren’t hitting all three criteria, then start taking steps to make adjustments.
No system is perfect, but having NO system is a perfect path to futility. As long as each inventory grade and attached action item helps you to better manage your inventory, then you’re headed in the right direction.
STARTING FROM SCRATCH
Sometimes a few tweaks here and there is all you need to hit the ground running. But if your honest assessment revealed that it might be better to replace than to repair, don’t worry. Putting together an action plan doesn’t have to be a lengthy process. Start small.
When you’re starting an inventory grading system from scratch, just remember these three things:
- Keep it simple. When you start simple, it’s easy to build in complexity as you go. If you start with a complicated system that wasn’t developed for your showroom, it can be hard to find the places where your system is working for you and where it isn’t.
- An imperfect system is better than no system at all. Don’t let the fear of the learning process prevent you from jumping in.
- Just as your showroom adapts to market changes, you’ll likely need to continue to tweak your action plans as you go along. That’s a normal and necessary part of the process.
A well-written action plan takes the guesswork out of your inventory, and makes it easy for your staff to know what to do next. It will take a little bit of effort upfront to get started, but it will save you time and money once you get going. Keeping your inventory healthy is a vital part of keeping your business healthy, so there’s no time like the present to jump in.
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Is Your Inventory Eating You Alive?
Many showroom owners have a hard time tossing old stock in the trash for fear they’ll have a customer for it tomorrow. (It happens to the best of us – but is it really a good reason to hang on to it?)
In the next post, we’ll be talking about ways to get rid of that old inventory. Click here to go to Part 3.
