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Discussions on Inventory Turnover factors etc.

9:03 pm on Oct 26, 2007 (gmt 0)

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(This is a wierd kind of post, I just want to stimulate some discussion surrounding inventory turnover ratio and what things one should look for to maximize their investment in capital. I was reading that in Dell used to stock 10 weeks worth of inventory, and now they only stock 1 days worth since their stock devalues by the week by 1%).

When looking for ideas on what to sell online, inventory turnover and startup capital come into play.

For example, I've researched the clothing industry. And they way it works is that you have to buy the clothing a good 6 months prior to the season (as mfg make they stock based upon pre-purchases and demand levels). This means that if a certain product is a hot seller, you can't maximize on this since you can't buy any more stock! So this effects your sales and hinders your potential turnover.

So say you have 20K to invest in inventory, you can't just re-order based on what you have sold since the mfg won't have any stock to sell you! So does this mean in the clothing industry you can only really turnover your inventory ONCE?

In comparison to say someone selling something they can easily reorder from their supplier, they can invest 20K, and reorder on demand and thus increase their annual turnover.

I would think an online operation can turnover their inventory many more times that an offline business because of the market reach. I've heard online the avg person might do 4-5 times per year, while offline it is more like 2-3 times (obviously it varies by industry etc).

Ideas? thoughts? Comments on the topic in general? :)

9:07 pm on Oct 26, 2007 (gmt 0)

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Oh another thing that effects things is your profit margin: 20K invested but for market reasons you turnover 2 times per year but you do keystone (100% markup) so you can make 40K/year.

Whearas if you can turnover your inventory EACH month with an investment of 20K, that means 240K/year but you only net 20% = 48K/year.

Lot's of things to consider!

Basically one wants to enter a business where it is profitable.

Who wants to 'buy a job' like most franchises, where you invest 300-400K and only make 30-50K/year hehe.

4:13 pm on Oct 27, 2007 (gmt 0)

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We started out in clothing, but the 'forward order' system really made it difficult. The hit products (which we failed to predict every season) sold out quickly, and we'd have to clearance large parts of the stock at the end of the season.

We've now moved in to products that you can buy on demand, and avoid forward order - no point making life harder than it needs to be.

4:03 am on Oct 29, 2007 (gmt 0)

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Push Inventory versus Pull Inventory

Its nice that Dell can stock for 1 day only.
Importers sourcing from Asia (by surface) may purchase on a monthly basis replenishing a 90 day supply. Usually this is enough time for surface delivery and any potential administrative issues.

[edited by: minnapple at 12:14 am (utc) on Oct. 30, 2007]
[edit reason] no urls please or name drops [/edit]

5:40 am on Oct 29, 2007 (gmt 0)

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their stock devalues by the week by 1%

A few thoughts:

Dell's inventory depreciates faster than almost any other type. There's no "Moore's Law" for pants. LOL Also Dell has the market share now to force its suppliers to do most warehousing for them.

In inflationary times, inventory can appreciate. During the 70s, we often stocked up right before price increase. (ah, the good ole days). We didn't worry about turnover then with 6% - 10% inflation. Keep in mind that massive product shortages do occur, as happened during 1974's oil shortage (which affected many products for most of the year)

Inventory held in a warehouse for sale online doesn't get "shopworn" like products in conventional stores.

Traditional rule of thumb in the department store business was 3 turns on most products. That was before the Just In Time craze on the late 80s.


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