When you rationalize inventory, you are halfway through cost-cutting.
How much qty I have,
How much time it takes to sell,
What is the minimum order quantity,
What is the reorder point,
How much should the buffer stock
If you manage to answer all these questions for every product you have. Of course, with the help of tools! (MS Excel is more than enough). Trust me. You are a pro at inventory management.
Let me start this article by asking this question.
Say we have two products to sell.
One piece of Jewellery with a 30% margin and another simple FMCG product with a 10%
Which one would you choose?
Pause and ponder.
Our natural answer would be Jewellery, which has a 30% margin.
But the actual answer to the question is insufficient data.
Why? We don't have any data regarding how fast a product sells.
Why do we need the fastness of a product?
Let us understand by example,
If I sell jewelry worth Rs.100 twice a month, at the end of the month, My sale is 200 rupees, and my profit amount is 60 rupees(30*2)
If I sell FMCG worth Rs.100(Same value) 10 times a month, at the end of the month, My sale is 1000 rupees, and my profit amount is 100 rupees(10*10)
Overall gain = How much margin for every selling * How many times I sell.
Since FMCG has more moving than jewelry, FMCG owner has a greater overall gain than Jewellery owner.[Rs.100 > Rs.60]
Your overall gain is directly proportional to margin and fastness.