Study the chart above. Through our research, we have discovered that 25% of the inventory sold in stores is non-profitable. Even if you break even when you sell it, you’re being eaten alive by the carrying costs, like the costs of money you invested to carry it in your store, restocking fees, auditing and insurance, just to name a few.

40% is marginal at best, which put’s it in the ambiguous column, making it probable that it is barely worth your time to carry it.

10% (at the least) is dead, and would serve you better if you carried it to the dumpster and made room for items that would sell… if you only had them in stock.

That leaves 25%. 25% produces ALL of  your profit… a measly 2.1% before taxes. These products are your life raft. If you do nothing else, forecast future needs for these products, and don’t be burdened with overstock, because, overstock leads to out-of-stock.

Items that move less than once per week are known as ‘slow movers’. Discounting items that are ‘dead’, slow movers probably occupy 65% of your inventory. If you invest a dollar in something and it takes a year to sell it, it’s costing you money.

It makes no sense to display a box of 24 candy bars that will take you eight months to sell. One of the primary reasons for overstock can be accredited to minimum order levels imposed by suppliers.

Redistribution of slow movers to other stores might save you a bunch of money. You don’t need a fleet of delivery trucks to redistribute. Put them on the store supervisor’s desk and have him drop the products off when he makes his rounds. Other reasons for slow movers include out-of-season and cannibalization by other products.

Items which are classified as ‘good sellers’ in the morning may become ‘slow movers’ for the rest of the day. Dropping the price later in the day can put more money in your pocket. This is difficult to do if you don’t have an intelligent pricebook linked to your POS.

Not having an efficient way to notify suppliers that you want to discontinue certain items can be another big drain on your cash. I once worked in a store that had 1,000 days of Orbit Wintergreen chewing gum stashed under the cigarette display. The last time I looked, the pile was still growing. If the supply doesn’t know what you’re selling, he assumes you’re selling the inventory because your store manager simply puts the order in the stock room or hides it under the counter. The lack of communications between your convenience stores and your suppliers may be killing you.

Seasonal items are one of the greatest contributors of excessive inventory because a supplier will generally deliver too much of it to all of your stores. If it concerns only one store, the situation is manageable. But if you have fifty stores receiving the same amounts of inventory, it can lead to disaster. Out of season inventories should be warehoused so they can be used to restock the store(s) when the season comes around again.

Cannibalization of products can wreak havoc on a Category Management system because the little savages are impossible to identify. You may notice a category’s profitability has suffered, but that’s all you know.  If you don’t have a way to audit individual items, I would suggest you have someone physically revisit the category and pull or re-price items that appear to be improperly priced. Of course, the obvious remedy would be to switch to an item-level method of inventory control where you could monitor the effects of cannibalization in real time.

Here’s another neat trick that can put extra dollars in your pocket. If your supplier imposes a minimum order on you, which will take you eight weeks to sell, ask him to deter payment until the following month. It won’t take him long before he gets the message and cuts your delivery in half. In other words, sit down with your supplier and remind him, these are difficult times, and you can’t afford to pay for items in June, when you can’t get your money back until Christmas.

Some items don’t sell well enough to justify their being on your shelves, but you have to carry them because customers expect them to be there. Quite often they will switch from being out-of-stock to “Oh my God!” On these items you will need to adjust your forecast to zero in on the best profit that can be gotten from those items.

Tracking the value of promotions is difficult if not impossible in a category management environment and the reasons for an increase or decrease in an item’s movement may be ambiguous. Was it a cold day? Was it a hot day? Or, was there a local football game nearby? In addition, the life-cycle of a promotion can be effected by the promoted product, a companion product and/or a cannibalized product. By having the ability to monitor promotions in real-time, it will be easy for you to identify whether the promotion was good thing, or a bad thing.

To help with these problems, forecasting relies on turn rates. You want to be there with the proper items when your customers are ready to buy. If your average turn rate on an item is once per day, and you get deliveries on your items one per week, you should have no more than 11 (rounded up) items on hand at the beginning of a delivery cycle. (Turn rate per day * days between delivery cycles * 50%). If you did this with your entire store, think of the money you would save, and how much your supplier would save by not warehousing product you won’t be needing. Turn rates should be monitored weekly, and even more frequently if you have the tools, and adjusted for seasons as well.

But, when it’s all said and done, forecasting is heavily dependent on turn rates, and you should at least make an attempt to find out where you stand today.