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Categorize your Inventory

I could go on for paragraphs on inventory management, but instead I’m going to zero in on what I believe to be the most important factor. As the Spa Manager/Owner, when you know your product ranks, every decision surrounding those products becomes easier. So we’re going to categorize your inventory into three levels:

Category Rank Standard Criteria
Category A Top importance. Highest price, highest margin, lowest age
Category B Mid Level importance. Mid price range, decent margin, average age
Category C Low Level importance. Low price range, lower margin, high age.

As outlined in the Standard Criteria column of this chart, you can see that the categories are based on price, margin and age (or saleability). So, if an item has a high price and margin and moves off the shelf quickly (low age), it would be a category A. However, even if an item is low priced but has a high margin and moves off the shelf quickly, you may still wish to put it in Category A – it’s your call. So combining these 3 variables will allow you to determine how you wish to categorize the item. Once you categorize your inventory, you need to treat it accordingly. This means:

  • Protect, monitor, count, train, merchandise and handle top ranked items most carefully;
  • Use JIT (just in time) ordering for top ranked items to balance these larger purchase expenses (cash outflows) with cash inflows (sales). Over-stocking your category A’s is risky because of the strain it can put on your cash flow, not to mention the “no-no” of keeping too many high-value inventory items either exposed, or in backup due to possible losses through negligence or shrinkage;
  • Evaluate all other categories regularly to determine if they should be given a well-deserved boost into the next category up, with product pushes and price increases, or whether they should be dropped altogether. Think of your inventory as cash on the shelves and you may begin to look at your stock in a whole different light
  • Give impulse items prime real estate and rotate them regularly for interest. Even if the price point is lower and margins are average, their sales will be high if properly positioned, delivering an outstanding contribution to your efforts
  • Share the status of inventory with your staff – let them know the strict monitoring processes you have in place with inventory – involve them in product pushes with the slow movers; and very importantly, now that everyone knows the product’s status, train staff diligently on how to sell the top ranked items first.

Many of us follow stringent guidelines when it comes to ordering and receiving inventory, but few of us use different procedures in the handling of our most valuable items vs. our less valuable ones. Once you understand and begin implementing this product ranking process, it will become a crucial first step in turning your retail department into a high performance revenue generator.

About Leslie

Spas2b Inc. is a full service Spa Development company, specializing in Online Spa Management Distance Learning Courses, Spa Business Manual Instant Downloads & Resources, and Spa Consulting Services.
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