Cost of goods sold consumes over 40% of every dollar your customers spend in your store. There is no other single expense that provides the same opportunity to improve profitability as cost of goods. The inventory you maintain and how you use it to fulfill your customers’ orders directly determines how profitable your business is. If you spend 3% more than the appropriate amount on product, it is like reducing your price by 3%. Managing your yield, waste and spoilage, and shrinkage (theft) all require disciplined inventory management. Without managing inventory and ultimately your cost of goods, then you have no insight into why your cost of goods is what it is and have no idea what type of actions you need to take to make your business more profitable.
Managing inventory looks like a daunting task. However, by utilizing tools that automate much of the effort, it is much easier to fully understand your purchase and consumption of inventory. eP2’s processes and systems take much of the burden off of you, allowing you to spend your time operating your business and still have the information necessary to optimize your profitability.
What’s in it for me?
There is an optimum COGS for every business. Businesses would love to get to 100% working inventory at the lowest possible cost. To achieve this, a business must know how it is using inventory. What are the optimum levels of each inventory item? What are the optimum ordering qualities of inventory items? Am I getting the best price and terms for the inventory items I stock? What is the correct formula of inventory usage and are operations adhering to these formulas. Is inventory walking out the back door? Do I strictly adhere to first-In-first-out usage for perishables? Are my suppliers delivering what they bill me?
This can be a time consuming process especially if all you have time for is recording keeping. If all you have time for is record keeping, then you are adding expense without the corresponding cost saving benefit of using the information to improve your operations. Ideally you would like to spend your time finding the answers to the questions above, not collecting useless information. The paradox is that without the record keeping, no analysis can take place. Many small businesses slowly get away from inventory management because they experience the cost without the savings.
Reducing cost of goods by only 3% of revenue will realize savings of over $15,000 for an average store. Managing your inventory can achieve this savings. It could be worse. You could be spending hours of time trying to manage inventory and have no time to take action to save the money you are finding.