The lack of inventory management can kill your business. You need it to make money, but if you don’t control it, it will devour your profits. Most businesses don’t control their inventory well because it’s too hard. It takes too long. Too many processes require manual steps and endless hours with spreadsheets.
I love solving problems. A few years after launching Destinations Consulting I was ready to solve problems on a larger scale. Solving problems one practice at a time is rewarding but I needed to create something that has a larger impact for more people.
My other secret LOVE is technology. It puts me at the GEEK table at parties but I can’t help myself. I’m always interested in the latest tech toys.
Now that I have clued you into how I think you can probably see my thoughts like bubbles above my head - I love big problems. Inventory is a big problem that doesn't have good solutions. I'm a geek - Is there something new that I could use to better solve this long term painful issue. RFID. Wait. WHAT?!? Ooooo. That could work!
The WAVE RFID project did not happen overnight. Doug Johnson and I spent a lot of time on research. We looked at various inventory and asset management systems and put together a list of what we thought those products did right. We also researched RFID technology and how and where it was being used successfully. At first the RFID equipment vendors told us the same thing - RFID is hard, are you sure you want to do this? Why don’t you find someone else to do that for you?
This leads to my next personality reveal - I am STUBBORN! We chose not to take their advice and to go it alone. Doug got RFID certification and I can proudly say these are our products. We wrote the applications for the readers and the cloud inventory management software from the ground up.
So, to answer the question - why inventory? Inventory management is critical to profits and ignored by most practices and software vendors. There is cool technology, like RFID, that can make the process easier. No one else is offering a good solution because it is a challenge to design and implement. This sounds fun to me! Let’s do it!
“How many frames SHOULD I have in my inventory?” is one of the most common but also most important questions an optical manager should ask and answer. It is a close sister to a more basic question - “How many frames DO we have in our inventory?” If you are one of the many, the busy and the stressed you might struggle to answer.
Inventory is like dollar bills hanging on your frame boards. You bought it and now you own it. The management of this asset is directly related to your bottom line profits, so… what should you do?
Start by gathering the following information
Calculations are your best friend
Your next step will be to do some calculations. The most critical is TURN RATE. Turn rate is a ratio and is defined as the number of frames you sold in a 12 month period divided by the number of frames you stock in your inventory. For example, if you have 1000 frames on your frame boards and you sold 3200 frames last year then your turn rate is 3.2. Any number over 3 is a good number. A turn ratio of 4 is a great number.
Knowing your global turn rate number is critical but you also want to do these same calculations by brand. Let’s say for example you have 50 frame board spaces for Coach but only sell 100 Coach frames per year. That means your turn rate for Coach is 2. Maybe you have 50 pieces of L.A. Eyeworks but you sell 250 pieces of L.A. Eyeworks each year. That would be a turn rate of 5. It might be a good idea to drop the number of Coach frames and increase the L.A. Eyeworks frames.
You can apply this same thought process to your price points. Look at what your staff sells in relation to what is on your boards. You may LOVE high end frames and so you have filled 50% of your spaces with frames that retail for more than $400. Looking at these numbers you may find that only 10% of what you sell is over $400. This is a common and costly mistake. In our scenario above of 1000 frames, that means 500 frames cost approximately $200 or greater. That portion of your inventory now is representative of $100,000 of your resources. Dropping that price point to a number closer to actual sales (let’s say 20%, instead of 50%) and moving 30% of the inventory to a lower cost point ($100) will drop your inventory by $30,000.
Make adjustments and evaluate regularly
Once you have the information you can make changes. Your efforts may produce the following new targets and recommendations.
What I see and what happens too often is that changes are decided, they are published and discussed. A month later they are forgotten and the physical inventory is back at 1500. The key is to hold everyone involved in inventory purchasing and management accountable. Make sure you are reviewing the numbers monthly (weekly is even better) and are making improvement decisions based on new information quarterly. Inventory management is an art and it is never finished.