What you can learn from Target’s $200million stock shock
27th May, 2016
Ever heard the saying when it rains, it pours? Well, this week department store Target found itself in the midst of a monsoon.
It was reported this week that Target need to clear some $100 to 200 million. In the words of their CEO, “What we have is too much stock coming in the back door and not enough going out the front door – that’s it in a nutshell.”
Of course, there’s more going on here than meets the eye. However, what there is here is a lesson. Don’t allow yourself to be blindsided.
Here are three common blind spots and how can avoid them.
Blind spot #1: Trends and seasonality
Not every business has a product that gets bought equally all year round. In fact, it’s rare to come across a business that does. Yet a lot of them act and forecast as if it is the case.
Utilise Cycle Counting and ABC analysis
Cycle counting replaces the cumbersome and error-prone periodic (usually annual) physical inventory count with a regular program of counting selected items such that more important items are counted more often that less important ones. The magic of cycle counting is that it provides a structure for identifying and eliminating the source of errors to improve accuracy in a sustainable way.
Cycle counting is usually set up using ABC analysis to identify the more important and less important items mentioned above. The most common ABC analysis (also called Pareto analysis) method is to rank all inventory items according to the total value of each on an annual basis (annual “usage” or movement times unit cost).
Typically, the top 20 percent of items represent 80 percent of the annual value through the warehouse (yes, that 80/20 rule). The next 30 percent (B items) account for 15 percent of the value and the remaining 50 percent, the C items, total 5 percent of annual value.
In addition to setting cycle counting frequency, ABC classifications should drive item location in the warehouse, lot sizing and safety stock rules, and other management parameters to put your focus on the items that matter, where you can get the most return for your investment.
Blind spot #2: The wrong tools
Every tradesperson will attest to this. Having the right tool to complete the task at hand is absolutely essential and this is as true for those managing stock, especially as different businesses have different needs.
A business that sells large volumes of stock daily for example has different needs to a business selling large, expensive items monthly.
Some of the more common tools to help you are:
- Barcodes – having your stock barcoded makes entering in new stock much quicker, also speeds up the picking and packing of orders and helps reduce the amount of time spent on that dreaded ‘stocktake’.
- Bin locations – knowing where your stock is, exactly, means less time wasted trudging up and down aisles trying to find something. The latest addition to this is ‘bin lighting’. Little lights fitted above stock items, a shining beacon to the warehouse person letting them know where their stock is.
- Expiry date, batch or serial number tracking – each of these gives a business a unique way to identify stock. Knowing what stock is reaching its expiry date reduces waste. Batch tracking allows you to know what stock you sold to whom and serial numbers and is imperative to tracking warranties and repairs.
Blind spot #3: Data visibility
The accuracy of any inventory tracking system, whether manual, spreadsheet or software depends on timely and accurate transaction reporting.
It is difficult, if not impossible, to effectively manage inventory without an accurate record of what you have. Any inventory movement must be reported to the tracking system promptly and accurately.
While this is a simple requirement, it is not necessarily easy. Any human-based procedure is subject to error, delays, lost transactions, bad math, and misidentification. Timely and accurate transactions only occur when the people reporting the transactions understand the importance and are properly motivated to do a good job.
There’s no magic here, it all depends on motivation and management. Fortunately for you we have the some magic tools that can help you automate a lot of these processes. You’ll just have to ask us about them.