How well is your stock investment working for you?
How to unlock the full value of your stockholding and minimise risk
Every merchant business has its stockholding at its heart. The more able that merchant is to work stock harder, optimise its value and minimise its risk, ultimately the more successful that merchant will be. So how do you know how well your stock investment is working for you?
Not all stock is created equal. To really understand how your stock is working, you need to use the measures in your software to help.
Every metric that records what is happening in your business is useful. Having that information readily to hand is important, and knowing how to interpret that information to inform decision-making, drive efficiencies and improve processes within the business is absolutely essential.
Currently there are over 110 KPIs as standard in the UT400 system – which represents a huge amount of information. So to avoid information overwhelm, which can often lead to the “so what” factor, we’re here to help you ask the right questions of the information to get to the insights you really need.
When it comes to stock management, certain KPIs really can add significant value to your business, in very real terms.
Stock Turn is a great example of a metric which is pretty simple on the face of it, but which can transform your profitability, stockholding value and product sell-through strategy.
While some figures are a standalone measure of a particular business process, Stock Turn can be more advanced, because it also relates to other factors and can show you how well your investment in stock is being translated into sales, as well as what your risk might be.
Every product in your system has its own product page (see below), which shows a clear summary of that item’s performance and value contribution over time. It shows you how many have sold in a given time, how long it will take to sell through, and what the turnover and profits associated with that product are. It is therefore simple to use that information to plan ahead and, in many cases, add a huge amount to your bottom line.
Having a thorough understanding of product performance through stock turn analysis can completely transform your profitability and even your sales strategy.
A short case study about stock turn
A customer recently contacted us to ask more about stock turn. He understood the principle of it at face value, but had never really had the time to get to grips with it beyond that. He knew already that the stock turn tile shows how many times that item of stock has been in a year. What he wasn’t so sure of was what to do with that information.
So, we looked first at two very similar products: two slightly different lengths of the same type timber. Both had a similar value of stockholding, and achieved the same margin per product
Product X had a stock turn of 1.2, while product Y had a stock turn of 47.
It would take 300 days to turn the stock of product X, and it would achieve an annual gross margin total of just £250. Product Y, on the other hand, would take just over a week to turn the current stock, and over a year would achieve a gross margin of nearly £18K.
Understanding the relative stock turn really underlined for that customer the comparative value of each stock line to his business.
OK – so what do I do next?
Having visibility of stock turn across the business allows you to determine your overall stock profile with confidence. All products will fall into one of four broad categories, which we have named Danger Stock, Review Stock, Earner Stock and Golden Stock. The grid below shows this more clearly. Once you know which category a given product falls into, you can assign the appropriate level of urgency and resource to addressing that opportunity, or the risk, as the case may be.
It is important to recognise that every sector of the grid represents both opportunity and risk – what you do thereafter is up to you. It really is the stock equivalent of a SWOT analysis, so you can easily assess the strengths, weaknesses, opportunities and threats in your stockholding. You can then use that information to assess seasonal demand to help forecasting and ordering efficiencies, as well as potentially create new opportunities or demand by adjusting product characteristics, groupings or price.
STOCK TURN GRID
A product which falls into the Danger Stock category requires urgent attention. This is where stock has high investment value from you but very low stock turn; in other words, it’s costing you a lot to have it in stock but it isn’t generating much revenue or margin. It is wasting working capital and taking up space that could be better used for more valuable product.
You may wish to look at why the stock is performing so badly, and ask yourself some questions, such as:
Is there an obvious reason it isn’t selling through? For example, is it showing as out of stock on your website, or is it incorrectly signed, or hidden where no-one can find it? Is there a very similar product that is more popular? Why is that?
Is there a strong seasonal factor affecting performance?
Is the stock turn consistent across the year, or are there specific peaks and troughs?
Can you generate greater sell through with a pricing discount or bundle deal?
Could you improve signage or positioning to stimulate sales?
Could the product be repurposed or broken down into component parts or other, more popular lengths to sell more?
Stock which comes under this category is typically low risk, but also fairly low value. It isn’t costing you much, so it’s not an immediate concern, but there could still be ways to do more with it. Products in this category generally are last on the list to address, although there are a couple of notable exceptions:
If a large proportion of your stockholding falls into this category, it could warrant more focus as the sheer volumes involved could represent a significant increase in overall value with a bit more attention
Could this stockholding be replaced by more valuable products which could enhance your overall stock profile?
Is there an opportunity to run a promotion or bundle deal to get this stock moving through faster?
On the face of it, Earner Stock is a great place to be. High stock turn on high value stock investment generally means plenty of revenue – business is booming. However, there will be a higher element of risk attached to stockholding in this quadrant and again, there are plenty of questions to consider:
Is stock turn consistent across the year? If it is heavily seasonal you need to manage the inevitable drop-off when buying patterns change
Could you increase efficiency by operating off a lower stockholding?
What is the lead time for replenishment? Could there be even greater opportunity if you can get more stock in?
Is pricing right? If you are selling through very large quantities, particularly if it’s risen very sharply, there could be an error in pricing so the price is too low, or you could be missing an opportunity for greater margin if you are selling significantly below the competition pricing
Of course, deciding what action to take will always be down to you – you may have deliberately priced a particular product very low in order to drive footfall – but having the figures in front of you will help to mitigate risk through error, and will be invaluable when assessing replenishment and future opportunity.
Golden Stock is a good place to be; it isn’t costing you a great deal in investment and it is selling through rapidly. High stock turn on low value investment stock is great for business – but there are always more opportunities to be had, so ask yourself:
Could you extend your range of products of this type?
What proportion of your stockholding falls into this category? How can you get more in there?
Could pricing be adjusted to generate more margin? Even a tiny price increase in high volume items can make a significant different to overall revenue
If you stocked even more of these products, would sales continue to rise?
Are there economies of scale you could negotiate with suppliers to buy for a better price?
So is there an optimum level of Stock Turn?
The “right” level will depend on each product – but every product in your stockholding carries with it an inherent level of risk and opportunity. Ideally you need to align those factors to the optimum levels of greatest opportunity with lowest risk; and where risk is higher, just be sure that the value of the opportunity outweighs it.
Of course, in some instances, it will be worth keeping some products in stock purely for the benefit of your stock profile. For example, you may stock ten different types of door handle or light fitting, even though you know only two of them ever sell. But equally, you know customers want to have a choice, so it’s probably worth keeping a few in stock of each range item purely for comparison – just make sure you only restock the items that are selling well! Manage the risk in line with the scale of the opportunity.
What you do with the information is up to you, but having these metrics easily available to inform your decision making is incredibly valuable.
But I stock hundreds of products – I don’t have time to check each one individually!
Of course you don’t, and quite honestly, we wouldn’t expect you to!
That’s why we’ve built in simple search and filter options so you can search by Stock Turn levels. For example, you could run a search for all products (or all products of a particular type – the search criteria are up to you) with a stock turn under 3, so you can have a quick look at lower turning stock. It’s really easy to then dig deeper into the detail to look at each product line in turn.
As you can see from the product page below, every product in the system automatically records stock information so you can quickly see all the variables – the value, sell-through timeline and so on.
How can my sales team use this information?
Once you know which products are selling well, where the risks are, and which product lines need a bit of help, you can work with your sales team to encourage them to upsell the less popular stock, either by discounting, adding it to a bundle deal, or simply drawing more customers’ attention to it.
You can also factor it into your product pricing and profit margin setting, so that if there is more opportunity, you’re not missing it.
You could also try different signage or positioning of products for customer-facing areas, to see whether making a product line more prominent has any impact.
It’s important to remember that Stock Turn is not just about pricing – it really feeds into service levels and business value, both in terms of investment and resource. Optimising the way in which your stock turns gives you a huge commercial advantage in the market, and will enhance your service levels with customers. Getting everyone into the habit of looking at stockholding against the Stock Turn grid and asking questions like ones listed above will benefit the wider business in numerous ways.
The tools you need to run your business even better
Every decision you make in your business is entirely up to you; the KPIs in UT400 simply make information more easily available to you, giving you simpler access to the details you need to inform those decisions, as well as monitor their impact.
You always have total flexibility, and the system is there to help you optimise every opportunity and spot risks further ahead. It therefore gives you a big competitive and commercial advantage and can help to significantly manage the impact of risk.
Stock excellence is our second nature
UT400 is many things, and can help you control, measure and change any element of your business. But as it is specifically designed for merchant businesses, the area in which it can potentially make the biggest difference is in stock management.
There are nearly always big opportunities hiding in the data within your ERP system, and potentially some big risks which you will benefit from identifying early. It is even possible to turn risks into opportunities, if you know the right questions to ask.
With its comprehensive range of metrics and easy-to-use functionality, UT400 offers unrivalled accuracy and useability for optimising your stockholding, so you can accurately assess the levels of investment and resource required in line with a particular opportunity. It allows you to be more confident in your stock control and optimisation, and so your workforce can consistently contribute to an ever-more efficient, service-focused and profitable business.