Inventrak Blog

The retail cloud and Small and Mid sized business

Tag >> vendor
May 07
2009

Increase Your GMROI, How?

Posted by Donna Tang in vendor, retail cloud, Inventory, GMROI
Donna Tang

We have talked about the Key Performance Indicator on last blog (Retail Metrics-Increase Your Profit). GMROI evaluates your rate of return of your inventory. You definitely want to increase your GMROI. But how? Let us look at Inventory Turnover first.

Inventory Turnover

You must have heard of this term for a lot of times. What is it? How it can help you?

Inventory Turnover is a measure of how many times your inventory turns over in the course of a year.

For example, if you have an average inventory of 100 jackets in a year and you sell 100 jackets every 4 months, your inventory is totally replaced 3 times per year. Therefore, your inventory turnover is 3.

Given the example above, it is obvious that if your inventory turnover increases, assuming your pricing is fixed, you should earn more money from inventory (GMROI increases). However, the truth is that turnover often is increased by reducing selling price, which reduces Gross Margin from Sales.

That is why I want to mention Inventory Turnover before summarizing how to increase your GMROI.   Actually GMROI can also be calculated by : GMROI = Gross Margin % x Inventory Turnover.(If you want to know how to get this formula, I can tell you.)

 

Now, you can find that you can increase your GMROI by increasing the factors in the formula, for examples:

  • Improving Delivery Speed. Now you can reevaluate the importance of your vendor delivery speed. It has impact on your GMROI! A shorter lead time means a lower reorder point, lower average inventory, increased Inventory Turnover and eventually increased GMROI. You should choose the vendors with average lead time as short as possible.
  • Careful pricing strategy: using markup or markdown to increase GMROI is much more complicated than picking a vendor. But the good news is, you don't need to be a mathematician, statistician or science giant to make decisions on your pricing. You can use retail IT tool to help forecast your GMROI based on possible pricing plans before you make final decisions.
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Jan 29
2009

Lean Supply Chain

Posted by Donna Tang in vendor, supply chain, retail cloud, Inventory
Donna Tang

A complete, consumer-aware and responsive supply chain network properly encompasses trading-partner collaboration, product information management, global-data synchronization, and advanced inventory planning in real-time. All these ensure inventory is in the right amount (not too much, not too little) at the right place. Such a supply chain is a lean supply chain.

The Japanese invented the concept of "lean", and worked hard at making their factories and operations lean. As a result of this, although each company in the supply chain focused on its own operations, the whole supply chain quickly became lean. This is one of the main reasons of the success of companies such as Toyota and others.

To retailers, such a supply chain means:

  • Lower cost of goods: retailers can get a lower price from the suppliers due to "reduced waste" in the whole supply chain. Lower cost of goods also means that retailers are able to set a lower price for their commodities and win the consumers.
  • Improved inventory turnovers: such a supply chain makes the inventory flow transparent and enables retailers to realize "optimum inventory level", which helps retailers to improve inventory turnovers and asset utilization.
  • Speed-to-market and responsiveness: with product information management and trading partner collaboration, retailers are able to respond to the market in real-time. This is very important to retailers, because this is the key to making customers happy.

Thus, it is important for retailers to evaluate their suppliers/vendors to see if they are "lean" enough.

 A quantitative measure to evaluate each supplier can be obtained by analyzing areas such as:

  • Actual sales and returns of each supplier's products compared to predictions
  • The supplier's ability to deliver products on time
  • The flexibility of each supplier in handling changes
  • Frequency of product returns for each supplier

As Martin Christopher from Cranfield pointed out several years ago, "Companies are no longer competing with companies, but supply chains with supply chains." Partnering with lean suppliers is a key factor for a retailer to thrive. Choose the right partners and prosper with them.

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