Inventory Management – Top to Bottom

Speaking with Claus over e-mail, he had a question in inventory management.  Basically, how do you manage inventory? There are quite a few tools that you can use, and I’ve covered them in bits, bobs, drabs and other pieces before in this blog.

So, here’s how to break it down:

– Total $ amount is based off turn rate for desired revenue level

For B&M you can shoot for a turn rate of 4, online I’d say it’s between 5 to 6.  A lot of that though depends on how often you get stock – if you only restock once every month, you have to keep a higher level of stock overall than if you restocked every 2 to 3 days.  Also, if you are growing a new section (e.g. like we did for RPGs) your turn rates for that section will suck in the initial period but slowly get better once you (a) hit a minimum stock amount and (b) customers get used to you having that kind of product.  Then you can start trimming we find.

– Open to Buy methodology keeps track of your inventory dollars spent on a high level basis

Think of Open to Buy as a high level methodology – keeping an eye on total $ spent; not specific products.  So, it’s a good way to keep an eye on how much money you are putting into the business in terms of inventory and ensuring you  have money to buy new stock though I’d point out that you also need at least $5  – 10k for overages during crazy release season like now.

You can even push open-to-buy down to category level sections.  Deciding how much of a % you want your RPGs, Miniatures, etc to be part of your revenue / product quantities.

– Minimum Stock Levels keeps track of stock for individual products

On a specific product level, we generally pre-order 1 copy and add more depending on the publisher and theme.  So we know for example FFG products we can sell 2 to 3 each for most of their products, so we start at a 2 or 3 qty level.  Then we adjust according to theme – e.g. if it’s a popular IP; we add more, if it’s less popular or boring sounding, we drop by 1 or 2.

We also adjust based off buzz and pre-orders.  Our rough guide is we get twice the number of pre-orders brought in.  So if we have 3 pre-orders, we ask for 6.  Generally, we sell another 1 or 2 copies in the week of release.

The minimum stock level we use is basically sales for 1 1/2 weeks rounded up.  For popular products (e.g. Settlers of Catan) we add a +2.  It’s 1 1/2 weeks since we restock once a week; so technically we should be at or close to 0 when our restock comes in.  For really popular products, we might get 2 weeks worth of restock.  So if we sell 3 copies of Settlers a week, we’d normally stock 6 copies in-house (3 + 1.5 + 2) at any one time.  For a product that sells once every 3 months (i.e. turn rate of 4); we’d still stock 1 copy.  Those with turn rates lower than 4; we’d selectively cull depending on game and whether it’s an expansion, new game or classic or minimum requirement (e.g. monopoly).

– Stock levels are then further adjusted based on product level turn rates

Once a product passes a certain timeframe (generally for us about 3 months); we start reviewing it for sales.  Anything that hasn’t sold in that timeframe starts getting shifted into the ‘sale’ pile for further trimming to free up our inventory (see Open to Buy again).

And that’s how we manage inventory.  Kind of messy, but it works for us so far.