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.

Attrition Rate

One of my major concerns is the increasing rate of releases for board games in Canada.  It struck me one way to look at how often a ‘hit’ product might appear (or at least a decent product) would be to look at our release dates and what we kept in-stock.

The Methodology

I proceeded to pull from our database all the products that had a ‘Year’ indicated in its product information.  For the vast majority of products, this would indicate the year it was published (or re-published in a few cases).    I then figured out the total number of such products (No. of products added on the chart) and the number of those products still in-stock with us at the time of analysis (late-June 2013) as indicated by the bar graph (no. of products in-stock).

Now, note that the years used is the year the product was published / released generally (as drawn from BGG datasets).  So you’ll see items like 1935 and 1947 (Monopoly, etc) in there too – products that were released long before we ever existed.

Once the data was plotted, I also added a ‘Percentage still in-stock’ line graph which gave a % of items that were still in-stock compared to the number of items released in that year and plotted it all.  I’ve also added a second data line (the purple) for adjusting for ‘dead stock’. That is, items that are only in-stock because we couldn’t sell them off (or intend to get rid off once they do sell).

The Chart

Attrition Rate of Board Games Released

Analysis

If you look at products that we ‘cherry picked’ from 2006 backwards, you’ll see that even though these products were in-demand when we launched in 2007; many have now been dropped from inventory. If you look only at 2007, the year when we started adding products based off what we guessed could sell, that’s 15% or so and likely to continue to drop as demand wanes.   Whether it’s because the product is no longer available or because the product no longer has demand, about 15 – 20% of products released a year manage to have any staying power.  Within that, probably only 2 or 3 products are consistently good sellers (selling more than 1 copy a year).

Secondly, my concerns about a spike in products seems justified.  There’s a huge spike in the amount of products added in the last 3 years (we are only 7 months in for 2013 with the slew of GenCon releases still to be added!).   From bringing in 521 products in 2010 in-total, we now have 476 products already in-stock for 2013 and more than 600 added for the year.  Just using 2012 numbers, that’s a 57% growth in products.  Now, mind you – we’ve added RPGs and miniatures to the site since then; but most miniatures don’t have a year (model years just don’t make sense to add) and our RPG selection while large was also backdated in some cases (e.g. Pathfinder modules that were released before we started adding the line).   It’s also worthwhile to note that these aren’t even all the products available – just the one’s we’ve picked to add to the site / bring-in / sell.

Thirdly, the ‘demand’ for products takes a steep fall within 1 year.  We drop 50% of products we bring in within 1 year, 60% in 2 years and within 3 75% of all products are dropped.  As a publisher, if you haven’t sold off a significant % of your products in a year, you should seriously be considering adjusting your price / having sales because by year 3, you’re not likely to be able to sell it at all.

Curiously, this is by % so in 2007 we have 32 SKUs we feel are wortwhile.  For 2008, we have 68 SKUs and 2009 we have 127.  If we expect that in 2 years time to see roughly the same number of SKUs being worthwhile, we’d see about a 75% drop in SKUs or us dropping over 90 items.

Limitations of the Data

Firstly and most importantly, while I’ve tried to clean the data; I have to admit I didn’t spend a whole lot of time doing it. I’d guess the % numbers used could be 2 – 3% higher / lower easily.

Secondly, the increasing number of SKUs added and sold can be attributed to:

  • our increasing number of RPGs & miniatures
  • the increasing size of the market
  • the increasing size of our business (i.e. our ability to bring in more stock)
  • the necessity to keep whole lines in-stock (e.g. LCG products, minis, etc)

Thirdly, this data is a snapshot in time. It’d be really useful to see the changes over-time which this cannot provide unfortunately. Perhaps next year, since I have the datasets saved now.

Lastly, some might want to draw conclusions that the ‘quality’ of product has gotten better since our % of items and raw count of items are higher than in previous years.  I’d be hesistant about drawing that conclusion – it’s too early to tell and moreover, this does not show turn rates; just whether we have an item in-stock.  In addition, we often keep products in-stock that might sell 1