Managing Inventory in a Crisis
This won’t apply to everyone but if your business carries inventory, then right now might be a pretty scary time. Imagine staring at racks of material or product thinking about how you might manage today’s (and likely many more days) demand.
Here’s our quick and dirty guide for managing inventory, rethinking purchasing processes, and creative ways to get rid of inventory that may linger if no action is taken.
- Take a physical inventory as soon as possible. This is something that many companies do only once per year; sometimes twice. We suggest much more often, and with the way things are going, it’s important to note a special bookmark so you can determine changes in inventory. Once demand starts increasing, you can look back and compare data.
- Calculate Inventory Assets. What are some of the items in your inventory that can be easily liquidated? How much capital is tied up on inventory, and how much of your inventory is perishable- if any?
- Spread Out Inventory Purchases. This is the time to stretch out the usual inventory purchases by an additional three to six months. Where you may have been buying inventory items (like raw materials) every month, there may be a lull in production. Be aware of what materials need to be purchased, and what can wait based on sales projections.
- Liquidate Excess Inventory. Sometimes easier said than done but is important to consider (in the words of our friend Mike Ryan of the M. Ryan Group) what products may turn into an “inventory iceberg”. Here’s a few ways you can liquidate:
- Bundle with other products to sell together
- Sell as an impulse purchase
- Sell excess to liquidation companies
- Sell on online marketplaces
The risk of liquidating or having a “fire sale” is that you’ll lose some significant margin. More will be lost as a result of not moving these icebergs, as they will collect dust on the shelves. You may also notice that certain products you sell are more in demand as a result of the crisis- requiring more rack space to store finished goods. If you have a high grossing product but have nowhere to put it because of dead weight on the shelves, then maybe liquidating slow movers is a good idea.
If you’re a restaurant, then you definitely feel the pinch right now. We get it- all of those prepped items in the walk-in, and all of the steaks that have limited shelf life in the cooler just won’t last through this quarantine period. A few ideas if you’re a restauranteur:
- Inventory Buyback. Some food distributors may buy back some of your product if it’s still in the package and hasn’t perished. Additionally, if you’re in Ohio at least, the state is allowing a buyback of any unopened liquor. This may be a tricky option, but it never hurts to ask your distributors for some help.
- Food Banks. If you aren’t a chain, you may be able to donate food to the local church or food bank. Not only does this get rid of your excess inventory, it helps your tax bill at the end of the year (just make sure you list the items you donate and its value- and get a receipt).
- Get creative. You can still have awesome happy hour carry out specials, Tuesday Steak Night, box lunches for kids, and (again at least in Ohio) you can sell carry out alcohol. Be creative with the items you have on your shelves.
- Host Online Classes. We all now have to become Gordon Ramsey overnight, learning how to cook for our families, portion and prep food, measure ingredients, and figure out how to time our meals. You could take your soon-to-be expiring goods and use them to teach others. Instruct us- we don’t know what we’re doing. Why not capitalize a bit?
While this isn’t a completely comprehensive in-depth field guide for managing inventory, you can start to prepare yourself now for what may be a different use of your shelves. Go to your storage area, walk up and down the aisles, and determine how you can best use the products before they turn into an unusable loss for your business.
If you or someone you know needs help, please reach out to anyone on our staff. We’re here to listen, guide, and commiserate.
Best Wishes and Stay Well,
The SharpCFO Team