Oops! I Have Too Much...Inventory | Ole L | Skillshare

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Oops! I Have Too Much...Inventory

teacher avatar Ole L, Physical Product Management

Watch this class and thousands more

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Taught by industry leaders & working professionals
Topics include illustration, design, photography, and more

Watch this class and thousands more

Get unlimited access to every class
Taught by industry leaders & working professionals
Topics include illustration, design, photography, and more

Lessons in This Class

8 Lessons (25m)
    • 1. Introduction

      1:04
    • 2. Excess Inventory: How To Tell You Have Too Much

      4:10
    • 3. Excess Inventory: Ending Up With Too Much Inventory

      3:17
    • 4. Excess Inventory: Why Having Too Much Inventory Is Not Good

      7:03
    • 5. Excess Inventory: What Is The Right Amount Of Inventory

      3:22
    • 6. Excess Inventory: Dealing With Too Much Inventory

      3:30
    • 7. Excess Inventory: Class Project no music

      1:17
    • 8. Excess Inventory: Wrap Up

      0:57
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About This Class

This class aims to show you how to identify inventory you either no longer need or have too much of in your business.

We'll also go through what happens if you continue to sit on excess inventory.

There would also be tips given on how to get rid of excess inventory, without crippling your finances.

Meet Your Teacher

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Ole L

Physical Product Management

Teacher

There is no reason to stop learning and the best way to learn is to share the knowledge you have.

Through sharing my knowledge I hope to add to mine.

Having been fortunate to have worked in buying departments as a Merchandise Planner on three different continents, I have been able to gather a wide range of experience and have accumulated a wealth of knowledge, as a Merchandise Planner, which I am now imparting on others.

What is a Merchandise Planner?

A Merchandise Planner is someone who through planning sales and inventory increases profitability by maximising sales and minimising losses within a retail buying department.

Have specific questions related to planning? Email me at [email protected]

You can also join the SloppySuccess mailin... See full profile

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Transcripts

1. Introduction: do you want to know if you have too much inventory? Do you have eventually? No longer. Would you like to know what to do with your excess inventory? If you have all said yes to any of these questions, this classes for you. That's because in this class you will learn how to identify unproductive inventory and what you can do to free your business from it in a way that still sees you making money. This class on what to do with excess inventory is for anyone who's business stills with buying products, making products or any business involved with the storage of materials, which is then sold on to customers. This class is not limited to physical products. Only as a business could also have an excess amount off digital products in their infantry . Still interested? Watch each lesson to discover what process to for life at the end of the class. Don't forget to leave a review and the thumbs up 2. Excess Inventory: How To Tell You Have Too Much: when it comes to determining if you have too much of something that I can sometimes be deceiving, which is why the best starting place in determining if you have too much inventory is to know how much you have. This means doing a fiscal count off each item. Ideally, you should always know how much inventory you have on hand by deducting cells from how much inventory you started with on a full physical count of every entry should be done at least once a year or on a rolling basis, where you pick a handful of products to count every few months. These physical counts is what's moon as a stock take? Once you know how much inventory you have, it's time to calculate how long it would last for commonly learn as weeks of supply weeks of cover. Calculating how long your inventory would last for is key in determining if you have too much too little or not enough inventory. There is a slight difference between weeks of supply and weeks of cover in that weeks of supply is calculated. Using cells you expect to get in the future and weeks of cover is calculated using cells that have already occurred. If you have not created a cells forecast showing what you will sell in the future, you can estimate your average weekly unit cells using cells that have already occurred. This would then be the figure to use as yourselves figure when calculating weeks of supply to calculate average weekly cells taken average off cells in units over the last five weeks . Here is an example on the cells that have occurred over the last five weeks. This figure gives us a total of 35 units, which is an average of seven cells units per week. So in this example, seven would be the figure to use when dividing unit cells into infantry. If you want to calculate a more detailed cells forecast for your products, which will show you how much you plan to sell in the future to watch my car's called forecaster cells, it's worth it. The key here is to get a rough estimate of how long the infantry you have is going to last for you do not need to be 100% accurate as all you need is a ballpark time period based on the current information you have. Once you know how much inventory you have on hand and your weekly averaging it sells, you can now calculate your weeks of supply. The formula for this calculation is infantry units, divided by your average unit cells per week. So if you have 400 units of a product and average weekly cells units of seven, your weeks of supply would be 57.1 weeks. This means you have enough inventory to last over a year. If, on the other hand, you sold an average of 26 units a week, you're weeks of supply would be 15.4 weeks. 57.1 weeks of supply versus 15.4 weeks of supply, which weeks of supply figure would you prefer to have in your business? Using the method off weeks of supply is by far the easiest way to quickly calculate if you have too much inventory in your business. This is also a versatile formula to familiarize yourself with, as it can be applied at various levels. In your business. It can be used as a product category department, and even that's a complete level 3. Excess Inventory: Ending Up With Too Much Inventory: no business owner sets out consciously to have too much in petrol. This is something that happens over time and without anyone realizing until it's too late. Here are some reasons, some of which may seem for minutes you we can end up with more inventory than bulk purchasing when purchasing may decide to buy more than we actually need because of supply offers. The best surprise when Morris don't get me wrong. Paying less per unit is always good. However, If you do not have a plan to sell the extra units, then don't buy it. Safety stock. All businesses should incorporate a level of safe to stuck in their country levels. This would allow for there to be stock available if there was an unexpected increase in demand or delay in delivery. As safety stock is usually expressed in weeks and covers the amount of unit sales expected in that time period, you need to calculate how many weeks safety stock you want to have as an example with average reconciles US five units and you want to have safety stock for two weeks. Having an extra 10 units in your inventory levels is what you want, where we sometimes get into excess energy as if the safety stock level is too high. So if you decide you want to have a safety stuff level of eight weeks when two would suffice, you end up with 40 units of additional stock instead of 10 units. This is an extra 30 units you're going to have to hold and this toy like your cash. What determines safe to stop the level of safety stock needed is determined by the likelihood off a sales spike or a delay in stock delivery. If cells have been forecasted and the forecast accuracy is relatively high and the supply is reliable, there is no need to have a high level of safety stuff. Ignoring adventuring when it comes to imagery, there's no benefit of burying your head in the sand. Ever. Products is not selling cells very slowly, always obsolete. Try to find ways to get rid of this industry, obviously, the starting point to be to know how much you have, which would then need to form made by a plan on how to declare this adventure. Remember, if your class plan doesn't work, come up with a second, and if that doesn't work completely, but keep going on. So the industry is off your books. Multiple storage locations. The phrase out of sight out of mind applies here. Story infantry in multiple locations, whether that be different warehouses or different spots around the hope can calls excess in the tree to be held. 4. Excess Inventory: Why Having Too Much Inventory Is Not Good: too much of anything is not good. This also applies when it comes to how much inventory of business has. Having more inventory than is needed has ramifications that can potentially take time to recover from as difficult as it is to accept you, Mr Sell, because he had run out of an item. Sometimes it may work out to be the more profitable option. What do I mean? Let me use an example to explain this. You've bought 400 units of the latest kid's toy to sell over the next six weeks. As after that time period, cells are expected to drop significantly, he estimates you'll sell on average of 60 a week and calculate you have enough to last no more than 12 weeks by sending 60 units a week for six weeks and seven units a week for a further six weeks without having to reduce the retail place. The supplier only supplies in multiples off 200 and takes four weeks to deliver. So if you want to buy more, you need to order at least 200 units on wait four weeks for the stock to arrive in your warehouse. Once cells stopped, unit cells fall, exceed expectations, and you end up running out in six weeks rather than the 12 weeks as he initially planned. The choice we have to make is whether to run out of inventory in Week six, having sold everything, order more stock so you can have it in stock for the full 12 weeks. You could go back to the supply and order an extra 200 units as soon as you realize you will run out. Which wasn't Week three. As you predict, cells would drop drastically after the initial six weeks. Seven parents. This would mean an extra 200 units bought in Week three would arrive in Week seven and would last for 29 weeks over the 12 week selling period. You initially planned to have battalion, cell phone. What option would you choose based on the example just given? Run out in six weeks have been sold. All purchased stock, Oh, order more and carry an additional 29 weeks of inventory. Let's assume the falling to calculate what the prophet level would be for both options, firstly, will be no markdowns on this product. The cost price for each toy is $50. The retail price is $119.99 and this is inclusive or tax on the tax rates were using is 10% storage costs all fixed at $800 per week with Gildas of how many units he had. So let's look at Option one running out in six weeks, having sold all purchased stock, initial number of units purchased was 400 and total cells units is 400. The cost of goods $20,000 The cells value is $43,633. Storage costs $4800 for the six week period. This gives us a grace margin percentage less storage costs off 43.2% if we converted back to dollars. This means that we make gross margin dollars or profit dollars off 18,833 if you have the option to where we ordered an additional 200 units in Week three, which was delivered in Week seven. The total number of units purchased with 600 are total cells in units was also 600 because , well, Claire's through the inventory. Our cost of goods is $30,000. Our cells value is $65,449 are storage costs goes up to $28,000. Remember, you pay $800 a week with others on how many units we have. Our gross margin percentage less storage is 11.4% and this translates to gross margin dollars off 7449 so instantly we can see that our profit levels are very different with Option one where we sold out and didn't buy anymore. We had profit levels of over $18,000 and an option to where we bought more and help the stock for longer. Our profit levels was $7449. That is 60% less profit that we realized by buying more of this toy. For as you can see, Option one has you not buying any more inventory and making over $18,000 in profit maybe six weeks. Auction, too, has you buying an additional 200 units on a profit level of just under 7.5 $1000 as it takes much longer to sell these units as cells drop dramatically after the initial six weeks ending period. The main reason for the drop in profit level in this example is the storage cost, which increases from 4800 units over six weeks to 28,000 over the entire seven period. Looking at these numbers, I personally would go for Option one. And here is why Cash lay sitting on too much inventory, ties up cash by selling all the infantry purchased. Cash is freed up to not only buy more inventory, but also to pay bills profit level. Having sold all stop it full price. There is no need to mark down the remaining stock to clear through any remaining inventory quicker. I do not want to sit on 30 plus weeks off stock off any product. He should night that when prices are reduced so our profit levels as well stock no longer relevant. The longer stock is set on, the higher the chance of it becoming obsolete, leading cells to potentially come to a halt as Milan wants to buy the stock increased business costs. Stock needs to be stored somewhere, and that space needs to be paid for. The longer invention takes cell, the higher the cost of housing it. This eats into profits line 5. Excess Inventory: What Is The Right Amount Of Inventory: asking what the right amount of inventory to having your business is like asking how long a piece of string is. There is no one size fits all figure that can be applied. This is because each business is different and products are sold at different rates. So the easiest and best way to determine how much inventory is right is by calculating it. The aim here is to come up with a way to determine if the amount of images being held we'll bring you the most amount of profit while holding as little stock as possible, as has been mentioned before, sitting on too much inventory ties up cash that can be used in other parts of your business . What's the formula to use for this class? I would suggest using the weeks of supply phenomena we just mentioned in the lesson called How do You Know You have too much inventory In that lesson, we calculated how long Infantry would last for by dividing average Ian, it sells into infantry. Now we're going to determine what the optimal weeks of supply needs to be for your business . This way, you instantly know if you're sitting on too much not enough or just the right amount of infantry. The right amount is one that would leave you with a left time to get more inventory about losing any sales. Here is what we would need to know to come up with the right amount of infantry, minimum display, quantity, safety stock, average weekly cells and lead time and lead. Time is how long it takes for the supplies. Deliver stop to you Once the order has been placed. Let's put some numbers against each of these. We'll have six units, as I minimum displayed. Wants to. We would have two weeks safety stop. Will estimate will sell five units on average each week, and lead time is three weeks from betting at all to units. Safety stop we had is two weeks. We know this all five units a week, so five units a week multiplied by two weeks means that we need to have 10 units. Is all safety stop on lead Time is three weeks and we know we sell on average of five the week. So three multiple three weeks multiplied by five units is 15 units. So adding the 1,000,000 display quantity in units the safety stop, units, Our average with yourselves in units, Lead time in units gives us total units off 31. So we now know that at any point in time, we want to make sure we have 31 units in stock. Now, to convert that two weeks, as we know already sell five a week. This means that we would need to have six weeks worth of inventory at all times. More than six weeks will have too much, and we're going to get rid of some inventory less than six weeks. We won't have enough meaning We need to get more inventory using weeks off supply is one method to determine what the right amount of inventory is for your business. There are other methods that can be used, but to keep it simple, this is the best one to start with. 6. Excess Inventory: Dealing With Too Much Inventory: Now you know how to calculate what your optimum inventory levels should be for your specific business. What do you do if you have not got enough or too much inventory? If you do not have enough adventuring, then more is needed. On the other hand, if you have too much, you need to get rid of the excess and multi half se. Optimal weeks of supply is six weeks, and you actually have 40 weeks of supply based on the example used them. A lesson called What is the right amount of infantry? We calculated six weeks is having 31 units on hand. This is based on selling five units a week on average. Therefore, 40 weeks of supply, which equates to 200 units means way have 34 weeks off excess inventory. Composing this two units, it means we have 169 more units than we need. Reducing inventory needs to be done carefully, as it needs to be done in a way that does not end up costing you more than if you'd kept injury in the first place. Here are some ways to get into infantry We can increase our average weekly unit cells. We can reduce the price to difficultly. We could have a clearance sale, a specific product, sell, flash, sell, seasonal, sell, any type of cell unbundle. The products were trying Teoh care with other products that sell well. We can use a different cells channel to sell excess inventory. For instance, if you have a store, we can look to use eBay, Amazon, etc. To sell the products online. If you're an online retailer, you shouldn't look to use markets or retail stools to sell excess inventory. If you have an online and a Griffin Moulter presence, you can look to use party plans. You can re Brandel reposition the products he lives by taking new photos, moving the product to significant locations in store on the website, you can change a description used for the product. You can give the products away you condone later infantry to charity. This helps others and also make give your tax deduction. You need to check this with your accountant to see if you can get a tax deduction. If you donate some products to charity, you can also use it as an incentive where he's advertised to customers. If they buy X, there will get the products for free. You can sell the excess inventory to somebody else, such as a liquidator. You get pennies on the dollar, but the stock is off your books to find a liquidator Weaken Search surplus inventory Liquidator In Google, you can return the product to the supply. If this is not part of your initial contract for your supply, you would need Teoh negotiate terms off how you go about returning the product to the supply. You can use one or a combination of lepers listed above to reduce inventory levels to get your individual level back on track. And once you're successful and getting your inventory levels back on track and to a manageable level, get into the habit of keeping an eye on it so it doesn't blow out again. 7. Excess Inventory: Class Project no music: Now it's over to you go through each lesson in this class. If you currently have infantry in your business, calculate what your optimal inventory level is for a single product. Then calculate what your weeks of supply is for the product. And finally, is the weeks of supply lower or higher than the figure he got in Step two. Once completed, you can upload a screenshot of your findings by clicking on the your projects. Tab uploaded a screenshot and clicking the create button. Use the community tab for any questions you have or additional ideas you would like to share with myself and other students. Also feel free to share the class link with those who you think would benefit from it. If you feel a bit overwhelmed, watch the class again. As I find watching something more than once helps me understand things better. Also, don't forget to leave a review on a thumbs up. Oh, and follow my channel for more retail concepts explained simply 8. Excess Inventory: Wrap Up: we've come to the end of the class to recap we have looked at how you know you have too much inventory, how businesses get into situations where they have too much inventory. Why having too much inventory is not good. Calculating what the right amount of inventory for your business is on what to do with excess inventory. There is also a class project for you to complete, which will help you explore and further understand your own inventory levels. Determinant inventory levels is not something that you can set and forget. As the factors used to come up with the optimal levels can change. For this reason, inventory levels need to be monitored and reviewed on a regular basis.