HOW MUCH
INVENTORY DO
YOU NEED?
Presented By:
Tracy Moffatt
AGM Education Team
K&K Consulting
 Many
stores carry 2 to 3 times more
inventory than they need
 Many stores have no idea how much
inventory they need to purchase each month
 Most inventory is purchased “Just in Case”
when it should be purchased “Just in Time”
 Inventory should not be FISH (First In, Still
Here)
Jim Dion, Dionco Inc. 2009
 Calculating
 Planning
 Tips
Inventory Needs for your Shop
Monthly Inventory Levels
for Managing your Inventory
 Minimize
dollar investment

Lowers Costs necessary to carry inventory

Special Orders


Inventory Tax – Interest – Insurance
Open to Buy must be reduced by amount of
special orders at cost to prevent overbuying
 Minimize
amount of merchandise left at
end of season
 Minimize markdowns
 Minimize shrinkage
1
 Maximize

sales
Maintain appropriate inventory levels to meet
customers wants and needs
 Maximize
turnover
PROFIT
 Make more $$$
 Maximize
 Average
Inventory levels are determined
using Cost of Sales plan and Turnover goal
 “The
The
Calculation”
Calculation
Cost of Sales Plan ÷ Turnover Goal =
Average Inventory Plan
 This
number must then be adjusted up or
down for each month depending on sales
curve
 Calculation

Cost of Sales Plan ÷ Turnover Goal = Average
Inventory Plan
Cost of Sales Plan
$152,400
÷ Turnover
T
Goal
G l
÷ 2.0
20
= Average Inventory plan $ 76,200
 On
average, $76,200 of inventory is
needed each month
 Where
do the numbers come from?
2
RETAIL SALES / COST OF SALES / ROUNDS / INVENTORY FORECAST
RETAIL SALES
LAST YEAR
% TO TOTAL
JAN
FEB
MAR
APR
MAY
JUN
JUL
AUG
SEP
OCT
NOV
DEC
2000
5000
8900
28200
31500
34500
31000
28000
19000
9000
5400
16900
219400
0.9%
2.3%
4.1%
12.9%
14.4%
15.7%
14.1%
12.8%
8.7%
4.1%
2.5%
DEC 31
TOTAL
7.7%
100.0%
COST OF SALES
LAST YEAR
2000
4000
6500
18000
22000
23000
22000
19000
13000
7000
4000
15000
155500
COS %
100.0%
80.0%
73.0%
63.8%
69.8%
66.7%
71.0%
67.9%
68.4%
77.8%
74.1%
88.8%
70.9%
ROUNDS LAST YEAR
0
0
100
2500
3500
6000
5500
4300
3200
1800
100
0
$ PER ROUND
$0.00
$0.00
$89.00
$11.28
$9.00
$5.75
$5.64
$6.51
$5.94
$5.00
$54.00
$0.00
BEGINNING OF MONTH
56000
INVENTORY
54000
53000
73500
94500
27000
$8.13
106500 114500 117500 116500 111500 106500 104500
90500
1199000
RETAIL SALES PLAN
1500
4500
8000
28000
33000
37000
34000
30000
19000
9000
5000
15000
224,000
% TO TOTAL
0.7%
2.0%
3.6%
12.5%
14.7%
16.5%
15.2%
13.4%
8.5%
4.0%
2.2%
6.7%
100.00%
COST OF SALES PLAN
1300
3800
6000
18000
23000
24000
22000
20000
13500
6500
3800
10500
152400
COS %
86.7%
84.4%
75.0%
64.3%
69.7%
64.9%
64.7%
66.7%
71.1%
72.2%
76.0%
70.0%
68.0%
ROUNDS PLAN
0
0
100
2500
3600
5800
5800
4300
3200
1600
100
0
27000
$ PER ROUND PLAN
$0.00
$0.00
$80.00
$11.20
$9.17
$6.38
$5.86
$6.98
$5.94
$5.63
$50.00
$0.00
$8.30
COST OF SALES LAST YEAR
155,500
AVERAGE INVENTORY L/Y
COST OF SALES PLAN
92,231
TURNOVER LAST YEAR
152,400
AVERAGE INVENTORY PLAN
1.7
76,200
TURNOVER GOAL
2.0
JAN
FEB
MAR
APR
MAY
JUN
JUL
AUG
SEP
OCT
NOV
DEC
RETAIL SALES
LAST YEAR
2000
5000
8900
28200
31500
34500
31000
28000
19000
9000
5400
16900
219400
% TO TOTAL
0.9%
2.3%
4.1%
12.9%
14.4%
15.7%
14.1%
12.8%
8.7%
4.1%
2.5%
7.7%
100.0%
COST OF SALES
LAST YEAR
2000
4000
6500
18000
22000
23000
22000
19000
13000
7000
4000
15000
155500
100.0% 80.0%
73.0%
63.8%
69.8%
66.7%
71.0%
67.9%
68.4%
77.8%
74.1%
88.8%
70.9%
100
2500
COS %
ROUNDS LAST YEAR
0
0
$ PER ROUND
$0.00
$0.00
$89.00 $11.28
DEC 31
TOTAL
3500
6000
5500
4300
3200
1800
100
0
27000
$9.00
$5.75
$5.64
$6.51
$5.94
$5.00
$54.00
$0.00
$8.13
 Last
years Retail Sales and Cost of Sales by
month


From General Ledger or Budget
POS System
 Dollar


per Round
Tee Sheets – Starters Report
POS system
JAN
FEB
MAR
APR
MAY
JUN
JUL
AUG
SEP
OCT
NOV
DEC
RETAIL SALES PLAN
1500
4500
8000
28000
33000
37000
34000
30000
19000
9000
5000
15000
DEC 31
224,000
TOTAL
% TO TOTAL
0.7%
2.0%
3.6%
12.5%
14.7%
16.5%
15.2%
13.4%
8.5%
4.0%
2.2%
6.7%
100.00%
COST OF SALES PLAN
1300
3800
6000
18000
23000
24000
22000
20000
13500
6500
3800
10500
152400
COS %
86.7%
84.4%
75.0%
64.3%
69.7%
64.9%
64.7%
66.7%
71.1%
72.2%
76.0%
70.0%
68.0%
ROUNDS PLAN
0
0
100
2500
3600
5800
5800
4300
3200
1600
100
0
27000
$ PER ROUND PLAN
$0.00
$0.00
$9.17
$6.38
$5.86
$6.98
$5.94
$5.63
$50.00
$0.00
$8.30
 Retail
$80.00 $11.20
Sales Plan by month

Use Dollar per Round

Adjust to reflect current trends

Plan realistic improvement
 Sales


x COS % = Cost of Sales in Dollars
Plan month by month
Adjust to reflect current trends
3
JAN
BEGINNING OF MONTH
56000
INVENTORY
FEB
MAR
APR
MAY
DEC 31
TOTAL
54000
53000
73500
94500 106500 114500 117500 116500 111500 106500 104500 90500
JUN
JUL
AUG
SEP
OCT
NOV
1199000
COST OF SALES LAST YEAR
155,500
COST OF SALES PLAN
152,400
AVERAGE INVENTORY L/Y
92,231
AVERAGE INVENTORY PLAN
76,200
TURNOVER LAST YEAR
17
1.7
 Calculating
TURNOVER GOAL
20
2.0
Average Inventory Last Year
Sum of BOM Inventory Month 1-12
+ Month 12 EOM Inventory
$1,108,500
$ 90,500
$1,119,000
÷ 13
$92,231
÷13
= Average Inventory
JAN
BEGINNING OF MONTH
56000
INVENTORY
FEB
MAR
APR
54000
53000
73500
DEC 31
TOTAL
94500 106500 114500 117500 116500 111500 106500 104500 90500
MAY
JUN
JUL
AUG
SEP
OCT
NOV
1199000
COST OF SALES LAST YEAR
155,500
COST OF SALES PLAN
152,400
AVERAGE INVENTORY L/Y
92,231
AVERAGE INVENTORY PLAN
76,200
TURNOVER LAST YEAR
1.7
 Calculating
TURNOVER GOAL
DEC
2.0
Turnover Last Year
Cost of Sales for the year
÷ average inventory
= Turnover
JAN
DEC
FEB
MAR
APR
MAY
JUN
$ 155,500
÷ $92,231
= 1.7 turns
DEC DEC 31
TOTAL
BEGINNING OF MONTH
56000 54000 53000 73500 94500 106500 114500 117500 116500 111500 106500 104500 90500
INVENTORY
JUL
AUG
SEP
OCT
NOV
1199000
COST OF SALES LAST YEAR
155,500
COST OF SALES PLAN
152,400
AVERAGE INVENTORY L/Y
92,231
AVERAGE INVENTORY PLAN
76,200
TURNOVER LAST YEAR
 Establishing
1.7
TURNOVER GOAL
2.0
turnover goal
Look at last years results
 Plan realistic improvement
 Plan increase of .5 to 1 turn per year

4
JAN
BEGINNING OF MONTH
56000
INVENTORY
FEB
MAR
APR
54000
53000
73500
DEC 31
TOTAL
94500 106500 114500 117500 116500 111500 106500 104500 90500
MAY
JUN
JUL
AUG
SEP
OCT
NOV
1199000
COST OF SALES LAST YEAR
155,500
COST OF SALES PLAN
152,400
AVERAGE INVENTORY L/Y
92,231
AVERAGE INVENTORY PLAN
76,200
TURNOVER LAST YEAR
1.7
 Calculating
TURNOVER GOAL
DEC
2.0
average inventory
Cost of Sales Plan
Divide by Turnover Goal
= Average Inventory plan
$152,400
÷ 2.0
$76,200
 Reduction
of $16,031 to previous years
actual average inventory
Cost of Sales Plan
$152,400
÷ Turnover Goal
÷ 2.0
200
= Average Inventory plan $76
$76,200
 If
all months were equal, you would need
$76,200 in inventory each month
 Next
step is to establish a monthly
inventory plan for the entire golf shop
 Average
inventory is adjusted for each month
Higher or lower based on % month’s retail sales
are to the total year’s retail sales
 Be mindful of minimum inventory levels for off
season months
 When complete, average inventory for the year
must remain the same

 Two
Methods:
8.3% Formula
 Excel Spreadsheets

5
 8.3%
Formula

If all months were equal they would be
8.3% of inventory needs

Adjust months up or down based on +/- to
8.3%

If month is 12.3%:
12.3 – 8.3 = 4
Raise average inventory 40%
Month % to total Avg Rate +/- avg rate % adj to avg inv
January
4%
8.30%
-4.3%
-40%
February
5%
8.30%
-3.3%
-30%
March
7%
8.30%
-1.3%
-10%
April
9%
8.30%
0.7%
10%
11%
8.30%
2.7%
30%
Mayy
June
12%
8.30%
3.7%
30%
July
12%
8.30%
3.7%
30%
August
12%
8.30%
3.7%
30%
September 10%
8.30%
1.7%
10%
October
8%
8.30%
-0.3%
0%
November
5%
8.30%
-3.3%
-30%
December
5%
8.30%
-3.3%
-30%
Avg Inventory
$ 76,200.00
$ 76,200.00
$ 76,200.00
$ 76,200.00
$ 76,200.00
,
$ 76,200.00
$ 76,200.00
$ 76,200.00
$ 76,200.00
$ 76,200.00
$ 76,200.00
$ 76,200.00
$ adj to avg inv
$ (30,480.00)
$ (22,860.00)
$
(7,620.00)
$
7,620.00
$ 22,860.00
,
$ 22,860.00
$ 22,860.00
$ 22,860.00
$
7,620.00
$
$ (22,860.00)
$ (22,860.00)
total
avg inv
$
$
$
$
$
$
$
$
$
$
$
$
$
$
BOM Inv
45,720.00
53,340.00
68,580.00
83,820.00
99,060.00
,
99,060.00
99,060.00
99,060.00
83,820.00
76,200.00
53,340.00
53,340.00
914,400.00
76,200.00
RETAIL SALES PLAN
JAN
FEB
MAR
APR
DEC
TOTAL
$ PLAN
1500
4500
8000 28000 33000 37000 34000 30000 19000 9000
MAY
JUN
JUL
AUG
SEP
OCT
5000 15000
224000
% OF YEAR
4.0%
5.0%
7.0%
5.0%
5.0%
NOV
9.0% 11.0% 12.0% 12.0% 12.0% 10.0% 8.0%
NOV
100%
COST OF SALES PLAN
JAN
FEB
MAR
DEC
TOTAL
$ PLAN
1300
3800
6000 18000 23000 24000 22000 20000 13500 6500
APR
MAY
JUN
JUL
AUG
SEP
OCT
3800 10500
152400
COS %
83.3% 86.7% 76.2% 72.2% 69.7% 69.4% 73.6% 69.4% 71.7% 87.5% 83.3% 80.0%
68.0%
MONTHLY INVENTORY PLAN
AVERAGE
INVENTORY
PLAN
76200
JAN
FEB
MAR
APR
MAY
JUN
JUL
AUG
SEP
OCT
NOV
DEC
50000 50000 60000 82000 107000 120000 113000 93000 75000 68000 63000 60000
ACTUAL
AVERAGE
INV
76231
6
COST OF SALES PLAN
JAN
FEB
MAR
APR
$ PLAN
1300
3800
6000 18000 23000 24000 22000 20000 13500 6500
MAY
JUN
JUL
AUG
SEP
OCT
3800 10500
NOV
DEC
152400
TOTAL
COS %
83.3% 86.7% 76.2% 72.2% 69.7% 69.4% 73.6% 69.4% 71.7% 87.5% 83.3% 80.0%
68.0%
8.3% METHOD
AVERAGE
INVENTORY
PLAN
JAN
FEB
MAR
APR
MAY
JUN
JUL
AUG
SEP
OCT
NOV
DEC
ACTUAL
AVERAGE
INV
76200
45720
53340
68580
83820
99060
99060
99060
99060
83820
76200
53340
53340
76200
SPREADSHEET METHOD
AVERAGE
INVENTORY
PLAN
JAN
FEB
MAR
APR
AUG
SEP
OCT
NOV
DEC
ACTUAL
AVERAGE
INV
76200
50000
50000
60000
82000 107000 120000 113000 93000
75000
68000
63000
60000
76231
 Golf

fill requirements
Socks,, hats,, g
gloves,, balls
months
How low can your level get while still being
“in business”
 Markdown

JUL
Shop size and layout
 Off-season

JUN
Removable v. built in fixtures
 Fixture

MAY
program v. end of season sale
Clearance all year round leads to higher
profitability and lower inventory levels
 The
Total Shop Monthly Inventory Plan
must now be broken down into
departmental inventory plans
 Divide Inventory
y Plan into departments
p
based on percentage each department is
of your total shop

If men’s is 40% of your business they receive
40% of the Inventory Plan Dollars
 You
now have an inventory plan to follow
when purchasing merchandise:

You are ready to run an Open-to-Buy
7
TOTAL SHOP MONTHLY INVENTORY PLAN
INVENTORY
PLAN
JAN
FEB
MAR
APR
MAY
JUN
JUL
50000
50000
60000
82000
107000
120000
113000
AUG
SEP
93000 75000
OCT
NOV
DEC
AVG INV.
PLAN
68000
63000
60000
76231
THIS
LAST YEAR
YEAR
RETAIL % TO
PLAN %
SALES TOTAL
DEPARTMENT MONTHLY INVENTORY PLAN
TOTAL SALES 219400 100.0%
100 0% 100.0%
100 0%
AVG INV.
PLAN
MEN'S
83372
38.0%
40.0%
20000
20000
24000
32800
42800
48000
45200
37200 30000
27200
25200
24000
WOMEN'S
10970
5.0%
6.0%
3000
3000
3600
4920
6420
7200
6780
5580
4500
4080
3780
3600
4574
HARDGOODS
74596
34.0%
34.0%
17000
17000
20400
27880
36380
40800
38420
31620 25500
23120
21420
20400
25918
EQUIPMENT
50462
23.0%
20.0%
10000
10000
12000
16400
21400
24000
22600
18600 15000
13600
12600
12000
15246

30492
Each department’s inventory plan may now be
tweaked – keeping average the same
 Open-to-Buy


Reserves
Monthly Analysis
 Special
p
Orders
and Programs
 On-Order Log
 Reducing Current Levels
 Pre-Books
 Gives
you a Cash Flow plan
the buyer a “checkbook”
 Allows for consistent planned flow of
merchandise – one month prior to desired
selling period
 Gives


Guide for placing orders
Plan for holding reserves
 An


A
annual planning process
Developed for total shop
Broken down by Department
monthly review process
8
 Indicates



need to react to current trends
Place additional purchases
Address slow selling merchandise
Adjust future shipments
 Improves
profitability
opportunity to meet cost of sales
and turnover goals
 Improves
 Stay
for the next hour….complete process
made very simple!!!
Current Month’s Planned Cost of Sales
+ Next Month’s Planned Inventory
- Current Month’s Planned (or Actual) Inventory
= Cost Buy Plan (Planned OTB)
- On-Order & Reserves & Special Orders (at cost)
= Actual Open to Buy for Month
Department
Total Shop
MONTH
Currentt M
C
Month's
th' Planned
Pl
d Cost
C t off Sales
S l
+ Next Month's Planned Inventory
- Current Month's Planned (or Actual) Inventory
= Cost Buy Plan (planned OTB)
- Current On Order
- Reserve & Special Orders
Actual Open to Buy
JAN
FEB
MAR
APRIL
MAY
JUNE
1300
3800
6000
18000 23000 24000
50000 60000 82000 107000 120000 113000
50000 50000 60000 82000 107000 120000
1300
0
13800 28000 43000 36000 17000
13520 17761 33411 31343
9948
1300
2500
5000
7000
7000
3000
0
-2220
5239
2589
-2343
4052
9
 Can
cause overstocks in Golf Shops
dollars from Open to Buy plan to
prevent overbuying and increased inventory
levels in high Special Order Departments
 Failing to hold reserves means every special
order taken equates to that amount of
additional inventory in your Golf Shop
 Each order means you didn’t sell
merchandise from golf shop so your inventory
was not reduced
 Very important to track in shoes and clubs
 Reserve
 Major
Cause of Overstocks in Golf Shops!!!
Benefits
 Terms, Discounts, Rebates
 Convenient – Buys all done at once
 Suggested order done by Rep
 Risks
 Reps orders based on units shipped not units
sold
 Discounts and Terms not taken
 Excessive Inventory – Decreased Turnover –
Increased Markdowns
 Change of product line mid-season

 Planning






with Pre-books and Programs
Use previous SALES records and adjust to trend
Know Vendor Profitability
Be prepared – have your own numbers
Spend only dollars in Buy Plan!!!
Challenge monthly and adjust orders
Ensure all Terms and Discounts are received
 Programs
don’t sell merchandise – the
right product, price, and people do!!!
10
 Tool
for reacting to Open to Buy
all vendors
 Plan delivery timing
 Plan floor presentation
 Challenge if delivery dates are not met
 Use records for choosing vendors next
season
 Use for dealing with tough buying
decisions next season
 Track
MONTH
JAN
Current Month's Planned Cost of Sales
+ Next Month's Planned Inventory
- Current Month's Planned (or Actual) Inventory
= Cost Buy Plan (planned OTB)
- Current On Order
- Reserve & Special Orders
Actual Open to Buy
Vendor
Vendor A
Vendor B
Vendor C
Ship
Date
3/20
5/1
Date
R'cd
2/20
3/15
5/25
1/26
3/1
4/15
6/15
Description
Navy/Purple/Teal
Khaki/White
Green/Yellow
Red/Black
Tech Pastels
Grey/Black
Blue/Yellow
Red/White/Blue
MAR
APRIL
MAY
JUNE
JULY
1300
3800
6000
18000
23000
24000
22000
20000
13500
6500
3800
10500
50000
60000
FEB
82000 107000 120000 113000 93000
75000
AUG
68000
63000
60000
50000
50000
50000
1300
60000
82000 107000 120000 113000 93000
75000
68000
63000
60000
28000
43000
36000
17000
2000
6500
1500
800
500
13520
17761
33411
31343
9948
1830
0
0
0
0
0
2500
5000
7000
7000
3000
500
500
3000
1500
800
500
0
-2220
2220
5239
2589
-2343
2343
4052
-330
330
1500
3500
0
0
0
JAN
FEB
MAR
APRIL
MAY
JUNE
JULY
AUG
SEPT
OCT
NOV
DEC
2000
1650
3000
1900
1250
3000
2280
3100
1800
Purchase merchandise that compliments
existing inventory
Evaluate number of lines you are carrying
◦


DEC
13800

◦
NOV
0
Evaluate current Inventory

OCT
1300

◦
SEPT
Return to Vendor for credit or exchange
Challenge duplication in lines
Consider lines with pricing incentives
Purchase Off-price merchandise
Plan receipts one month prior to your
planned sales
11
 Inventory
levels should be planned based
on cost of sales plan and turnover goal
 Each
department should be looked at
individually
 Developing
an Inventory Plan is the first
step to running an Open-to-Buy
Tracy Moffatt
K&K Consulting
AGM Education Team
239-848-7274
[email protected]
“The Educational Voice in Golf
Merchandising”
602-604-8250
www.agmgolf.org
All AGM educational materials are protected by U.S. Copyright
and cannot be reprinted or used without the expressed
written consent of the Association of Golf Merchandisers.
12
MONTHLY INVENTORY PLANNING
RETAIL SALES PLAN
JAN
FEB
MAR
APR
MAY
JUN
JUL
AUG
SEP
OCT
NOV
DEC
TOTAL
$ PLAN
0
% OF YEAR
0%
COST OF SALES PLAN
JAN
FEB
MAR
APR
MAY
JUN
JUL
AUG
SEP
OCT
NOV
DEC
TOTAL
$ PLAN
0
COS %
#DIV/0!
MONTHLY INVENTORY PLAN
AVERAGE
INVENTORY
PLAN
JAN
FEB
MAR
APR
MAY
JUN
JUL
AUG
SEP
OCT
NOV
DEC
ACTUAL
AVERAGE
INV
0