With “dating”, you can buy now and pay much later! Sounds like the vendors are supporting your business. Don’t be fooled.

Vendors want your business and will do what it takes to make you a customer… or a bigger one. And they want your orders NOW, so they can use the orders to finance their production. So when they offer you all kinds of incentives, be very careful before you commit.

Even though the dating sounds appealing, retailers tend to feel that the merchandise is theirs almost for free and spend the money they take from the sale of the merchandise on other invoices.

The problem comes when the invoice finally comes due and the income from selling those goods is gone – spent on other bills. Now what do you do. Well, the bills have to be paid so you can continue to get merchandise, so you raise cash by taking markdowns. Sadly, this is not a good answer and puts you on a negative cash flow treadmill that is almost impossible to get off of.

When you raise cash by discounting your merchandise, you are basically giving away the part of your income that goes to pay your overhead and leave you with a profit. Markdowns eliminate profits and most of your contribution to overhead. If you don’t pay your overhead, you cannot operate.

The solution to this problem doesn’t begin when the invoice comes due, it begins with your planning before you place your orders. Your purchase of inventory is not to insure that that the reps can buy a more expensive car, it’s to support the sales that you anticipate in your store. Merchandise does not drive sales, it merely supports them. So, more inventory does not mean more sales, but the correct amount of inventory does mean profits.

Planning your inventory can only be done with open to buy planning. Taking your anticipated sales and desired turn rates as the basis, a good open to buy plan will develop a receiving plan so you know how much merchandise you need to receive each month in each department to support your sales at the desired turn rates. If you buy accordingly you will always have the right amount of merchandise to sell through and nothing to mark down.

You don’t need “dating” on your invoices if you properly plan your buying and buy according to your plan. An open to buy plan is the basis of properly managing your inventory – your most perishable asset.

 


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