Friday, September 30, 2016

Do you lead the elephant...?

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There is a expression that relates walking with elephants. Do you lead the elephant? or does the elephant lead you?  The interesting truth is that while we would all like to think we are leading the elephant around , it's not really true. And we all know that if the elephant wants to go somewhere it's going to to go there, we really don't have the tools to change it. 
So today's lesson is about understanding the forces of change and how elephants can be lead around and applying that lesson to an elephant in your business, namely... 
Dead Inventory

Quite often, even among well-run businesses, the actual costs of inventory are inaccurate, underestimated and incomplete. While most distributors know they have dead inventory, many are unaware of just how much. Even in well-run companies, anywhere from 20-30 percent of inventory is dead or obsolete.

While that is huge and alone could have devastating ramifications for a business, how do you calculate the real costs to determine the hit that your business is facing? The easy answer is to take the unit cost for those dead items, add them up and you have your answer. But not so fast. There are many other hidden costs to consider before determining the true cost of your dead inventory. Ignorance about these costs of dead inventory place your business in peril. And addressing the dead inventory problem can breathe life back into a troubled situation. So what are some of the other very real costs that complete a more accurate calculation of dead inventory costs?

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  • Cost of capital/money
  • Finance and insurance
  • Discounts
  • Inventory housing
  • Handling costs
  • Administrative expenses
  • Lost Opportunity Cost

Paying employees to “fix” the inventory problems, as well as management time spent on solving inventory issues, is very costly. Employees paid for tactical, rather than strategic, management issues is essentially wasting your precious resources. Hopefully, your staff is making up for this by optimizing systems and procedures, such as leveraging multi location activity to reduce cost of inventory, as well as other system driven resources.

Utilizing a software system like the MDS-Nx System, can quickly identify and/or prevent dead inventory from sitting on your shelves. This will prove to be a worthwhile investment since it reduces these employee costs.

Using our Remotenet Ecommerce System's automated business intelligence module you have the option to automagically  (yes it is a word - see link)   create a category for overstock, closeouts and Daily Specials.  These categories use a combinations of length of time on the shelf, Carrying cost and Sales history if available to calculate and update automated search categories on your website.

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So, what is the real cost of dead inventory?

When all additional costs are taken into account, the total cost of holding inventory can represent a shocking 25-30 percent more than the inventory’s unit cost value. In addition, having your cash tied-up in inventory-related expenses has an opportunity cost, which can translate to as much as 15 percent or more. Getting an accurate, realistic measurement of what inventory truly costs is a smart first step to saving money, increasing cash-flow, improving performance (inventory turns and customer service) and increasing your competitiveness.

The more inventory a company carries, the higher the ongoing costs will be, which is reason enough not to carry dead, outdated, or obsolete, inventory. A company that can reduce their inventory costs through operational efficiency will see tremendous benefit. 

Image result for dead inventoryLet us solve the problem with these three easy steps, 

  1. Identify your potential items using your software systems (use our MDS-Nx System if your's is not working for you...) 
  2. Push those items using your E commerce and Sales Force Automation tools (or use ours) 
  3. Repeat month/weekly/Daily to keep your dead inventory to a bare minimum.

So ask yourself , Are you leading the elephant of is the elephant leading you? 
Its not easy to change your practices and keep on top of inventory but as a distributor, 
don't let it be the elephant in the room  that no body will talk about, make sure it's the elephant you are leading with a sure and steady hand.
Are you ready to partner with a solution and team that knows healthcare and pharma?
Join us as the Specialty Pharmacy show in Washington this September. 


For more information on TSH or MDS call The Systems House, Inc. at 1-800- MDS-5556.
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