A different way of inventory control

As a beginning music student, I remember that the concept of 4/4 time was pretty easy to grasp. But when things like 5/8 and 6/4 were introduced things got pretty confusing. And if a piece ever changed in the middle, then this student was lost for a bar or two. Keep it simple and consistent and I was OK.

This may also be true for many businesses. However, instead of counting music we are talking about counting inventory. Several decades ago, almost every manufacturer shipped any quantity of any item. By the time we got into the late 1970's, we were into minimum order sizes and "factory packs" on most items. When we got into the slow times some businesses experienced in the 1980's, many dealers began to line up the secondary suppliers that would ship products in less than quantity packs and have smaller minimum orders. Some of the dealers we spoke with at NAMM last year told how they had even dropped some of their favorite product lines when they could not meet the necessary minimums.

When we got into the 1990's, few businesses were concerned with this problem. There were economists that were telling us we were entering a "new economy". This one, they suggested, was recession proof. Many dealers began to order again without any concern for minimum requirements because their cashflow could support this type of buying.

Now that we have turned the corner of another decade, the picture looks different for many dealers than it did in the 1990's. Not that this writer would agree that we are experiencing a recession, for I believe that a recession is a state of mind. I marvel at businesses that see what is being said in the paper about the economy, and then take action to make sure they do not meet the same fate.

Years ago, I remember hearing a speaker tell a story that has long stuck with me. He told of a small business; he called it a "Mom and Pop". He said they started the business the way many are started by ordering items on a "onesie" basis. They ran a good business and over the years they made a good profit. However, they came to the point where they said, "Now that we have earned a good profit, we can buy like the "big boys".

The speaker concluded the story by asking this question, "If buying on a "onesie" basis is what made all of the profits for them, then why would they want to change their buying philosophy?"

Most definitely a good question. We are not suggesting this is a solution to any and everyone's business. Instead, the idea of "onesie" purchasing is one that every business that has a limit to the amount of money available should consider implementing.

However, the reason we are suggesting this may be one you may not have considered. Many businesses have a limited range of products but stock them in substantial depth - perhaps like the "Mom and Pop" business we first looked at. This type of business likely has a broader range of customers. Think of this type of business as somewhat of a convenience store; a lot of customers but not a lot of products for each of their customers.

If we were to free up some of the money by reducing the depth of the products stocked, we could approach selling in a different way. Think about the customer who has purchased an instrument from you, but your business has not previously stocked any accessories.

This customer has had their initial needs met and is a prime candidate to purchase other items from us. Spoken in financial terms, it has been an old business adage that it will cost you $20 to get a customer to first shop with you, but only $4 to get that customer to return.

Putting the two situations together, we are spending $20 to get a customer to come in and purchase an instrument. We spend another $20 to get another customer to shop with us. This scenario continues over and over.

Instead, if we have spent the $20 to get the customer in the first time, we can save a lot of money by attracting the same customer back in to purchase accessories at a cost of about $4.

Can this idea work for your business? Your customers may already be telling you the answer if you have heard them say, "Do you have any .... to go with what I have just purchased?" If you have been sending the customer down the street, or across town, they may be going to a store that sells the same things that you would be selling that customer on their next trip to your store. Only, after they have seen it at the other business, they may decide they are going to do their one stop shopping there instead of going back and forth between the two businesses.

My Dad's saying was, "The dog with a full food bowl does not go looking at other dog food bowls". Translated into musical terms, if we fulfill all of the customer's needs, then the customer is not going to wander into another business and be tempted to return only to that business.

How do the two ideas tie together? Because most businesses have a limited amount of money available, there is a need to properly focus on how to get the most sales from your inventory. By concentrating on the wants and needs of your core customers, the ones who have purchased the most profitable items and return the most frequently, you can build your business around these most profitable customers.

Having a limited amount of funds means that you may have to reconsider how you are purchasing inventory now. When you concentrate on these most profitable customers, you can count on making some beautiful music.