Improving your stock turn will help you lose weight, get better quality sleep, improve your relationships, make your kids behave, and cause your mother-in-law to treat you with respect. Well, O.K. – maybe not. But improving your stock turn does mean you will be getting a better return on the investment you have in stock. This can mean helping you get out of debt and improving your life financially. One substantial qualifier on this is that you must not sacrifice margin to achieve a better turn.
Take your local Countdown supermarket. They don’t buy 3 months supply of bread, they don’t even buy 3 month supply of soap powder. Their margins are such they have to reply on stock turn. For example if they have $1000 at cost of bread sitting on their shelf and they make 10% markup on bread and they turn their bread 365 times a year then on their original $1000 investment they have made $100 profit each day multiply 365 days = $36,500 per year which is a 3650% Return On Investment (ROI). Take the jeweller who purchases a piece of stock at $1000, turns it once a year making 150% markup. The jeweller makes $1500 profit or 150% ROI compared with Countdown 3650% ROI. If the jeweller can achieve 2 stock turns a year the jeweller will receive 300% ROI. So how do you do it? As you know, stock turn is a calculation involving what you sell and what you stock.
Therefore, there are only two ways to improve it:
- Sell More
- Stock Less
Ideally, you want to do both. But let’s look at the one under your direct control. That is, how much you stock. Stocking less (or possibly keeping stock even while sales improve) means that you must control your buying. We have seen too many jewelers whose buying plan consists of checking the bank balance. Then they spend every dime they accumulate hoping to sell more by stocking more. This just creeps the stock level ever higher and results in poorer and poorer cash flow and more and more older stock.
So the answer is to base what you buy on what you sell. This may not seem like a magic bullet – because it isn’t. But fundamentally, a buying budget that is based on your Cost of Sales budget is the simplest way to keep your stock level from creeping up and your bank balance and peace of mind from creeping down. Most jewellers are Buyers and Sellers (they buy and hope it will sell). You must convert from being a Buyer and Seller to being a Seller and Buyer. Think of it this way. If you sold not a thing last month you would not need to buy anything to maintain your stock level. Flip side of the coin, if you had $100,000 in sales showing $40,000 Cost Of Sales then you would buy $40,000 to main your stock level. Thus what you sell determines what you buy. Now you are a Seller and Buyer.
So start by taking a look at what you have purchased so far this year, compare it with what you have sold this year (at cost) and keep your pen in your pocket until the two are in balance. We would never suggest that you should not buy anything – just that may not need to buy as much as you think.
