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Inventory: Where Every Publisher Can Lower Expenses & Increase Cash Flow

Over the last 46 years, Ware-Pak has worked with 100’s of excellent publishers and yet most have had the same opportunity for improvement – elimination of stale stock. Slow moving product drains a publisher in three ways:

  1. You have capital invested in something that is not generating a return.
  2. Current cash flow suffers because the liquidation value is not realized when stock is just sitting in the warehouse. This is compounded if the books remain in the warehouse so long as to reduce the liquidation value to zero.
  3. Paying a reoccurring storage fee to have a slow item take up space in the warehouse.

Managing inventory is always difficult. New titles and best sellers get most of the attention and it’s often easy to allow the slow movers to build up. One way to remedy this is by having a clear policy to address how and when stale stock will be removed. Below are a couple of guidelines to consider.

  • Keep an eye on the length of time required to sell existing inventory. A simple calculation of the number of units sold in the prior 12 months divided into the inventory on hand will give you a workable number.
  • Certain books (such as a reference guide) should be updated regularly. Older stock should not be held more than 3 years.
  • Another way to measure the life cycle of seasonal or longer sales cycle product is to evaluate the product that is still in the warehouse 3 years after the last receipt of printing.

An example of what can and does happen:
For the last 10 years, we have been discussing slow moving stock with a client. Nothing was done with the stock until this year. It is my estimation that this stale stock cost the company close to $100,000 when you combine the cost of money plus storage fees that could have been eliminated. And the worst part is that the stock is so old now, it’s liquidation value is zero.

In an effort to help our clients, we have developed a report called “item history”. This report shows the average number of months required to sell the stock on hand, based upon the prior 12 months sales history. It is sortable by IBSN or length of time required to complete sales.

With stale books, no one wins. The publisher does not earn a return on investment. Cash flow suffers because the publisher does not receive the liquidation value, and pays storage fees for a non-performing asset.

Conversely, when you manage your stale inventory properly, everyone wins. You can immediately increase your cash flow with the sale of the items and your variable expense for storage is reduced.

Eliminating Fixed Costs Key To Surviving Economic Downturn

Publishers feeling the pinch are looking for ways to cut back on costs without sacrificing quality service. Many have turned to outsourcing warehousing and fulfillment services as a way to eliminate fixed costs and increase supply chain efficiency.

Outsourcing warehousing services allows you to accomplish two main goals:

  1. Redirect your focus on your core business
  2. Convert a fixed cost into a variable cost

Today, I am focusing on the second goal – converting a fixed cost into an expense that can fluctuate with sales.

For publishers who handle their own warehousing, one of the hardest (if not impossible) things to do is to cut expenses by an amount equal to their decrease in revenue. This is because the biggest expenses are fixed expenses:

  • Rent – Landlords don’t care whether your building is running at 80% or 60% of capacity. They still want 100% of their rent.
  • Utilities, taxes, depreciation and building maintenance costs remain fixed whether the warehouse is at 50% or 60% of capacity.
  • Labor costs in the warehouse are very difficult to cut, especially if you already have a small staff.

By outsourcing, these items become variable costs, not fixed expenses, AND the responsibility for managing them is shifted to your fulfillment center. If orders drop by 10%, the charges for picking will be reduced by that amount. When you look at your inventory and decide to remainder a slow moving item, your storage costs (rent) will fall by each pallet you remove from the facility. In other words, your expense will fluctuate in a manner that corresponds to your level of activity.

Another advantage offered by Ware-Pak – Virtual Warehouse technology – helps publishers eliminate excess stock. Customers view their inventory items and orders being processed in real time. They see which items need to be replenished and which are fully stocked – eliminating excess.

Finally, because warehousing is our only business, outsourcing to Ware-Pak means more same-day shipments. Our performance records show that 90% of all files received by 5:30 PM CST will ship the same day – 98% within 24 hours.

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