Inventory Item Categories and sub-categories

Adding as many categories as you require has never been easier, and now you can create sub-sub-sub-categories just as easily, providing additional inventory item sorting capabilities within SIMMS.

Get the most ROI out of Inventory Management Software utilizing Categories and sub-categories

Your first tip is a very simple, yet very powerful method to increase profits. And it is something you need to start doing right away! Let me explain...

When you first start using your inventory management software, you need to add your inventory. Right? You take each piece of merchandise and enter the item number, cost, selling price and other pertinent information into your inventory system. Then when you sell those items, the software remembers the details of each transaction -- so you can pull up a variety of reports at a later date. For example, you can pull up a report that shows how many XYZ widgets you sold yesterday. Now this is powerful in itself, but there's a much more powerful way to utilize your inventory control software.

One of the MOST important steps to getting the most out of your inventory management software is to properly assign categories and subcategories to each inventory item (if you're a softlines retailer, you probably use the term "classifications"). In any case, few retailers use categories and subcategories correctly. And this is an absolutely essential step to getting the most from your inventory management software.

When done properly, categorizing your merchandise can give you powerful information that enables you to manage your business much more effectively. Let me give you a simple example and then show you how to utilize this information to maximize your profits:

Let's use a sporting goods store as an example. A typical store might have categories like: Fishing, Hunting, Clothing, Footwear, and Camping. Then each of these categories could have subcategories within them. For example, the "clothing department" might have subcategories like: Jackets, Hats, Gloves, Pants-Shorts, Underwear, and Shirts.

Seems pretty simple, right? Hang on - there's more to it...

First of all, as a rule of thumb you should not have more than ten categories and ten sub-categories with in each category (that's a maximum of 100 total subcategories). If you assign over 100 categories, you'll end up with too many insignificant categories that account for less than 1% of your business. Many retailers think they need more categories, but even the largest retailers in the world manage their businesses with great success by using less than 100 categories (including WalMart).

The technical definition of a category is a grouping or assortment of merchandise that the customer finds interchangeable. When creating your categories, think about what your customer is going to buy. For example, if a customer walks into your store looking for a tent, they probably aren't going to buy a bicycle. But they might choose a different size or brand of tent. Therefore, tents could be a category.

Now comes the interesting part...

Once you have categories assigned to your merchandise, you can use SIMMS inventory software to quickly create some very powerful reports. Here's one example:

Sales total for August 2004:

Category

Sales

Cost

Profit

Profit %

Jackets

$3000

$2550

$450

15%

Shirts

$1200

$900

$300

25%

Gloves

$500

$300

$200

40%

Department total:

$4700

$3750

$950

20.2%

 

 

 

 

 

Category

Sales

Cost

Profit

Profit %

Tents

$8000

$4100

$3900

48.7%

Sleeping bags

$6000

$3500

$2500

41.6%

Air mattresses

$5800

$3000

$2800

48.2%

Department total: 

$19800 

$10600 

$9200 

46.4%

This might seem like a bunch of numbers, but the key to maximizing your profits is how you utilize this information. Here's the trick...

First of all, you need to look at your sales and profit margin for each category on a daily, monthly and yearly basis. Then ask yourself the following questions.

If the profit margin for this category is HIGH, ask yourself:

  • Why is my profit margin high?
  • Are my sales totals high or low for this category?
  • Should I dedicate more floor space to this type of merchandise? Will I sell more if I do?
  • Should I train my employees how to sell and push this merchandise?
  • Am I running out of stock and losing sales in this category? (Your Inventory Management system should have another report to quickly give you this information.)
  • Which product lines are making me the most money in this category?
  • Should I order more of a certain product line that is very profitable? (Hopefully your Inventory Management System offers an easy way to drill down and view this information. You also need to assign a manufacturer/product line to each inventory item to have this information available.)

If the profit margin for this category is LOW, then ask yourself:

  • Why are my profits low?
  • Are my sales totals high or low for this category?
  • Should I stop ordering this type of merchandise and eliminate it? Can I replace the empty floor space with something that's more profitable?
  • Which product lines are making me the most money in this category?
  • Should I switch product lines?
  • Can I find a supplier with better prices?
  • Can I negotiate better prices with my existing supplier?
  • Did the profit margin in this category change from yesterday or last month? Why? Do I have a pricing error? Do I have an employee discounting without permission?

I can't stress how important it is to analyze your financials on a daily basis. Small adjustments can make a huge difference on your bottom line. But you need to be careful about jumping to conclusions. You need to consider other factors that might skew the numbers, including over-stock clearance sales, lost leader discounts that get customers in your store, and the proper product mix to keep customers coming back.

In addition, you need to collect enough historical data to make accurate decisions. That's why it's so important to categorize your merchandise right away and start collecting data. That's one of the first things you should set up in your Inventory Management software.

Categorizing your merchandise is a very important retail management fundamental that successful retailers have used for years. You can (and should) implement this concept in your business. However, SIMMS Inventory Management Software makes it much easier, saves time, and gives you the reports in real-time.

IF the ability to categorize your inventory your way is important to you then SIMMS is the correct solution. So what are you waiting for? contact us (604-504-7936) by phone or by e-mail (sales@kcsi.ca) so we can help you take the first steps towards the solution you have been seeking.

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