Inventory Management: 4 Keys to Improving Holiday Inventory Management

The operating cost of a back order to a direct retailer can easily be $12-$15, for example. If the gross margin of a product is only $10, the retailer must question whether to pursue the sale when each sale loses money. When faced with overstocks, it's necessary to understand the trade-off between lower in-season gross margin and the cost to liquidate the inventory through an alternative channel. When evaluating an incremental purchase, the cash flow impact of increased inventory must be considered when the minimum order quantity exceeds anticipated near-term demand.