✨The Secret to Balancing Profitability and Inventory Costs: A Deep Dive into GMROI✨
As I mentioned yesterday, GMROI is the synthesis of two independent variables:
1️⃣ Gross Profit
2️⃣ Inventory Cost
Consequently, optimizing for GMROI performance means you’re balancing these two variables. With the goal of increasing GMROI—especially for products performing below target—here’s how you can get there:
Decrease Inventory Cost: Strategies include:
- a) Reducing lead times
- b) Decreasing ROP by accepting lower service levels
- c) Negotiating vendor price concessions
- d) Negotiating a more Just In Time arrangement with vendors to hold replenishment until absolutely necessary (this will be more palatable to your vendor if you reduce payment terms)
Increase Profitability: Though this is the more difficult path in the short term, strategies include:
- a) See “c” above, which improves both sides of GMROI
- b) Reviewing ASPs for the same product across all customers, looking for inconsistencies that can be exploited
- c) Introducing “me too” new products at higher prices
- d) Increasing discount tier pricing
- e) Communicating price changes transparently
Pulling together the analytics to execute these strategies is where our firm excels. If you need help, regardless of your accounting system, feel free to reach out today!
Chase Morrison
https://lnkd.in/gQagk9iG
Feel free to reach out with questions or if you need assistance! If you’d like to improve your DIOH analysis capabilities, click this link.
