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Don’t Repeat the FFL "Inventory Sins" of the Past

Over the last several weeks, the firearms industry has been booming thanks to public concern centered around COVID-19 and the societal impact it is having.  With millions of Americans concerned about the protection of life, liberty, and property; it’s easy to understand why demand has increased. 

The industry has seen demand spikes before; 2008, 2012 and 20016 being prime examples.  However, after each one of these periods gun shops across the country were forced to close.  One of the leading causes for shops going under was that they didn’t have a strategy to manage their inventory investment and made critical mistakes that caused them to tie up precious cash.  It’s easy to make these mistakes and any buyer that has been around more than a year or two has done it to some extent.  The trick is to have a plan to minimize the impact and avoid repeating the “sins of the past”.

Below are a few basic strategies you can implement to help protect your inventory, finances, and your overall business.  Please note that you need to adapt each of these to your comfort level, business model, staffing/resources, and financial position. 

  • Avoid inflated buying, no matter what your sales rep tells you

 A common strategy amongst sales personnel in the past ten years has been to advise ordering 100 so that you might get 10.  The thought is that the big orders will get you noticed by those doing allocations.  If you’re not careful and don’t watch your open order position, your vendors may very well ship you everything you ordered in full to make sure they capitalize on the sales.  Buy to your demand, as best you can forecast it, and don’t overextend yourself.  Remember, you can always order more!

  •  Be careful of a “shotgun effect” with purchase orders

This one goes hand-in-hand with avoiding overbuying.  Lots of businesses will place multiple PO’s through various vendors to get needed product.  This wide pattern purchasing approach can be a smart strategy and can help keep you in stock on needed goods when executed correctly.  However, if you’re not mindful of your open order position and how far you’ve extended yourself with each of your vendors, you can end up in trouble quickly. 

NOTE: If you overbuy while using the shotgun effect, be prepared for lots of stock to roll in and plenty of phone calls about your accounts payable balance.  Layering these two on top of one another leads to a compound effect that can happen before you have time to react.

  • Avoid "desperation buying"

When supply runs short, sometimes we’re quick to jump to any item that might be attractive to customers and help generate revenue.  Large investments in a non-standard product or brand simply because its available is a recipe for disaster.  Any purchasing decision should be based on the merits of the product, its appeal to your customer base, and your profitability.

NOTE:  I am a firm believer in trying new brands.  What is critical is doing it for the right reasons.  Give the new line a shot if it makes sense for your business.

  •  Be leery of vendors requesting pre-payment

Pre-paying for inventory to get more of what’s in demand has been a strategy of suppliers for years.  Taking a proactive stance to your AP position and not letting your balance get too large or extend too long is one thing.  But cutting a check ahead of receipt to a vendor that was Net 30 four weeks ago is a reason to find a new vendor!

  • Don’t pigeon hole your assortment

While 9mm ammo, CCW pistols, and MSRs may be the hot thing right now, don’t neglect the rest of your stock.  Things can cool off just as quickly as they heated up and leave you in a position with lots of stock that no one wants and possibly no room to buy more of what they do want.  Be confident in your assortment and keep a well-rounded inventory.

  • No price gouging, ever!

This one has nothing to do with purchasing, but it’s a valuable lesson that many learned the hard way over the last decade.  If you drastically increase prices, your customers will remember and thanks to social media they’ll make it known to the world.  I am a firm capitalist and appreciate the laws of supply and demand.  But this topic reminds me of an often-used line from a good friend of mine.  He’d say “pigs get fat, hogs get slaughtered”.

Be prepared to make mistakes, its going to happen.  But having a strategy in-place and clearly communicating it to the folks in your business (especially your buyers) will help you avoid the long-term impact that so many have suffered before. 

 

About the Author:  John Teachey is a trusted FFL Consultants preferred partner and has over a decade of experience in the firearms industry, specializing in inventory management, purchasing, and demand planning.  He’s worked in retail, distribution, manufacturing, and even defense contracting.  Contact John today for help with your purchasing strategies, product sourcing, vendor selection, demand planning tools, and item assortment.  Call (704)-351-0807 or email [email protected] to get support for your business.

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