Inventorying moulding--yes/no?

Mike LeCompte CPF

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Awhile back I pondered why inventory poster/prints. Some good discussion. Now wondering the same thing about moulding.

Why inventory?

How many people REALLY want the job in two days?

If you didn't, how much more space could you devote to retail sales?

If you didn't, how much less money would you tie up in inventory dollars?

OK--it's great to spend $.65 per foot by the box and markup to $12 per foot--BUT how long does it take to sell that box? Again==is there abetter way tospend or use that inventory dollar?

I know there are other such questions but bottom line is: Is inventorying moulding really worth the space/financial outlay or is the dollar better spent elsewhere???
 

Jay H

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You mean there are shops that don't inventory the known movers?
 

Steph

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That is really going to depend on your available dollars for inventory, whether you have the space for said inventory and the service level you want to offer your customer.

In the future I would like to offer more key mouldings for just that purpose. Right now I can only stock a couple of mouldings. I have to hammer my reps as best possible and be very aware of what shipping costs, etc are.

At this time I am comfortable with the set up, especially since I do not have the space neccessary to stock large quantities. I order as needed, and group orders together whenever possible, adn leave chops only for metals.

I can be more competitive in my area by not doing chop. Since thee are several shops in my area that do only chop and I am familiar with their price point. There are also a couple of others that do stock. There stock is limited and they do not produce the quality that I can offer.

My last point is that if one decides to stock, purchases have to make sense. If you can get a box of moulding for dirt cheap, but it is not aesthetically pleasing, poor quality, and too much waste factor then no it doesn't make sense. THe purchasing choice needs to be careful and justifiable. If you can't move it then there is no point.

Many shop owners out ther have been very successful selling what they stock. I feel it takes a constant critical look at inventory to have this be successful. No one wants to be left with a dog moulding at the end of the month.
 

Richard Darling

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Since my main suppliers can all have my orders to me within days, stocking inventory doesn't usually make sense. The cost of having inventory sit gets too high. Plus, I never know for sure if a moulding is going to be a "mover." It may be moving today, but tomorrow?

I buy length, and generate more scrap than I can handle.
 

stud d

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Mike I am not sure how long you have been in business, but if you speak with your reps you should be able to get an idea of what you really use. If you have a computer system it may tell you as well. If you use this and purchase the items that you use 300 foot a year, than it makes great sense. It also is smart to have mouldings on hand for jobs that need to be rushed thru. Having a couple of each, gold, silver, black, wood, and something a littl e different I think can be good. Now wood I stock 300 feet of all? No if I am in an area that has trucks in my area, that I can get in a couple days. I would do 50-100 of each-of course this depends on what you do and how busy you are.

PL
 

Jay H

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If bough properly, you can often pay for an entire box with a frame or two.

That really shoots holes in the "overhead" theory.

I think I'm up to about 1200 samples. I'll bet I haven't sold 40% ever. Another 30% I sell infrequently. That last 30%....well that’s a diamond waiting to be harvested. You can bet I will keep those on hand. It only makes good sense.

If you have it in stock, its amazing how many times you will think its the perfect moulding. Run it on "sale" and see how it works on ever more pieces.

All of this translates into money in your pocket.

Ohh and one more thing. Maybe suppliers will let you order from say International, Framerica, Omega......they receive the shipment and bring it to you on their truck. That also shoots holes in the shipping problem.
 

Paul N

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I am with Jay on this.

There is a moulding that I sell at least 2-5 per week.

I used to buy this by the 100 ft length. Now, per box. The box occupies about 3.5 times the space of the 100 ft bundle and is shipped by truck at no charge.

A situation like this really forces me to buy by the box.Sometimes we go through a box in 4-5 weeks.
 

wpfay

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I guess it depends on how much retail turnover you could be getting from the space otherwise.

I stock somewhere between 80 and 100 profiles. Some are box moulding /program stuff, and others were just too good to turn away. I also have a second building (480sf) on property to store the moulding and house my saws. Works for me, but I would certainly be thinking differently if I were in a high $/sf situation and had frequent free delivery and a program discount from my major suppliers.
 
E

El Framo

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We had a rep come in the other day showing some dicontinued/overstock mouldings. Several are going to be great sellers for us and were only .29 cents a foot. Storage space is not an issue, and we chop most of our frames. This was a no-brainer for me, especially since there was no minimum.

There are times when (knowing your own market) you can't afford to not take the plunge.
 

Framing Goddess

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Another echo here.
I have my moulding workshop and storage in the basement. It is no use as a retail space. The landlord rents that to me dirt (no pun intended) cheap. I'd be foolish not to have a few boxes of hotties there.
On another thread recently I read of Cathie's shock at UPS rush charges for a few chops. Maybe these were for chops that she would have had to order anyway, or maybe they were of a moulding basic enough to consider stocking.
Once you factor in the ever increasing shipping charges, the difference between chop and length is greater and worth re-evaluating regularly.

edie the aestheticallypleasing goddess
 
T

trapper

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We pride ourselves on fast turn around. I can only do this if I have the material in stock. For us this is a great sales tool. It's our cutting edge.
My biggest problem is not having celing space, so I have to build seperate bins for themn to lie down in..Thats the hardest and spendiest part. But even then having them in stock and fast turnaround is our edge. Pays for itself.
I seldom have a customer wanting a precise frame size. SO chops are kind of out for us. Once in awhile I will order a chop only because I am to lazy to do the job myself. Usually I save the chops for huge prints.
 

DTWDSM

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I echo what Jay said. And if you pick a moulding that ends up not being a great seller you can just toss it because you should have covered the cost in a couple orders.

Mike, I can understand the prints, but moulding? You should be stocking at least your top 10 mouldings if you have the room. If you don't have the room, find some!

We stock 50+ mouldings, and are always adding as sales warrant.
 

Bob Carter

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I think that inventory control is like any other tool; used properly, it can be quite productive. Used poorly, well, you know th erest

But, Steph, I have to ask. You mentioned that you can be more competitive by not doing chop. I'm sure I understand your point, but don't get in the habit of using that lower cost to instantly pass it through in lower retail prices

A frame that you retail for $10/ft shouldn't be higher (or lower) just because your costs are less (or more). A $10/ft frame should be $10/ft because the market will pay for that much

Now, if you have a great buy and you can turn that advantage into a selling advantage, then you're on the right track

I must tell you that I know framers that really do charge more for frames bought chop than for th esame item bought length
 

Jim Miller

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Originally posted by Jay H:
...That really shoots holes in the "overhead" theory...
I dunno about that, Jay.

For the record, I agree that stocking moulding and doing your own cutting & joining provides the most versatility and flexibility in production, adn the best quality control. We stock 50-75 profiles, but display over 2,000 samples. Roughly 50% of our sales dollars are in stock mouldings. The rest we buy in length as needed, or in chop.

Some years ago it was most prudent for a frame shop to have all the in-house capability he could afford, because that clearly was the business format that led to greatest profitability. But is that still true?

It is possible to run a perfectly profitable framing business these days in a 400 square foot shop (back room, that is) with a CMC, a wall mounted cutter, a 48"x96" fitting table, the usual hand tools, and no cutting/joining equipment. I find that idea increasingly appealing.

If storefront space costs $16 per foot, a 400 sf back room space would cost $6400, and a 1000 sf back room space would cost $16,000. That $9,600 difference would pay for a lot of chopped & joined frames from a supplier, not to mention avoiding the cost of buying and maintaining a saw, sander and underpinner. And not to mention avoiding the cost of labor to make the tools useful.

By my calculations, if I could rent an 800 sf space (Ahhh, therein lies the rub), half gallery, half shop, I could operate this business at its present volume of revenue and frames built, all by myself and earn considerably more profit than I presently earn.

I dare say most other framers, including you, could do the same right now, like today. And that kind of framing business concept will grow in popularity as rents, wages, overhead, COGS, availability of supplies, expertise of suppliers, and volatility of the market continue on their present trends.
 

Emibub

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I sell at chop prices and usually order length. My thoughts on it are length may be cheaper and it usually is for me but, if you charge less because you are selling at length prices you are hurting yourself because most of the time you get more than you ordered or charged the customer for. So, it ain't as cheap as it appears to be. Although, when I do the math length usually comes out cheaper for me, but I am not going to pass that on to the customer.

I am in the process to try to make some room to keep some box stuff, although space is at a premium here. I feel it is going to be the best way to try to compete in this world of Walmart mentality.....
 

johnny

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If you're good at figuring what and how much should be stocked, stock it.
If you're not good at it, don't.

I'm not good at it, as evidenced by a few bins of Arquati Colorwood and strange patter laquers, some Max with horsies on it, a little rustic Stewart and my god I think there is some Piedmont back there. I don't stock moulding anymore.

Well, except for metal poster moulding, a couple basic blacks, a couple woods, and a couple golds and silvers.
 

Warren Tucker

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Good grief, Bob, you must have been asleep in MicroEconomics. Sure there is a market for that moulding at $10.00/ft. because, as you pointed out, it has sold for that much. But, there is a larger market for that moulding at $7.00/ft, and I think my experience has shown that the larger market is maybe larger than you imagine. But, then, I remember that you subscribe to the theory that the demand for picture frame moulding or frames is inelastic. I can assure you, it isn't. Think of how large the market might be at $5.00/ft. That's what I'd sell it for.

Have you been paying attention the the demand for plasma and LCD TV's? As the price has dramatically dropped, the demand has risin dramatically.
 

Warren Tucker

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I'm having a hard time with this, Jim. You think the market rewards inefficiency, and, believe me, the model you just laid out is very inefficient (it's also why the public perceives framing as being very expensive), and Bob thinks the market for picture framing is inelastic. I'm sure there are isolated distortions in the market that allow people to get away with that kind of thinking, but not for long.

If retail space is too expensive for storing moulding and housing fabricating equipment(and I don't think it should be because I'm convinced that framing is a destination activity), store and house somewhere less expensive, say in an industrial park.

We stock 85% of the mulding we sell and 100% of the glass, mats, backing, etc. and we have production equipment for fabricating; we are very efficient and we do a heck of a business because our customers recognize our efficiency in the form of very low (for our industry) prices. And, get this, Wilmington is a small market.

How efficient can you be? Here's an example:we are in the process of ordering 8 tons of glass from the best glass factory in China at, get this, $.18 sq. ft fob Wilmington. That's less than the fuel surcharge on glass from our current supplier. (Maybe he thinks the market for glass is inelastic). The only problem, the factory packs glass in hdl cases (4,000 lbs) while our fork lift is rated at only 3,000 lbs (which will easily handle the ldl cases we've been getting. The factory says they're working on the problem. Are we whining about how to store the glass? No; we can wrap it in tarps and leave it outside. This glass is cleaned and interleaved with paper. How did I hear about this deal? People know we're always about cutting costs. Can't compete with China? Buy from 'em.
 

Jay H

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With chop houses charging up to and over 2.5 times over box for a chop, I can't see how that can be casually overlooked by a business.

I like to buy at trade shows where you get 1/2 box for a minimum length. Under that circumstance you’re looking chop prices being as much as 5 times length.

Our money is made from moulding primarily. If you are paying 5 times what I do, you are at an unbelievable disadvantage. If you pay $14 for a profile that you could get for less than $6, then how many feet does it take to lose the $9600 savings in rent? Not to mention losing the selling advantage of quick turnaround and sales?

I think it wiser to have a nice mix of on hand and on demand.
 

stud d

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I think you really need to stock the stuff you sell a lot of, if not you are simply loosing money. We all know you get better prices on length, even better on boxes. I think you need to know the market before you, buy by the box. Too many folks get wrapped up in buying the stuff they think is a good deal and not what they sell. These are two different things and must be recognized.

Think Jay's last paragraph is right on, have a mix of what sells and sell more of it.


Side note, not trying to hijack!! Ok I got to say I am impressed by Warren...I have been to Wilmington. Unless I am missing something there is not alot there. To have two shops running and employees for many years, I am impressed. Next time I get that way I have got to come by.

PL
 

Bob Carter

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Hey Warren-The point I was attempting to make was to distinguish between pricing models when pricing by chop costs vs length costs.

For example, if a person can (and does) get $10/ft based on their chop costs, should they automatically lower their retail price because they bought it for less at length?

Two very important factors are at play here for the average framer (and let's face it, our friend Warren is hardly average)

The first is that most simply do not have a critical mass sufficient to make those pricing adjustments sustainable

and the second might easily be that almost all pricing is acquired by set multipliers in POS systems

Both of those issues render our suggestions moot

But, let's face it Warren, it just won't be as much fun if we agreed much, would it?

What Warren does is truly remarkable and the simple answer might be that anyone could easily do exactly what he has done. He has taken a page right out of Sam Walton's plan

The difference is that just like so many others that have failed attempting to copy Sam. There is an inherent quality of what they do that is just about impossible for the avergae person to duplicate

I have often said that if I was starting over, I would probaly pick a smaller market, buy exceptionally well, undersell the fractured competition by significant differences and dominate that market. Then provide a pretty good product, control my costs like a demon, and grow to a point where I could leverage my volume to extraordinary discounts in an industry that sees operators like that once in a great while
I was awake for that lesson
 

Mike LeCompte CPF

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another factor in the equation: what's your sq ft cost? If your space is $25 per sq ft or another person is $10 pe sq ft, now what's the response? Put another way--is the sq fottage taken up by moulding bins worth more in that endeavor vs. showing more of another product?

so OK I'll spend a coupla grand on box moulding: how long does it take to recoup that investment at $30 pe sq ft retail rent with the sq footage of the space for moulding bins vs. some other more profitable product?

Or IS ther a mor profitable product than length box moulding?
 

Puppyraiser

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Every time I get hot on the idea of stocking our best seller, I remember the Unfortunate Case of the Black-with-two-gold-lines Moulding. It was far and away our best seller, so we ordered a good chunk of it and hardly ever sell any of it. Instead, we get good-looking-but-cheap mouldings and run them at 30-50% off every day and actually MAKE money!
 

Bob Carter

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Mike-I think you can make that argument if every single sq ft truly has great retail value. I hav ebeen in many spaces and there are simply spaces where that "dark corner" or back of store just won't yield sales results equal to more prime locations

What will work for you? Do your own math-Take that same space and try and convert it to "sales floor" first to see what the true value of that "sqft" truly is

We may be arguing about a difference without a distinction, my friend
 

DTWDSM

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Mike,

If you want a more profitable product I would say you should get into a different industry. In our industry the moulding is where it is at, at least if you buy right as Bob says.

Buy some Framerica and start to see your profits go up.
 

DVieau2

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I find that it makes good sense to keep lengths of OEM metals in stock but thats it. The decision to buy length or chop is done on a job by job basis.

The best bargain for a retail store owner is to rent a self storage unit.

$3.50 per sq.ft. vs $28.00 per sq.ft. I have shelves 12 ft high.

It frees up store space for retail sales. It keeps the store from looking like a pig pen. Allows me to buy supplies in bulk. And..... allows my wife park her car in the garage when its 20 below zero. That's priceless.

Doug
 

Mike LeCompte CPF

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OK folks, I'm convinced. We had suddenly had a run on some of our inventory due to corporate work and realized our inventory ws being depleted. So that's the reason for the questions.

Tim and Bob's suggestions will be taken--as always. Off tomorrow to check box prics from a coupla suppliers sowe can reload the inventory bins again.
 

Jim Miller

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Originally posted by Warren Tucker:
I'm having a hard time with this, Jim. You think the market rewards inefficiency, and, believe me, the model you just laid out is very inefficient...
Thanks for your insights on how to operate a large framing business efficiently, Warren. Your advice seems to be that we inefficient small shops could start being more efficient by selling ten or twenty times more framing. That seems simple enough.

Since you're "having a hard time with this", let's make it easier. Your business is not typical. Custom framing businesses in most markets average less than $300K annual revenue. Do you really think most of us could improve efficiency by buying glass in any number of tons?

For a framing business considerably larger than average, renting a second location of warehouse space would probably be less profitable (read: less efficient) than doubling or tripling the net profit from a storefront gallery by buying the same small quantities smarter, paying less in wages, limiting production, and otherwise improving profitability of the business in a form similar to its current existence.

For a typical framing business, rather than buying a pallet of glass, it is more profitable to stock only a few boxes. Rather than stocking boxes of moulding, it is more profitable to negotiate the best deal with a local supplier -- even if it is 50% higher priced than a far-away supplier -- and take advantage of free, twice-a week deliveries of chops and even joined frames.

On the smaller financial scale by which most of us prosper, efficiency does not come in truckloads. When my business produced considerably more revenue than it does today, I took home less money than I do now, and it was less fun.

I don't think the market rewards inefficiency, but I know it rewards profitability. Would it be efficient for a $300K framing business to pay $1K more rent per month (plus the added transportation/handling costs), for a second warehouse location? Would it be efficient for a small shop to buy a year's worth of any inventory item? One inventory turn per year is not what you would call efficient, is it?

Congratulations to you. I'm not saying you aren't doing business the right way. I'm saying that the efficiencies of your business may not work for most of us.
 

Warren Tucker

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Jim, it’s been so many years ago since we started buying glass by the case (over 23) that I can’t remember for sure, but my guess is we weren’t doing over $300,000. But even at 300,000 a year, we were selling a heck of a lot of glass. Buying by the case allowed us to make more money on the glass we sold and, at the same time, lower the cost of glass to our customers. Win/win. An added bonus to buying by the 2,000lb. case is that it was actually easier to handle than, say 12 boxes at a time. It takes less than 30 minutes to receive and open a case of 36 x 60 glass and once it’s opened it’ll last a month or so. Back then it would have lasted several months. And, too, a case of glass is very compact; it took up less space than the boxes we had been using.

I can’t believe this turnover nonsense. Every time you sell a lite of glass, you’ve “turned over” a lite of glass whether it came in a case of 110 lites or you just bought one lite yesterday. If you sell 500 lites a year it doesn’t matter how each light arrived; you turned over 500 lites. Sure you only turned over 5 cases a year, but you’re not selling cases, you’re selling lights. How you buy the lites is important. If you buy
them by the case, you pay about 40% of what you’d pay if you bought them by the box. That’s a big
difference. I don’t know what you do with your money, but if you’re making 60% on it then you might be smart not buying by the case if you possibly could, otherwise,....

The same holds true for moulding, too. You sell 5 ft. of moulding in a frame, you’ve turned over 5ft. of moulding.

As to efficiency, I really can’t understand your reasoning. Anyone looking at this subject surely must realize there are different aspects of efficiency, but let’s consider two: micro efficiency, what your do in your store, and macro efficiency, what happens in the market as a whole. When I argued that you were proposing to profit by being inefficient, I was talking about the latter. Micro efficiency I take as a given; we’re all shrewd enough to run our shops efficiently. Macro efficiency is a different matter.

How many posts on the Grumble bemoan the passing of small frame shops? Ho many complain that we
(small framers) simply can’t hope to compete with the big boxes? This is the issue I’ve been trying to sort out. From my first post on this forum, I mentioned that not only could small shops compete in prices but that I was already doing it My point has always been that not stocking what we sell is inefficient, and it is. By and large, the picture frame market is very inefficient and that’s why big boxes can compete; they’re
just a little more efficient than the small shops. Actually they’re just a lot of small shops ordering from their supplier just like the independents. Their edge in efficiency occurs because they’re vertically integrated:
they supply themselves. I’ve been trying to point out that this vertical integration isn’t nearly as efficient as the independent shop supplying itself.

Embrace the greater efficiency and the market will reward you. Eventually, the market will punish you if you don’t. These are lead pipe corollaries in Economics.

It really isn’t difficult to stock moulding. We rented our first storage room the first year we were in business. We kept the boxes there and brought the moulding in as we needed it. We were in business for over 20 years before we ordered our first chopped frame and we’d been doing quite well. Now we probably sell5 to 10% chopped frames always telling the customer that what we stock would be a much better deal.

Hardly anyone starts off big; businesses grow, and I strongly urge very small businesses to grow through expanding their market. You expand a given market by increasing the number of potential customers by offering lower prices. You offer lower prices by embracing efficiencies available and stocking moulding is a very available efficiency. Admittedly we carry a lot of inventory but our entire inventory is a very,
very, small percentage of our gross sales. Our cost of goods sold is less than 20% of sales and our inventory is less than 5%. Even more interesting, our entire capital investment is less than 10% of sales and much lower after figuring in depreciation. That’s interesting because it implies that anyone can enter this market very easily. There haven’t been a lot of players so far, but that could change.
 

Bob Carter

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Warren-I agree with pretty much everything you say, (which means you may wish to rethink your thinking LOL)

But, I must ask if by indicating that your inventory costs are 5% of sales that you turn your inventory 20 times annually? That is more than remarkable

If I understand your numbers, I'll break down what I think you mean and tell me if I'm wrong

Assume annual sales of $1200 (or $100/month) and inventory costs are 5% , or $60 at retail. You have a 20% CoG, does that mean you have a "standing inventory" on a monthly average of $12 (at cost) or is your inventory based upon the monthly sales of $100, or $5 retail or $1 at cost

Either scenario is spectacular
 

Richard Darling

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You expand a given market by increasing the number of potential customers by offering lower prices.
You can also expand a given market by doing something no one else does, doing something better than someone else, or convincing the customer that, for any reason, they are better off doing business with you. Low price is one way to go, but not necessarily the only way to expand a market.

I can’t believe this turnover nonsense. Every time you sell a lite of glass, you’ve “turned over” a lite of glass whether it came in a case of 110 lites or you just bought one lite yesterday.
The issue with inventory relates to cash flow, not a per-item profit. If you stock up on any inventory at a great price, but run out of money to pay other bills, you're dead in the water. Small shops like mine have to make sure that inventory purchases turn, or the money is sitting in storage instead of my bank account.
 

Jay H

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The idea that big volume = poor quality is inaccurate.

Having seen Warrens setup, I would put his framing against anybody on the Grumble. I'm not saying its the best, but certainly on par.

I'll bet his equipment and his staffs experience would rival that of a chop house doing 4000 times our volume. Heck he has equipment that I haven’t seen at even a trade show.

I think big volume = superior quality.

Also for a cheap framer, he sure does claim to move a heck of a lot of those coveted closed corner frames too.
 

Jim Miller

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Originally posted by Warren Tucker:
[QB] ...I can’t believe this turnover nonsense. Every time you sell a lite of glass, you’ve “turned over” a lite of glass whether it came in a case of 110 lites or you just bought one lite yesterday...
Nonsense? Inventory turnover is generally considered to be important. If it were nonsense, why not buy a hundred pallets of glass at a time, or a thousand? Gosh, you could probably save another 50% of the cost if you bring in a ten-year supply.

There is a point at which savings of price and acquisition costs justify a larger buy and a slower turnover of inventory dollars.

On the other hand, there is also a point at which money earns more in a savings account than it does in boxes of moulding or pallets of glass collecting dust on the floor.

As to efficiency, I really can’t understand your reasoning... there are different aspects of efficiency, but let’s consider two...
Let's consider a third efficiency; that of working capital. Buying a pallet of UV-filtering glass, I could save about 20% of the price I pay for it by the box. (I have checked.) The price of floor space and borrowed money to buy that quantity would nearly equal the savings, and then I would not have use of that money. Instead of borrowing to buy inventory, I take fast-pay discounts on negotiated-price, smaller buys and put my leftover capital in savings, where it earns more money. My efficiency is not the same as yours, but it puts more money in my pocket than your kind of efficiency, for my small business.

...How many complain that we
(small framers) simply can’t hope to compete with the big boxes?...I mentioned that not only could small shops compete in prices but that I was already doing it...
I agree that price is not the problem for a carefully operated frame shop, no matter how small. So, all of this stuff about inventory and efficiency may be moot to that issue.

Often the real issue is that the small shop can not match the marketing pull of larger competitors. That is, they can not get enough customers to come through their doors -- regardless of how favorably their prices actually compare.

...My point has always been that not stocking what we sell is inefficient...
Not necessarily. My local distributor pays a staff of pretty good framers to cut chops, and they have a fleet of trucks to bring them to me. They can do that work for me much more efficiently than I can do it for myself, even after I pay them a profit to do it.

You are saying that instead of paying my supplier a profit to stock the moulding & chop it for me, that I should rent a warehouse and pay another employee to do it all in-house. Nope. About half of the frames I sell do come from my stock, but I care not to stock the other half.

...that’s why big boxes can compete; they’re just a little more efficient than the small shops...Their edge in efficiency occurs because they’re vertically integrated:
they supply themselves.
Their efficiency works on their grand scale. It does not work on my scale, and I do not see my business growing to that point. Instead, I choose to operate efficiently on a smaller scale.

Embrace the greater efficiency and the market will reward you. Eventually, the market will punish you if you don’t. These are lead pipe corollaries in Economics.
No argument there, but there are different kinds of efficiency that result in profit for businesses of different sizes. The problem comes when a business fails to find some efficiency that works to earn and retain profit.

It really isn’t difficult to stock moulding.
Of course not. The difficult part is selling it.

Hardly anyone starts off big; businesses grow, and I strongly urge very small businesses to grow through expanding their market. You expand a given market by increasing the number of potential customers by offering lower prices.
If that works in your market, go for it. In my market, lower price is not the key to growth. My prices are competitive, but if my frames were half the price of my larger competitors, that would not bring more customers through my door. Consumers simply do not believe my little store could offer lower prices than the giant that advertises 50% off. Consumer perception is the issue, not price.

After a couple of decades in the distribution business, I learned a bit about the time-and-place value of inventory. If buying more inventory were the key to growing my business, I would have succeeded with that long ago. Sadly, it is not so.

On the other hand, I know a few framers who spent more on inventory and square footage than their revenue could support. They tried to fuel growth by buying, but their sales fell short. They failed.

Our cost of goods sold is less than 20% of sales and our inventory is less than 5%.
If your inventory is less than 5% of sales, that means your investment turnover is more than 20 times a year. I respectfully submit that you may be buying too little.

In a labor-intensive business like framing, inventory dollars should turn at least 6 times a year. At the average framer's 20% to 30% gross margin, with such slow moving inventory, the money would earn more in the bank. That is, a typical $200K frame shop should carry no more than $33K in inventory.

But if the inventory turns over more than once a month, then it may be profitable to negotiate a better deal and buy more. Even if the price advantage diminishes, lower administrative & acquisition costs also represent real savings. That is, if a $2Million business stocks less than $133K, then those extra dollars in the bank might be better spent to reduce order processing, accounting, and shipping/handling costs.

The point is, keeping a balance of inventory to other costs and revenue is important. Selling from an empty wagon is difficult. Pulling a wagon load of old inventory without sales to justify the investment is also difficult.
 

Bob Carter

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Jay-You are right on the button about quality

We do hear it all the time and it seems to be one of those feel good slams against those whose biggest fault is superior sales

If quality were a byproduct of size and volume than I guess we could make the statement that Jay Goltz's group must be about the lousiest framers in the industry

Jim-When you make the argument about turnover I completely agree. Keep in mind that in the $200K scenario you described, the inventory of $33K is at retail. With a CoG of around 30% that would be a standing inventory (at cost) of about $10K

While we buy inventory at invoice values (cost) we do list sales at retail. For this discussion, we need to be sure and "convert" apples to apples

Bottom line: Warren runs a tremendous operation, and while his practices are absolutely correct they apply to less than a handfull. The lost "qualifier" is critical mass coupled with an inherent managerial skill

Make no mistake his lesson is valid and he is quite correct by suggesting that the same path is open to anyone. But never forget that his personal ability is the wild card in this hand. While any of us might get cards dealt from the same deck, not all of us can create a winning hand

While people like Warren may not be in a class by themselves, it sure doesn't take long to call roll. If ever the Collins Dictum can find an application, this thread might be the poster child

Let's applaud great operators like Jim at his level and concept as well as Warren at his level.

While most of us should align with Jim from necessity, all of us should aspire to Warren from motivation. If anyone can learn and successfully adapt even a single "good trait" from both of them, their businesses will prosper
 

Warren Tucker

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Wilmington, NC
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Bob, I just got back into town and read your post with the question about my inventory figures. I guess I'm addled because I can't understand the question. Let's say our sales are 7,000 per year, the value of our standing inventory is somewhere around 400. Does that help? That's probably a little over 5%, closer to 6 but is an accurate ratio, I think. The 400 is what we paid for the stuff. The inventory fluctuates, of course; it's much smaller at the end of the year.

About every two years, Lynn, our framemaker, goes through the bins, and using her knowledge of what she's been cutting culls out the stuff that isn't selling. We gather it all together and have a warehouse sale and move it out at more than we paid for it. We sell it by the stick and artists fight over it. We offer to cut and join this molding for $6.00 a frame. We'd have a pretty good business just selling molding this way. I honestly don't think we've ever lost money on molding; we can always sell it for more than we paid for it.

Jim says he can get a 20% discount for buying a pallet of uv glass. If he knows he can sell that much in, say 6 months, that would work out to return on his money of 40%. If it took him two years to sell it, it would still be better than 10% because he's not going to have all of his money tied up for that long. Not a bad deal.

I don't know if you would consider those figures spectacular, and if we we ran a reasonably tight ship, which we don't, those figures could be substantially impproved.
 

Bob Carter

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Hi Warren-Being a numbers guy, may I suggest that your actual turns are about 3.5, still respectable

There is actually a method where you multiply your turns by your margin to get a better idea of where money comes from. A lower margin with higher turns yields more gross profit dollars. And, that my friends, is the hallmark of Warren's (and Sam Walton's) operation

The biggest problem in doing the model that Warren espouses is that you cannot do it halfway. And everyone that has seen Warren's operation affirms that he does not do anything halfway

For the under-captalized (like so many) you have to be ever so skillful in determining where to allocate major inventory purchases and where to keep that cash a little freer. But, in every single scenario where you have an inventory rich operation, you had better understand the mechanics of aggressive marketing.

It's tough to pay your landlord with a half pallet of glass

Warren-I must say that when I read your post I was getting ready to book a flight to NC
 

ahohen

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May 24, 2002
Posts
127
From
Raceland, Louisiana
Hello Grumblers...

April 1 - May 30 is the time of the year (every other year) that I stock up on everything..

100 boxes of 36 x 48 regular glass (500 sq. ft.)
20 boxes of 3/16 foamboard
10 boxes of 3/16 acid-free foamboard
60 (+-) boxes of mouldings (restock, some new...)
20 boxes of sgl bevel Bainbridge mat cutter blades
10,000 various size pan head screws
50 largest rolls of 1/2" ATG tape (Specialty Tape)
12 rolls of kraft paper (18", 24", 30", 36" rolls)
etc. etc. etc.................

It feels so good to have all this in stock. Many distributors have specials on various items about this time. If they don't, by ordering a large amout of an item usually results in a substantial discount.

I say "every other year" because what i listed would last me about 2 years, but, if i can get any of the items at "one-heck-of-a-deal" I will order more of the item. Moulding that are the "best sellers" and "new" mouldings are ordered year round... IF the price is right. lol ajh

I consider my business to be an "average" shop. To large frameshops the amount of moulding, tape, screws, etc i stock up on is just a "p**s in the wind" for them, but for small frameshops, they would have to rent a storage shed.... lol
 

Rick Granick

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If you buy two years worth at a time, doesn't that result in exceptionally high inventory (read: personal property taxes) at the end of year one? Also, some of the items have shelf-life issues at least to some extent (i.e. ATG and reg. FC), not to mention the cost of storage space. In your particular situation, maybe that is offset by savings by buying in bulk.
kaffeetrinker_2.gif
Rick
 

ahohen

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May 24, 2002
Posts
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From
Raceland, Louisiana
Rick: One year is is a little higher than usual, but the next year it is lower... Storage space? No problem. Shelf-life issue? Foamboards last even longer than 2 years in storage, glass, screws, mouldings, Kraft paper, etc. are no problem at all. There are very few items i do not purchase by bulk. ..
 

David Waldmann

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Originally posted by Rick Granick:
doesn't that result in exceptionally high inventory (read: personal property taxes)
That must depend on where you live. Inventory is not considered part of personal property tax around here. In fact, in our current town we don't even pay personal property tax.
 
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