This month, I want to focus on a topic every dispensary has to manage: inventory.
Over the last two years, we have employed a person within the company to purchase inventory. The problem and ultimately the downfall of the purchasing manager position is the lack of understanding of either inventory management or product knowledge. One may have a great understanding of the product, but not the experience you need to manage your inventory. On the flip side, you have those who understand inventory management, but lack cannabis knowledge.
As a company, we have focused on product knowledge over inventory management when it comes to hiring a purchasing manager. Ultimately, time passes and inventory needs adjustment, which usually means a discount to move product.
When asked why we have too much inventory, the answer is usually, “It was a great deal for the flower type we needed” or “Customers are asking for it” or my favorite, “I had to buy more to receive a better discount.” In the end, we are left with too much inventory, which means too much capital on the shelves. So I had to give the purchasing manager a better forecasting tool.
I had some spare time and we had two years of sales data to analyze, so I put together a forecasting tool for my purchasing manager to utilize. I developed an elaborate spreadsheet where weekly inventory and sales data are collected. The data is then entered into formulas and the purchasing manager is instructed to buy based on historical sales trends and current inventory.
When I started the development of the forecasting tool, I discovered we weren’t digging into the true need of what was moving product in the store, specifically flower. In the past, purchasing managers were deciphering needs and purchasing by flower type (indica, sativa or hybrid). However, we sell a range of inexpensive to expensive cannabis for each flower type.
In the past, the purchasing manager would buy a flower type regardless of the price, based on the general need and the popularity of the farm. This would leave the shop with uneven backstock within each product type. For example, there were times we would have an abundance of inexpensive hybrids and very few expensive indicas on the menu. We did not have the uniformity needed in our inventory to handle swings in customer demand. We needed a flower forecasting tool that included pricing tiers. So we broke the flower types into four pricing tiers: Deal, Low, Mid and High.
The forecasting tool created is a very powerful workbook we’ve named “The Buyer’s Guide.” Each week, our Buyer’s Guide forecasts what and how much is needed for inventory. Not what is needed tomorrow, but a run rate that gives us enough time to find the product we love and have it delivered. This tool has reduced our inventory by 50% and placed the emphasis on buying a great product for exactly what we need, when we need it.
The miracle is in the greens.