FINANCIAL CONTROLLER CENTER

Inevitably, products with high seasonality tend to engender tough decisions regarding incurring loss from keeping slow-moving and out-of-season products- such as a new collection of products like fashion apparel, electrical devices, and so on which are introduced on an ongoing basis. It’s possible that some models or designs may have good sales feedback, but others may not be quite so successful. Companies have to make decisions whether to keep the left-over stock in the warehouse or sell it all at reduced profit margins, or even with some loss.
In order to be successful, companies need to find the right products for customers. These products have to meet the trends and expectations of the market. For example, if a buyer has to select 20 new models out of 30 to be launched, due to the limitation of her budget she has to try to get the right items that will be saleable based on experience gained and analysis of sales performance at the outlets.
There are still other important factors affecting sales - such as the right price set-up, visual merchandising, advertising and sales promotion, and most importantly, the sales person who represents the company and the brand needs to acquire the relevant knowledge, skills and competency to increase sales.
Sales people normally expect product assortment to be complete as much as possible so that customers can have more choices. If a customer learns the size or colour of the product she need is not available, chances are she may feel disappointed and decide to leave the shop to find what she needs from others. This situation may pressure the company to keep additional stock which could result in over-stocking.
The percentage of product sold during a period as compared to the beginning inventory, or so called sell-through rate, can help determine the sales performance of each product. This information can disclose which product item is not selling and needs some corrective action. There are several ways to improve sales of inactive products. For example, the company may introduce a sales promotion campaign such as joining a promotional event, giving discounts, and so forth.
Freeing up the working capital in old inventory can give the company a better chance to buy new products for the next season which can generate higher profit. For example, if a company can obtain an additional Bt500,000 cash from sales of last season or old products for a loss of 5per cent, which is equivalent to Bt25,000. The company can use that money to buy new products that can generate a profit margin of 30per cent. This helps the company better improve the operating results.
On the other hand, if we delay the inventory cleanup but keep the products until they become obsolete, the depreciated value will cost the company even greater loss. Decision makers need to seriously ask themselves, “Shall we take minimum loss today or incur higher loss later?”

Yanyong Thammatucharee - Senior Vice President for Accounting and Finance at Central Marketing Group

It would be unsafe for users of financial information such as the balance sheet to presume the correctness of the figures shown under assets and liabilities of a company without deeper analysis. In general, it is the basic responsibility of the accounting department to ensure that financial statements will be presented with completeness and accuracy before being distributed to users. However, the ineffective process of accounting close may not disclose problem area that needs further analysis. When looking at the balance sheet, someone may have the following questions:
• Does the balance sheet present the true value of the company’s assets and liabilities?
• Can the company collect the money from outstanding amount of accounts receivable?
• Or can the entire inventories be sold out at the current prices?
Many people may cast doubts on answers to these questions. Companies that perform proper analysis of the balance sheet accounts regularly should be able to identify and correct the errors found. In order to achieve this, the aging analysis is an important tool that accountants and the management can use to get a clearer picture of asset quality. For example:

Accounts Receivable Aging
By reviewing an aging analysis report of each account receivable, the company can easily identify potential doubtful debt that requires immediate actions before it becomes bad debt. It is possible that accounts with long overdue balance indicate that particular debtors may have financial problem that impact the ability to settle the debt. More detailed investigation is needed to understand the root cause of the problem. Credit control should be tightened or closely monitoring should be employed to avoid further losses.
Aging report can also uncover mistakes and errors made from the accounting operation such as wrong settlement of an account receivable, unrecorded collection, requirement of credit note issuance, and so on.

Inventory Aging
The aging inventory report showing by inventory item the amount of inventory that may have been kept from 30 to 60 days, 61 to 90 days, 91 to 180 days, and 181 to 360 days, and over 360 days can be prepared to understand the inventory status of the company at any point of time. The amount shown over each period of time could tell the management regarding the problems such as:
• Slow-moving items – the raw materials or finished goods that are getting old can depreciate in value. This will definitely incur future loss from inventory scrap or high discount for finished products.
• Obsolete inventory – it’s possible for the very long aging items to be obsolete and can not be used either for production or sales purposes. These inventories are to be eliminated at the end.
• Discontinued inventory – a product ending its life cycle by the replacement of a new model or design. This can result in either discontinued raw materials or finished products. Companies need to have a good plan to ensure the smooth phase-out.

An aging analysis can also be applied to liability accounts so that clearer picture of the company’s obligations can be obtained. In the fast-moving business pressure today, an aging of non-financial transaction can be as important as the financial one. It’s interesting to see how many outstanding issues become overdue waiting for decisions and actions from responsible people of the organization?

By Yanyong Thammatucharee – Senior Vice President for Accounting and Finance at Central Marketing Group

The Nation Newspaper - GURU SPEAK Column on 29 July 2010

It would be unsafe for users of financial information such as the balance sheet to presume the correctness of the figures shown under assets and liabilities of a company without deeper analysis. In general, it is the basic responsibility of the accounting department to ensure that financial statements will be presented with completeness and accuracy before being distributed to users. However, the ineffective process of accounting close may not disclose problem area that needs further analysis. When looking at the balance sheet, someone may have the following questions:
• Does the balance sheet present the true value of the company’s assets and liabilities?
• Can the company collect the money from outstanding amount of accounts receivable?
• Or can the entire inventories be sold out at the current prices?
Many people may cast doubts on answers to these questions. Companies that perform proper analysis of the balance sheet accounts regularly should be able to identify and correct the errors found. In order to achieve this, the aging analysis is an important tool that accountants and the management can use to get a clearer picture of asset quality. For example:

Accounts Receivable Aging
By reviewing an aging analysis report of each account receivable, the company can easily identify potential doubtful debt that requires immediate actions before it becomes bad debt. It is possible that accounts with long overdue balance indicate that particular debtors may have financial problem that impact the ability to settle the debt. More detailed investigation is needed to understand the root cause of the problem. Credit control should be tightened or closely monitoring should be employed to avoid further losses.
Aging report can also uncover mistakes and errors made from the accounting operation such as wrong settlement of an account receivable, unrecorded collection, requirement of credit note issuance, and so on.

Inventory Aging
The aging inventory report showing by inventory item the amount of inventory that may have been kept from 30 to 60 days, 61 to 90 days, 91 to 180 days, and 181 to 360 days, and over 360 days can be prepared to understand the inventory status of the company at any point of time. The amount shown over each period of time could tell the management regarding the problems such as:
• Slow-moving items – the raw materials or finished goods that are getting old can depreciate in value. This will definitely incur future loss from inventory scrap or high discount for finished products.
• Obsolete inventory – it’s possible for the very long aging items to be obsolete and can not be used either for production or sales purposes. These inventories are to be eliminated at the end.
• Discontinued inventory – a product ending its life cycle by the replacement of a new model or design. This can result in either discontinued raw materials or finished products. Companies need to have a good plan to ensure the smooth phase-out.

An aging analysis can also be applied to liability accounts so that clearer picture of the company’s obligations can be obtained. In the fast-moving business pressure today, an aging of non-financial transaction can be as important as the financial one. It’s interesting to see how many outstanding issues become overdue waiting for decisions and actions from responsible people of the organization?

By Yanyong Thammatucharee – Senior Vice President for Accounting and Finance at Central Marketing Group

The Nation Newspaper - GURU SPEAK Column on 29 July 2010

The need to launch new products has always been a challenge for retailers. The initial quantity of the new product ordered has to coincide with the demand from consumers. Over-estimating that demand will result in surplus inventory - which will take up valuable shelf space and have to be sold in promotions at lower profit margins.

How can businesses better manage this risk so taht they can still have opportunity to offer new products to consumers? The answer to this question partly rests on the capability of factories to accept production orders with smaller lot sizes.

From the factories’ point of view, launching a new production line in response to a new design or model involves preparation and proper planning. Extra cost can come from the need for new machines, new materials used, proces changes and so on. Skilled production operators are vital to the process, sometimes enabling new models to be aded with little change to machine set-up. However, factories will ususally try to avoid adding a new model or design, as these often disrupt production continuity. This has led to the establishment of minimum quantity orders.

In principle, it’s important that a factory is set up to meet the demands of its customers - retailers. Retailers want to minimise their investment costs by finding factories that accept smaller orders. By making smaller orders, retailers reduce the risk of large inventory surplus if the new product proves unsuccessful. At the same time, the retailer also has the opportunity to offer a greater product variety to keep up with the demand of fast-changing trends. (All retailers know that limited-edition merchandise often sells faster than basic models.)

In negotiations between the factory and the retailer, the long-term business partnership is more important than the one-time deal. This is true for many factories today, who will fulfill orders from existing customers first before considering whether they have the extra capacity available to respond to one-off requests.

These calculations are all part of the planning process of a factory, which has to match production capacity with demand to ensure it can absorb its monthly running costs. As the pressure from market competition is high, retailers and factories must work together to create production plans and long-term commitments. In order to benefit both parties, it is increasingly important for a factory to improve competitiveness by being able to run a flexible production line with more changeovers and less quantity. This is not due to demand for quantity diminishing, but because demand for variety is increasing. That means we have to be hyper-adaptive to the market to survive.

Yanyong Thammatucharee
Senior Vice President - Accounting and Finance
Central Marketing Group
Thailand
email: yanyong.thammatucharee@gmail.com

By Yanyong Thammatucharee
Published on May 19, 2010

Successful trading companies have to be competent not only in selling but also in buying. As sales revenue, though, is such an obvious indicator of profit margin, managers seem to pay higher attention to sales activity than purchasing excellence.
But in order to keep sales high, companies need to understand what their customers are looking for so that they can select the products that will sell. The company must be dynamic in this, monitoring customer response and changes in the sales performance of its product. Mistakes cost. If a fashion buyer makes a bad decision, for example, the resulting surplus on the shelves will need quick corrective action. The company may have to increase promotional measures such as advertising or discounts to alleviate the inventory burden, which will impact profit margins.

To help avoid these problems, the “Buy Right” method has been developed:

l Right model: Purchase decisions should be based on sales data analysis and understanding of future trends. This can involve the product categories, colour, size, and so on. The right assortment of products will also help maximise sales. It’s important to understand which kinds of product are considered staples - those that sell continuously over time - and which are trendy by nature, therefore run the risk of becoming unpopular.

l Right price: If competition between sellers is high, companies need to ensure that their prices are not being undercut by competitors. This requires close monitoring and adjustment.

l Right quantity: Before the size of an order can be determined, buyers need to review the inventory status through key indicators such as inventory turnover, average inventory period, and so on. It is important to understand the movement of inventory, taking into account budget and forecast figures. To improve inventory turnover, the company can decrease the size of orders while increasing the variety of products and frequency of delivery - the downside is higher shipping costs.

l Right time: Basically, new products should be made available before the season starts. This requires good planning for everything from ordering, shipping and receiving to delivery to the shops and shelves. The company often needs to make sure it can present new products faster than competitors - or even more often. Customers expect to see fresh new products every time they visit the sales outlet.

The “Buy Right” ethos focuses on both sales and inventory performance to bring success. However, once we realise that we did “buy wrong”, move fast to liquidate the purchase.

Yanyong Thammatucharee is senior vice president for accounting and finance at Central Marketing Group.