Inventory is an Effective Tool for Saving Money and Planning

Last time we did inventory was 3 years ago. Inventory is a big project. It takes a lot of time and manpower to do it. Know our counts are off, but not sure how much value we’d get from doing a complete inventory count, especially when compared to what it would cost us.

Thoughts of the Day: Inventory counting is easy to put off, but prioritizing the activity can have significant benefits. Keep in mind that things are much more likely to be treated with care, tracked and accounted for, if people know you’re watching. Set up a place where inventory gets counted, assign duties for counting, write up guidelines on how a count gets done.

Need a reason to do inventory? How about these?
• Your company’s hard earned money went into purchasing inventory. If goods disappear, become obsolete, or just sit around and collect dust, it’s like throwing money away.

  • Margins can look better or worse than they actually are if inventory is under or over reported. If you don’t know what things cost it’s impossible to plan.
  • Without regular inventory counts you have no way of knowing for sure what’s on hand.
  • Excess inventory takes up space in the warehouse, and warehouse space costs money.
  • What happens if all or part of your warehouse is damaged or destroyed. How will you prove what you had on hand? In the meantime, how do you know if you have enough / too much inventory insurance?
  • Without an accurate inventory count it’s easy to get caught short of the most essential and fast moving items. When that happens rush order and express shipping costs get added onto your purchases. That erodes your margin.
  • It’s also easy to bulk up on inventory items that are no longer moving quickly. A periodic review of what’s in inventory would show where you had excess stock on hand. That would be your signal to cut back on the frequency of orders for those parts. Having to write off inventory parts that don’t move can be costly.
  • Your bank will lend against inventory if it knows what you have on hand. Miss an opportunity to show the bank hard assets and you’ll end up paying a higher interest rate for an unsecured credit line, if you can get one.
  • Consider what inventory would be worth if it was out working for you, producing revenue from customers. If it sits around unused, you’ve lost the opportunity to turn inventory into something worth 2-30 times what it cost you.

Convinced it’s worth doing an inventory count? Here’s how to get started. Build a checklist of standard inventory items. Use it to help your people know what inventory they should be looking for. Set up a schedule to regularly count portions of the warehouse, instead of trying to do it all at once. Make notes on where specific inventory is kept, so you can find it more easily the next time.

As you go through the inventory count, record what’s in use and what seems to be obsolete. Set aside obsolete items and assign someone the job of looking for a secondary market to buy those items. Check if goods can be returned to the manufacturer. Keep track of inventory that is damaged. That’s the responsibility of the warehouse. Ask them to be accountable.

Do an internal inventory of items such as trucks, office furniture, computer equipment, office supplies, etc. Laptops, keys and cell phones can be especially problematic to keep track of as people come and go from the company. Make notes on items that need to be repaired, refurbished and replaced. Plan orders to match the company’s cash flow cycle.

Have people who do not regularly handle inventory do the count. Ask the people who are regularly touching the inventory to step away, do something else for the period of time that the count is going on. Consider hiring temporary help to assist in the counting process.

Make space to count items. Assign space on shelves to specific inventory, and check that’s the only thing on those shelves. Anything that doesn’t belong, move it to a holding area until it can be given a location and added to the list of standard inventory to be counted.

Make notes on inventory findings. Share those with warehouse, operations, and finance staff. Agree on changes that need to be implemented to increase control in the future.

Looking for a good book? Accounting for Inventory, by Steven M. Bragg.