Managing inventory is a big project. It takes time and manpower. Our last audit was three years ago. We know counts are off. How much value would we get from doing a complete inventory count? Especially when considering the cost.
Thoughts of the Day: Managing inventory is easy to put off. Prioritizing the activity has benefits. Track as it is bought, manufactured, stored, and used. 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 manage inventory?
Consider 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 orders and express shipping costs get added to 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 managing 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.
The right products in the right quantity
Convinced it’s worth doing an inventory count? Time to start. 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. Note inventory location, so you can find it more easily.
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. Return goods to the manufacturer if possible. Keep track of inventory that is damaged. That’s the responsibility of the warehouse. Ask them to be accountable.
A systematic approach to sourcing, storing and selling
Managing 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. Note items to repair, refurbish, and replace. 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. Move anything that doesn’t belong to a holding area. Find a location and count standard inventory.
Make notes on inventory findings. Share those with warehouse, operations, and finance staff. Agree to implement changes to increase control in the future.
Looking for a good book? Accounting for Inventory, by Steven M. Bragg.
