While a strong inventory -- both deep and broad -- can certainly be a competitive advantage, smart business executives are careful to limit the amount of capital they're willing to commit to this critical asset. No company, not IBM, not Wal-Mart, not Home Depot, and certainly not your company has enough capital to ignore inventory levels. Inventory and accounts receivable account for approximately 80% of total assets in most businesses and 100% of manageable assets, so getting a handle on both will provide any business with much needed capital to grow. In this article I want to share with you several inventory management ideas that will help you optimize inventory turnover and minimize out-of-stocks: Establish clear-cut goals for buyers; make sure buyers understand how their jobs are measured. Inventory turns by category, gross margin, and out-of-stocks (or incidences of backorders) are good places to start keeping score. Conduct regular cycle counts -- at least monthly. Establish a counting calendar that specifies the days of the month to count specific products. Adjust quantities in your computer system as discrepancies are uncovered; this procedure will prevent big surprises at year end. Conducting cycle counts on schedule should be a condition of employment for whoever is in charge of this critical task. Discuss with your software vendor the effect on inventory counts when processing inventory receipts on sku's that are showing negative quantities. Ask your software vendor for advice on procedures to avoid compounding problems. Make sure that your inventory receiver is not just whoever happens to be available at the time a new shipment arrives. Assign accountability to one or more specific individuals to receive inventory. Then train them. Then inspect what you expect. Assume that suppliers never ship too much. It's not that you don't trust your suppliers, it's just a good business practice to compare actual quantities received against the quantity you ordered. Adopt a policy that calls for the drivers of incoming delivery vehicles to drop off their shipping papers at the office or at the guard gate before proceeding to the yard or warehouse. Instruct receiving personnel to use the purchase order as the receiving document. If you implement this idea, instruct your forms supplier to "black out" the quantities on the receiving copy of the "PO" so receiving personnel will not be tempted to assume accuracy. Instruct buyers to walk the yard and warehouse on a daily basis to gain firsthand insight into inventory levels, product quality and the way specific sku's are being stacked or stored. Educate employees involved with inventory management as to the dollars and cents effect inventory accuracy has on the company's profitability. Clearly label stacks, racks, and bins to reduce mistakes, especially by seasonal or part-time employees. Document all inventory procedures. Each month, assign someone who is attentive to detail to carefully scrutinize all computerized inventory reports. Spot check the accuracy of annual physical inventory counts. Periodically inspect what you expect from personnel assigned to all inventory-related tasks. Inventory control requires periodic review so the personnel on the front lines won't develop bad habits. Take the above list of recommended inventory procedures and spot check how well your people are following the rules you have established. If you have some aspects of inventory control in your company that are not documented, assign a responsible employee who is good at designing systems to create the documentation. |
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