For the smaller inventory intensive businesses, management of the inventory is a most important task for the entrepreneur. Unfortunately, it is not always understood. In many retail businesses, inventory is the largest asset on the balance sheet. Todays technology allows even the smallest retailers to track their inventory and sales and to know what their customers are buying. One of your most important activities is planning your inventory purchases. Too often, little or no planning goes into inventory acquisition. Know what your customers are buying and what is not moving. If you dont know this, you can not plan your inventory. Dont buy yesterdays sales; buy tomorrows sales. Use yesterday as a guide, adjusted by your experience, research in the marketplace and knowledge of your target audience. Forecast your sales as accurately as possible to insure your inventory matches those forecasts An important consideration in inventory management is inventory mix. Mix includes size as well as fashions and style. Do you have everything the customer wants? If not, you miss sales opportunities. If you have inventory the customer does not want, the cash used for that inventory, but needed elsewhere in your business, is not available. Search for the right balance. One should look at inventory as cash sitting on the shelves. If it does not sell, the "cash on the shelves" is doing nothing for your business, except increasing costs. Inventory that does not move within a reasonable length of time should be aggressively sold to recover the cash. Knowing what is selling and adjusting your inventory accordingly should result in improved inventory turns. One of the best ways to improve financial performance is to increase the turnover, the number of times the value of your inventory sells each year. Revenue increases, without additional fixed costs, results in increased cash income and profit. Equally important is careful inventory management of seasonal items. Try not to have a stock room full of last years inventory waiting for next season. Not only is the inventory of no value, it is incurring interest expense, storage expense and the risk of obselesence. Inventory planning is an important tool to prevent this. We all know the market sets the price and the reseller has little to say about the predominate price levels in the marketplace. But you do have or should have a great deal to say about the cost of the product you are selling. When you purchase inventory for resale, you should have a general idea of the market-selling price for those products and this is your best estimate for forecasting margins. Question your vendors about what is moving and at what price levels. Do your own market research by visiting competitors and seeing what is being promoted and at what price levels. Track your sales carefully to understand the margins you are enjoying on various classes of products. There are a number of software packages for use with POS terminals that can help you track this important asset. Do not be satisfied that less than 50% of your inventory is accounting for the bulk of the sales. Strive to move your entire inventory. Dont hesitate to "distress sale" slow moving inventories. Some say that destroys margins. How false a notion. If it is on the shelf, it is providing no margin, only additional costs. Inventory costs include your cost of capital, the allocated space and overhead costs, insurance, the risk of obsolescence and deterioration and the final risk to small businesses, shrinkage, the inventory that sometimes walks out the back door rather than the front door. Protect the inventory as you do cash in the register. It is that important. Good inventory management means continually adjusting your inventory mix to meet the customers needs; aggressively eliminating slow moving, obsolete and season ending inventory to recover the cash for another day; planning you inventory to match your mix and sales forecasts; continually measuring inventory turn to increase revenue and profits; and managing your inventory to eliminate shrinkage. Using technology and having a positive attitude about inventory management can improve your performance and profits. Dont ignore this part of your business because it is not as glamorous or exciting as selling. Done right, it will put money in your pocket. |
