Effective inventory management is key to running a
You’ve probably heard terms like “lean manufacturing” and
“just in time” delivery – examples of streamlined inventory management
techniques. Consistent with these techniques, we like to think of inventory as
cash in transit. Every day you have inventory that is not being sold, your
profit margin erodes. Here are some key tips to get your inventory strategy on
Get an attitude
Your attitude about inventory is the key to successful
inventory management. Think about inventory as a wasting asset. Unless you are
dealing with wine or single malt scotch whiskey, inventory does not improve
with time. Inventory becomes less valuable with every passing day. It takes
space, heat, light, power, handling, insurance and, of course, interest to
carry. Every day you have inventory and no sales your profit margin will erode.
So as your planning how to run your small business, try not to carry any more
than is absolutely necessary.
Don’t be shy – it’s a competitive market out there and
suppliers want your business. Negotiate with them to extend payment terms.
Consider utilizing drop shipments. You can even negotiate consignment
arrangements or vendor-managed inventory techniques.
The way in which you finance inventory is critical. A basic
point in inventory management is to ensure that your payment terms are longer
than the terms you extend to customers. Consider different financing options
such as purchase order financing or asset-based lending. The old axiom “cash is
Inventory should be eliminated regularly by using special
promotions, unique discounting, barter exchanges and charitable donations.
Remember - keep that inventory moving, keep it fresh and keep your customers
happy with special offers such as, “half off” or “2-for-1.”
Knowledge is power
Like never before, new technologies and techniques enable
you to command knowledge about how you run a business. With knowledge comes the
ability to control your destiny. So use the best information system you can to
capture history and forecast demand. Stay close to your customer so you know
what his needs are. Stay “cozy” with your suppliers to learn about demand for
their products and about new product introductions.
We know as well as
anyone that you’ve got a lot of things to think about in order to run a small
business like an ace. Though it seems like one of the less dynamic or demanding
aspects of your business, inventory management can actually be the lynchpin
between you and profitability, so make sure you’re proactive about it.