How to: Manage Inventory

All Systems Go

Computers alone don't solve inventory problems, Schreibfeder cautions. "Computers are merely tools. They must be used in the proper business environment in order to work effectively," he says. To create that proper environment:

  • First, establish a complete list of every product or component your company buys.
  • Assign a specific location in your warehouse or storage area for each item.
  • Process paperwork quickly--daily, if possible.

Make sure stock balances are always accurate. Schreibfeder says "cycle counting" is better than a once-a-year physical inventory. Cycle counting is an ongoing inventory. You can start at one end of the warehouse and count all the items on one shelf or in one bin each day until you reach the other end. Or you can count all of a specific product, then work your way through your entire inventory. Either method usually adds up to a full inventory several times a year.

  • Set up procedures for reordering to help inventory turn over faster and prevent running out of any item.
  • Establish inventory goals and compare them each month with actual results.
  • Determine how to handle unsold products, whether by returning them to the vendor, discounting the price, donating them to charity or throwing them away and writing them off the financial sheet.

"Many business owners load up with inventory without understanding what is and isn't going to sell," Schreibfeder says. "They let their vendors tell them what to buy." You need to recognize that vendors, while not dishonest, have different objectives than you do.

As a new business owner, Schreibfeder says, you must rely on careful research to determine how much inventory to buy initially. Once your business is up and running, let a well-thought-out inventory management program guide your purchases.

Contact Sources

Brittany's Balloons and Gifts, 4992 Herrenhut Ct., Lithonia, GA 30038-2783, (770) 593-3458

Coopers & Lybrand LLP, http://www.colybrand.com

Deep Reflection Products Inc., (800) 766-3856

Effective Inventory Management Inc., (972) 304-3325, http://www.effectiveinventory.com

Fire & Spice Inc., 757 Hwy. 98 E., #14-246, Destin, FL 32541, http://www.fire-spice.com

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This article was originally published in the August 1998 print edition of Entrepreneur with the headline: How to: Manage Inventory.

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