A good inventory tracking system will tell you what merchandise
is in stock, what is on order, when it will arrive and what
you've sold. With such a system, you can plan purchases
intelligently and quickly recognize the fast-moving items you need
to reorder and the slow-moving items you should mark down or
specially promote.
You can create your own inventory tracking system or ask your
accountant to set one up for you. Systems vary according to the
amount of inventory displayed, the amount of backup stock required,
the diversity of merchandise and the number of items that are
routinely reordered compared to new items or one-time
purchases.
Some retailers track inventory using a manual tag system, which
can be updated daily, weekly or even monthly. In a manual tag
system, you remove price tags from the product at the point of
purchase. You then cross-check the tags against physical inventory
to figure out what you have sold.
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For example, a shoe-store retailer could use the tag system to
produce a monthly chart showing sales according to product line,
brand name and style. Along the top of the chart, he would list the
various product lines (pumps, sneakers, loafers), and down the left
margin, the various brand names and different styles. At the
intersecting spaces down the column, he would mark how many of each
brand were sold, in what style and color, whether the shoes were on
sale or discounted, and any other relevant information.
Dollar-control systems show the cost and gross profit
margin on individual inventory items. A basic method of dollar
control begins at the cash register with sales receipts listing the
product, quantity sold and price. You can compare sales receipts
with delivery receipts to determine your gross profit margin on a
given item. You can also use software programs to track inventory
by type, cost, volume and profit.
Unit-control systems use methods ranging from simply
eyeballing shelves to using sophisticated bin tickets-tiny cards
kept with each type of product that list a stock number,
description, maximum and minimum quantities stocked, cost (in
code), selling price and any other information you want to include.
Bin tickets correspond to office file cards that list a stock
number, selling price, cost, number of items to a case, supply
source and alternative source, order dates, quantities and delivery
time. Retailers make physical inventory checks daily, weekly, or as
often as practical-once a year at the minimum. Sometimes a store
owner will assign each employee responsibility for keeping track of
a certain group of items or, if the store is large enough, hire
stock personnel just to organize and count stock.
Computerized Inventory Control
While manual methods may have their place, most entrepreneurs these
days find that computerizing gives them a far wider range of
information with far less effort. Inventory software programs now
on the market let you track usage, monitor changes in unit dollar
costs, calculate when you need to reorder, and analyze inventory
levels on an item-by-item basis. You can even expand your earlier
ABC analysis to include the profit margin per item.
In fact, many experts say that current computer programs are
changing the rules of the ABC analysis. By speeding up the process
of inventory control, computers give you more time so you can
devote as much attention to the B and C items as to the
A's.
You can even control inventory right at the cash register with
point-of-sale (POS) software systems. POS software records each
sale when it happens, so your inventory records are always up to
date. Better still, you get much more information about the sale
than you could gather with a manual system. By running reports
based on this information, you can make better decisions about
ordering and merchandising.
With a POS system:
- you can analyze sales data, figure out how well all the items
on your shelves sell, and adjust purchasing levels
accordingly.
- you can maintain a sales history to help adjust your buying
decisions for seasonal purchasing trends.
- you can improve pricing accuracy by integrating bar-code
scanners and credit card authorization ability with the POS
system.
There are plenty of popular POS software systems that enable you
to use add-on devices at your checkout stations, including
electronic cash drawers, bar-code scanners, credit card readers,
and receipt or invoice printers. POS packages frequently come with
integrated accounting modules, including general ledger, accounts
receivable, accounts payable, purchasing and inventory control
systems. In essence, a POS system is an all-in-one way to keep
track of your business's cash flow.
Features to consider in a POS system include the following:
- Ease of use: Look for software with a user-friendly
graphical interface.
- Entry of sales information: Most systems allow you to
enter inventory codes either manually or automatically via a
bar-code scanner. Once the inventory code is entered, the systems
call up the standard or sales price, compute the price at multiple
quantities and provide a running total. Many systems make it easy
to enter sales manually when needed by letting you search for
inventory codes based on a partial merchandise number, description,
manufacturing code or vendor.
- Pricing: POS systems generally offer a variety of ways
to keep track of pricing, including add-on amounts, percentage of
cost, margin percentage and custom formulas. For example, if you
provide volume discounts, you can set up multiple prices for each
item.
- Updating product information: Once a sale is entered,
these systems automatically update inventory and accounts
receivable records.
- Sales tracking options: Different businesses get paid in
different ways. For example, repair or service shops often keep
invoices open until the work is completed, so they need a system
that allows them to put sales on hold. If you sell expensive
consumer goods and allow installment purchases, you might
appreciate a loan calculator that tabulates monthly payments. And
if you offer rent-to-own items, you'll want a system that can
handle rentals as well as sales.
- Security: In retail, it's important to keep tight
control over cash receipts to prevent theft. Most of these systems
provide audit trails so you can trace any problems.
- Taxes: Many POS systems can support numerous tax
rates-useful if you run a mail order business and need to deal with
taxes for more than one state.
Perhaps the most valuable way POS systems help you gain better
control of your business is through their reporting features. You
can slice and dice sales data in a variety of ways to determine
what products are selling best at what time, and to figure out
everything from the optimal ways to arrange shelves and displays to
what promotions are working best and when to change seasonal
promotions.
Reporting capabilities available in POS programs include sales,
costs, and profits by individual inventory items, by salesperson,
or by category for the day, month and year to date. Special reports
can include sales for each hour of the day for any time period. You
can also create multiple formats for invoices, accounting
statements and price tags. Additional reports include day-end cash
reconciliation work sheets and inventory management. Examine a
variety of POS packages to see which comes closest to meeting your
needs.
Every business is unique; you may find that none of the
available off-the-shelf systems meet all your requirements.
Industry-specific POS packages are available-for auto repair shops,
beauty and nail salons, video rental stores, dry cleaners and more.
In addition, some POS system manufacturers will tailor their
software to your needs. Excerpted from Start Your Own Business:
The Only Start-Up Book You'll Ever Need, by Rieva Lesonsky
and the Staff of Entrepreneur Magazine, © 1998 Entrepreneur
Press