It has been said that operating a small business is nothing more than a perpetual cycle of problem-solving. This theory is elegantly demonstrated through the proper daily maintenance of inventory.
Keep in mind that inventory control is by necessity a daily responsibility. It's easy to see why when the two extremes on either side of proper inventory -- shortages and excesses -- are considered.
The ideal of inventory control is always to have sufficient product on hand to meet customer demand while avoiding shortage and excess. Obviously, in the course of operating a real business, both shortage and excess will occur. Rather than viewing them as mistakes, the smart entrepreneur will use shortage or excess as an indicator of sales trends, and alter the inventory-control system accordingly to correct the immediate problem and avoid it in the future.
There are several courses of action available within the inventory-control system to rectify either a shortage or an excess. If a shortage occurs, the small business owner can:
1. Review production to locate any bottlenecks.
2. Change production schedules or policy to correct them.
3. Place a rush order.
4. Employ another supplier.
5. Employ substitute materials (if necessary).
Excess or overstocking can be addressed by:
1. Reducing prices.
2. Returning excess stock to suppliers.
3. Increasing sales incentives.
4. Creating a promotion to stimulate demand.
Of course, in either case, the first order of business you must address is to analyze your reordering system. The goal of analyzing and altering the system is to maximize the efficiency of all purchasing. If purchasing or reordering are conducted correctly, in theory at least, neither excesses nor shortages should occur. In the real world, both happen, and your goal should be to keep these troublesome (and costly) mistakes to a minimum.
