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Balancing Act Excess inventory can eat up your cash, so ditch the superfluous stock and use better management practices to keep your business booming.

By C.J. Prince

Opinions expressed by Entrepreneur contributors are their own.

Erika mangrum recently found herself in a tight spot. Her Raleigh, North Carolina-based company, Iatria Spa and Health Care Center, which offers a full line of body and skin-care products in addition to treatments and massages, was overwhelmed with requests for a popular robe after it appeared on The Oprah Winfrey Show. "We sold out immediately," recalls Mangrum, 40. Retailers around the country sold out as well, and the manufacturer could not make enough to meet demand. "We were on a huge back order and our clients were pretty upset."

While it's not often that a product will wind up on Oprah, the episode underscores one of the many challenges of inventory management. The delicate balance is almost impossible: Keep just enough in stock to service customers promptly and fulfill orders, yet not so much that product is left languishing on the shelf. Many business owners don't realize how much money they have tied up in inventory that either never sells or must sell for a discount--money that should be invested in other areas of the business.

One of the problems, says John Cronin, executive director of the Rhode Island Small Business Development Center, is that growing businesses often can't take advantage of just-in-time inventory solutions, which allow companies to receive specialty products as they need them instead of having to bulk up. "Many don't have enough volume to negotiate daily deliveries or quick responses to surges," he says. "You have to be a shrewd negotiator to work out a pricing arrangement with suppliers." Most often, you'll have to agree to a higher rate for a higher frequency of deliveries, he says--an arrangement that could be well worth the benefits.

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