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Tracking Inventory

The right inventory tracking system makes your life easier and your business more profitable.

Opinions expressed by Entrepreneur contributors are their own.

A good tracking system will tell you what merchandiseis in stock, what is on order, when it will arrive and whatyou've sold. With such a system, you can plan purchasesintelligently and quickly recognize the fast-moving items you needto reorder and the slow-moving items you should mark down orspecially promote.

You can create your own inventory tracking system or ask youraccountant to set one up for you. Systems vary according to theamount of inventory displayed, the amount of backup stock required,the diversity of merchandise and the number of items that areroutinely reordered compared to new items or one-timepurchases.

Some retailers track inventory using a manual tag system, whichcan be updated daily, weekly or even monthly. In a manual tagsystem, you remove price tags from the product at the point ofpurchase. You then cross-check the tags against physical inventoryto figure out what you have sold.

For example, a shoe-store retailer could use the tag system toproduce a monthly chart showing sales according to product line,brand name and style. Along the top of the chart, he would list thevarious product lines (pumps, sneakers, loafers), and down the leftmargin, the various brand names and different styles. At theintersecting spaces down the column, he would mark how many of eachbrand were sold, in what style and color, whether the shoes were onsale or discounted, and any other relevant information.

Dollar-control systems show the cost and gross profitmargin on individual inventory items. A basic method of dollarcontrol begins at the cash register with sales receipts listing theproduct, quantity sold and price. You can compare sales receiptswith delivery receipts to determine your gross profit margin on agiven item. You can also use software programs to track inventoryby type, cost, volume and profit.

Unit-control systems use methods ranging from simplyeyeballing shelves to using sophisticated bin tickets-tiny cardskept with each type of product that list a stock number,description, maximum and minimum quantities stocked, cost (incode), selling price and any other information you want to include.Bin tickets correspond to office file cards that list a stocknumber, selling price, cost, number of items to a case, supplysource and alternative source, order dates, quantities and deliverytime. Retailers make physical inventory checks daily, weekly, or asoften as practical-once a year at the minimum. Sometimes a storeowner will assign each employee responsibility for keeping track ofa certain group of items or, if the store is large enough, hirestock personnel just to organize and count stock.

Computerized Inventory Control
While manual methods may have their place, most entrepreneurs thesedays find that computerizing gives them a far wider range ofinformation with far less effort. Inventory software programs nowon the market let you track usage, monitor changes in unit dollarcosts, calculate when you need to reorder, and analyze inventorylevels on an item-by-item basis. You can even expand your earlierABC analysis to include the profit margin per item.

In fact, many experts say that current computer programs arechanging the rules of the analysis. By speeding up the processof inventory control, computers give you more time so you candevote as much attention to the B and C items as to theA's.

You can even control inventory right at the cash register withpoint-of-sale (POS) software systems. POS software records eachsale when it happens, so your inventory records are always up todate. Better still, you get much more information about the salethan you could gather with a manual system. By running reportsbased on this information, you can make better decisions aboutordering and merchandising.

With a POS system:

  • you can analyze sales data, figure out how well all the itemson your shelves sell, and adjust purchasing levelsaccordingly.
  • you can maintain a sales history to help adjust your buyingdecisions for seasonal purchasing trends.
  • you can improve pricing accuracy by integrating bar-codescanners and credit card authorization ability with the POSsystem.

There are plenty of popular POS software systems that enable youto use add-on devices at your checkout stations, includingelectronic cash drawers, bar-code scanners, credit card readers,and receipt or invoice printers. POS packages frequently come withintegrated accounting modules, including general ledger, accountsreceivable, accounts payable, purchasing and inventory controlsystems. In essence, a POS system is an all-in-one way to keeptrack of your 's cash flow.

Features to consider in a POS system include the following:

  • Ease of use: Look for software with a user-friendlygraphical interface.
  • Entry of sales information: Most systems allow you toenter inventory codes either manually or automatically via abar-code scanner. Once the inventory code is entered, the systemscall up the standard or sales price, compute the price at multiplequantities and provide a running total. Many systems make it easyto enter sales manually when needed by letting you search forinventory codes based on a partial merchandise number, description,manufacturing code or vendor.
  • Pricing: POS systems generally offer a variety of waysto keep track of pricing, including add-on amounts, percentage ofcost, margin percentage and custom formulas. For example, if youprovide volume discounts, you can set up multiple prices for eachitem.
  • Updating product information: Once a sale is entered,these systems automatically update inventory and accountsreceivable records.
  • Sales tracking options: Different businesses get paid indifferent ways. For example, repair or service shops often keepinvoices open until the work is completed, so they need a systemthat allows them to put sales on hold. If you sell expensiveconsumer goods and allow installment purchases, you mightappreciate a loan calculator that tabulates monthly payments. Andif you offer rent-to-own items, you'll want a system that canhandle rentals as well as sales.
  • Security: In , it's important to keep tightcontrol over cash receipts to prevent theft. Most of these systemsprovide audit trails so you can trace any problems.
  • Taxes: Many POS systems can support numerous taxrates-useful if you run a mail order business and need to deal withtaxes for more than one state.

Perhaps the most valuable way POS systems help you gain bettercontrol of your business is through their reporting features. Youcan slice and dice sales data in a variety of ways to determinewhat products are selling best at what time, and to figure outeverything from the optimal ways to arrange shelves and displays towhat promotions are working best and when to change seasonalpromotions.

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 reportscan include sales for each hour of the day for any time period. Youcan also create multiple formats for invoices, accountingstatements and price tags. Additional reports include day-end cashreconciliation work sheets and inventory management. Examine avariety of POS packages to see which comes closest to meeting yourneeds.

Every business is unique; you may find that none of theavailable 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 theirsoftware to your needs. Excerpted from Start Your Own Business:The Only Start-Up Book You'll Ever Need, by Rieva Lesonskyand the Staff of , © 1998 EntrepreneurPress

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