Tackling the Unsexy Business of Inventory Management

Many entrepreneurs are ill-equipped for the balancing act of ensuring enough products are delivered on time without having too many lying around.

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There is almost an overload of information available for the leaders of tech startups who are seeking to market and publicize their Indiegogo campaign.

But after wrapping up our company Phone Halo's campaign for developing our product, TrackR, we found ourselves facing some crucial decisions for the first time. We had to delve into the difficulties of managing inventory so that items could be delivered on time without tying up too much capital in making products that would lie around unsold. After some trial and error, we settled on an inventory-management system that is both flexible and cost effective for early-stage hardware startups.

Related: The Bullwhip Effect and Your Supply Chain

Understanding the need for a plan. Effective inventory management is critical to a business because it determines how much the company can invest apart from manufacturing products -- in sales, marketing or engineering. Many promising hardware startups have fallen short because they held onto too much excess inventory. Capital tied into inventory can't be used for other business processes, such as hiring a sales team to sell the products just created.

Without inventory, however, the sales team has no products to sell to interested distributors. Inventory management can be described as the art of balance -- to keep a business in a zen state.

Related: From Shipping to Packaging, 3 Creative Ways to Improve Your Supply Chain

Designing a business flow. To start an upgrade of our inventory system, we created a simple flow chart to document how the process from receiving a purchase order to fulfillment of that request should proceed. Often, businesses rely too heavily on software to solve all their problems.

We created our business flow chart Mad Men style -- with no computers, email or fancy software services. The end result? We had a document that detailed all the different people needed to fulfill an order and all the necessary communications between them. We then ushered this 1950s flow chart into the 21st century by choosing some automated software.

Related: Inventory Out of Control? Take Stock With These 3 iPad Apps.

Choosing the right software. We discovered that we needed an extra piece of software that would tie our inventory, sales and accounting data together. Some quick shopping showed that services such as NetSuite's can accomplish this but come with a $40,000 price tag. We ended up finding a simpler inventory application for QuickBooks from SOS Inventory.

While the system doesn't have the slickest web design, it's a great solution for startups because of its flexibility, easy integration with QuickBooks and favorable price point. Other systems are offered, such as one by Lettuce. It's essential to spend time evaluating each piece of software to make sure it meshes with the desired business flow.

Related: Tracking Inventory Have You Stressed? Try These 5 Mobile Apps

Motiving people to change their habits. For a new business process to be implemented, people have to change. To enforce our shift in procedure, we assigned a key point person to make sure that everyone followed the new process.

Every person on the sales and order team received copies of the new business flow. We explained the rationale and the benefits to the business, and we planted several copies all over the office to reinforce the point. Any sales order that was made without following the newly established protocols was rejected. Having one person to help all employees through this change in practice was essential.

Inventory management for a startup is one of the most unsexy tasks that someone will face as an entrepreneur but it might determine the ultimate success of the business.

Related: Strategic Networking and How to Make the Most of Your Evenings

Chris Herbert and Christian Smith

Entrepreneur, Phone Halo CEO and Co-founder of TrackR

Chris Herbert and Christian Smith are the co-founders of Phone Halo, based in Santa Barbara, Calif. Their product, TrackR, provides a solution for the time-consuming task of finding misplaced and lost items, including keys, wallets and bikes. 

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