If your excess inventory is choking your cash flow, it’s time to look seriously at inventory management procedures and practices, such as purchasing barcoding equipment and taking your inventory live. It might seem like a big step, but it’s actually a series of small steps that will get you where you want to go.
Basic Inventory Management
The definition of inventory, according to Investopedia, are any goods that are considered to be the portion of a business’s assets that are ready to sell or used to make items for sale. Inventory is considered to be an asset to any business, which is why lenders will be able to write an inventory loan to help you out when cash flow is tight, but that is only a temporary solution.
Excess inventory represents money tied up and not doing anything, or inventory that has become zombie inventory. Zombie inventory is dead or obsolete inventory that requires storage, maintenance, counting, and other services. In servicing that inventory, you spend time and money that could be more productively spent elsewhere. Managing your inventory means managing your supply chain, whether it’s ordering from your vendors, stocking your shelves, or completing a sale. The goal of inventory management is to ensure a consistent flow of goods into your warehouse or business, while at the same time streamlining your ordering practices to minimize your cash layout.
Get Ready to Go Live
Making up your “to do” list will help to break down a seemingly huge task into a series of steps that can be followed very easily.
You will need to make a master list of everything in stock right now. The master list needs to include certain information such as purchase cost, vendor, minimum inventory that you will need on hand, and other specialized information associated with the item such as expiration dates.
You will then have to put barcodes on all of those items. Most items come from the manufacturer with the manufacturer’s barcodes attached. If you are dealing mostly with handmade items or have items delivered without a barcode, you will have to generate those barcodes yourself.
Once all of your inventory is barcoded, you then need to scan all items in all locations for all the materials that you have in stock. You may want to close down completely in order to do this so as not to interrupt the process with sales or with receiving new product.
Do the inventory systematically. Assign one person to one section, and have them flag the location once they are finished with a colored sticky note or decal. This will prevent double-counting of the inventory.
Now comes the hard part. You need to reconcile that inventory against the accounting that you have previously done. Don’t be alarmed if the difference between the accounting inventory and the actual inventory is substantial. Instead, think of this as an opportunity to see where your shrinkage is occurring and to correct the problem.
It’s Going to Be All Right, Really
You know that inventory shrinkage can be a leak in your cash flow, but just like finding a leak in a rubber raft, you have to be able to find it and patch it before it sinks you. With a live inventory system, you will be able to tie sales to inventory counts, check actual inventory against vendor claims, and find out where the leaks in your cash flow really are. In addition, you’ll be able to generate profit margins and sales reports that will help you to more accurately price your goods for resale.
Time is money. When your staff is tied up with inefficient, unproductive procedures, that is time that they are not spending interacting with customers or creating a value rich experience that will promote return business. After all, you want to make it easy for them to give you their money, and more than that, you want them to do it again and again. When a customer has a pleasant experience in shopping or ordering with you, they will remember that experience, return, and also share their experience with other potential customers.