PART 3: GETTING THE BEST RETURN ON INVESTMENT:
Maintaining, Tracking and Controlling Your Inventory
It is very feasible to start and run a successful business selling hand made products. This series of articles introduces you to the things you will need along the way as you develop your business financial management road-map, and seek to get your best return on investment (ROI).
Your Inventory Needs To Be Managed
c) ROI: Inventory Management
The Kinds Of Things You Want To Be Doing
In Inventory Management
Monitoring and managing inventory involves several interrelated activities. These activities will place time and cost burdens on you. Luckily, much of this can be computerized. There is inventory management software available, some of it specialized for the various design and maker professions. If you are selling things online, your shopping cart system will accommodate a lot of this.
These activities include:
1. Par Levels
2. Storing and Tracking FIRST IN, FIRST OUT
3. Supplier Relationships
To the extent that you can systemize all this, relying on a central, computerized database, the more efficient and effective you will be. Ask yourself, as well, whether your inventory management system will grow with you as you continue to develop and expand your business.
You always want to have the right stuff, in the right place, at the right time, at the right cost,
1. Inventory Management: Establish Par Levels
What is the minimum inventory needed on hand at all times? For example, when doing craft and art shows, you will need to have 4x the amount of inventory from what you want to sell (thus, $1000.00 of inventory to sell $250.00 of merchandise).
Do you have a tickle system signaling times to reorder?
What have you based your par levels on? Sales rate? Time it takes to acquire items?
If demand changes, do you have strategies for adjusting your par levels?
Do you need to maintain any samples of your work which never get sold, but are used for displays, promotions, or photography?
Do you need to have finished pieces on hand, or will you make pieces to order on demand?
2. Inventory Management: Storing and Tracking your FIRST IN, FIRST OUT (FIFO)
You want your oldest stock to get sold first.
Are your things stored and displayed to meet this principle?
Do you have adequate storage space? Containers?
What is it costing to you maintain your desired storage levels?
When stock doesn’t sell within a reasonable time, what are your plans? Deconstruct finished pieces and re-use the parts? Discount or write-off dead parts inventory?
3. Inventory Management: Maintain strong relationships and communication with your suppliers
What is it about some suppliers that you like, or that you dislike?
Will they accept returns?
Can they handle special orders?
If something is not currently available, can they tell you when it will be in stock again?
Will they work with you to waive minimums?
Do you have back-up suppliers in case your primary supplier can’t come through?
4. Inventory Management: Maintaining Resiliency and Doing Contingency Planning
You need to actively and continually do What If Analysis.
- An item becomes especially popular?
- You run out of cash?
- Storage becomes an issue?
- Your tracking and data system somehow goes awry?
- Parts become unavailable or are discontinued?
- Parts or merchandise are damaged or spoiled?
- Customer wants, needs, demands, desires or shopping behaviors change?
- Other unforeseen circumstances?
Do you have any part of your inventory set aside for use in case of an emergency?
5. Inventory Management: Auditing your inventory on a regular basis.
Auditing will include a mix of big, scheduled activities and some spot checking. Auditing means establishing a baseline. It means identifying current inventory challenges. It means evaluating your current procedures and data systems, and identifying their strengths and weaknesses.
Besides identifying each item and its description, you might want to collect and audit data related to one or more of these variables:
Product SKU (product code) Create code numbers where each number/letter in the code will make ordering easier and faster. Example:
600–523.131AB where the 600 represents glass bead series, the 523 the
specific product item, and the .131AB the color code.
Price Paid per unit (unit might be a specific part or it might be a finished product)
Date last price paid per unit increase
Amount in stock
Minimum units which must be ordered
# of units typically ordered at one time
rate of units ordered or sold per year
(For finished products), total cost per item
Production time (for each finished piece)
Photo / image
NOTES: (additional information you want to associate with any particular product)
6. Inventory Management: Prioritizing Inventory by Value.
Some value might have to do with how much something contributes to revenue and profitability. Items with higher mark-ups would get more attention.
Some value might have to do with the rate of turnover. Items more popular and sell faster would get more attention.
For management purposes, it might be useful to establish 3 groups of value. Group A might represent things contributing 50% of value. Group B might represent things contributing 35% of value. Group C might represent things contributing 15% of value.
7. Inventory Management: Forecasting.
You want to be in a position where you can predict future demand, perhaps over the next year or two. You want to be able to define seasonality fluctuations. You want to anticipate the impacts of any upcoming promotions or advertising. Much of forecasting involves tracking your orders/sales and relating this back to inventory.
8. Inventory Management: Timing.
What time issues/management would be associated with maintaining the lowest inventory possible to meet your demand. Here you try to understand if you can shift the costs of storage and securing supplies over to your suppliers. Customers these days often demand immediate satisfaction, so shifting some costs to supplies may be problematic for you.
The systems you have built to track, maintain and analyze your money flows and your inventory are sustained by a whole set of receipts and administrivia related to banking, insurance, credit card processing, travel, and working with employees and independent contractors.
Continue with this series,
Financial management includes all the things you need to do in order to maximize your Return On Investment (ROI). It mostly involves a system of data collection, monitoring and analysis methods employed by any successful business. This system relates risks to rewards. Activities in this kind of system include things such as general accounting and bookkeeping, inventory management, and record keeping. These include things you do to establish and maintain formal relationships with employees, independent contractors and suppliers. These include things you do to secure your money, such as with banks, financial institutions, and even such things as crowd-funding online. This is a lot of numbers and activities, and often, when we look at why people fail in business, it is often because of a generalized fear of getting control over all this. Successful business people and successful businesses need to foster a culture which promotes a growth mindset. Simply this is a culture where you have permission and encouragement and confidence to take risks.
GETTING THE BEST RETURN ON INVESTMENT (ROI)
Campbell, Casandra. What Is Inventory Management? How To Track Stock For Your Ecommerce Business, Inventory Management, 6/19/20.
As referenced in:
Caramela, Sammi, 10 Essential Tips For Effective Inventory Management, Business News Daily, 4/15/2020.
As referenced in:
Dweck, Carol. Mindset: The New Psychology of Success, 2006
Fundbox.com. Trade Credit: Everything you need to know about net terms for your business. n.d.
As referenced in:
Shah, Vyom. Crowdfunding the Jewelry business, 11/27/14.
As reference in:
Other Articles of Interest by Warren Feld:
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