Question: Last time we did inventory was three years ago. Inventory is a big project. It takes a lot of time and manpower to do it. We know our counts are off but are not sure how much value we”™d get from doing a complete inventory count. Is it worth it?
Thoughts of the day: Inventory counting is easy to put off, but prioritizing the activity can have significant benefits. Keep in mind that things are much more likely to be treated with care, tracked and accounted for if people know you”™re watching. Set up a place where inventory gets counted, assign duties for counting and write guidelines on how a count gets done.
Need a reason to do inventory? How about these?
Ӣ Your companyӪs hard-earned money went into purchasing inventory. If goods disappear, become obsolete or just sit around and collect dust, itӪs like throwing money away.
Ӣ Margins can look better or worse than they actually are if inventory is under- or over-reported. If you donӪt know what things cost, itӪs impossible to plan.
Ӣ Without regular inventory counts you have no way of knowing for sure whatӪs on hand.
Ӣ Excess inventory takes up space in the warehouse and warehouse space costs money.
Ӣ What happens if all or part of your warehouse is damaged or destroyed. How will you prove what you had on hand? In the meantime, how do you know if you have enough or too much inventory insurance?
Ӣ Without an accurate inventory count, itӪs easy to get caught short of the most essential and fast-moving items. When that happens, rush order and express shipping costs get added onto your purchases. That erodes your margin.
Ӣ ItӪs also easy to bulk up on inventory items that are no longer moving quickly. A periodic review of whatӪs in inventory would show where you had excess stock on hand. That would be your signal to cut back on the frequency of orders for those parts. Having to write off inventory parts that donӪt move can be costly.
Ӣ Your bank will lend against inventory if it knows what you have on hand. Miss an opportunity to show the bank hard assets and youӪll end up paying a higher interest rate for an unsecured credit line, if you can get one.
Ӣ Consider what inventory would be worth if it was out working for you, producing revenue from customers. If it sits around unused, youӪve lost the opportunity to turn inventory into something worth double to 30 times what it cost you.
Convinced it”™s worth doing an inventory count? Here”™s how to get started. Build a checklist of standard inventory items. Use it to help your people know what inventory they should be looking for. Set up a schedule to regularly count portions of the warehouse, instead of trying to do it all at once. Make notes on where specific inventory is kept so you can find it more easily the next time.
As you go through the inventory count, record what”™s in use and what seems to be obsolete. Set aside obsolete items and assign someone the job of looking for a secondary market to buy those items. Check if goods can be returned to the manufacturer. Keep track of inventory that is damaged. That”™s the responsibility of the warehouse. Ask them to be accountable.
Do an internal inventory of items such as trucks, office furniture, computer equipment, office supplies, etc. Laptops, keys and cellphones can be especially problematic to keep track of as people come and go from the company. Make notes on items that need to be repaired, refurbished and replaced. Plan orders to match the company”™s cash flow cycle.
Have people who do not regularly handle inventory do the count. Ask the people who are regularly touching the inventory to step away and do something else while the count is going on. Consider hiring temporary help to assist in the counting process.
Make space to count items. Assign space on shelves to specific inventory and check that it”™s the only thing on those shelves. Anything that doesn”™t belong, move it to a holding area until it can be given a location and added to the list of standard inventory to be counted.
Make notes on inventory findings. Share those with warehouse, operations and finance staff. Agree on changes that need to be implemented to increase control in the future.
Looking for a good book? “Accounting for Inventory,” by Steven M. Bragg.
Andi Gray is president of Strategy Leaders Inc., strategyleaders.com, a business-consulting firm that specializes in helping entrepreneurial firms grow. She can be reached by phone at 877 -238-3535. Do you have a question for Andi? Send it via email to AskAndi@strategyleaders. Visit AskAndi.com for an entire library of Ask Andi articles.
