Inventory Management and Distribution Systems

This week I will be continuing on the top of inventory and the importance of having a management system in place for your inventory. Inventory is all products that you buy that come in and then goes out when sold. The speed at which you turn your inventory over, is money. When you bring in 3, $10 items and sell them for $20 each you’ve made $30. Say you but $120 worth of inventory at the beginning of the month and it takes you a month to sell it. What if instead of buying $120 of inventory at the beginning of the month you brought in just $30 worth of inventory on Monday and sold it during the week. By the week’s end you’ll have made $30 and if you repeat that the entire month you will have still earned the same amount of money, but you won’t have to worry about having an inventory space big enough to store all $120 worth of inventory at once. If your inventory is cars, instead of having $130,000 tied up for a month, you’d only have $30,000 for a week, plus you’d only have to keep three cars on the lot instead of 12 cars. Inventory intensive companies use this approach now so that they don’t have to worry about storing a lot of inventory.

That model of just-in-time ordering does cost more though. So using the same example above, you’d put out $35 instead of $30 because you have to pay for the shipping so you’ve added a $20 fee to your cost each month. The benefit though is that you can save the upfront sunk cost money.

Write down exactly how much inventory you sell per month. Get your P&L statement out and figure out what it’d take for you to ship and manage your inventory on a weekly basis.

What does it take for you to control and account for your inventory? Do you take it in, mark it in the computer, or on a clipboard? How do you manage your inventory, how complicated is it and how quickly can you figure it out? Inventory comes in but it doesn’t all go back out so you may not know which particular products are actually moving out.

If you have inventory control in place you’ll know what moves and what doesn’t. You can print out a table, put the product names at the top and the weeks down the side. Each time you sell one, make a mark in the corresponding row and column. If you have a seasonal product, you want to keep track of those separately. If you want to use just-in-time ordering, track the previous year and you will be able to go back to the same time period from the previous year and plan ahead and make sure you have the inventory available to fulfill orders.