Your company wouldn’t be in existence without your products. The receiving and shipping of each item generates income and hopefully makes you a profit over time. This is business 101.
But if you’ve been in operation for any amount of time, you know inventory management can be complicated. Further, if you’re one of the 43 percent of small businesses that track inventory manually – either with spreadsheets or a pen-and-paper “system” – then your process is needlessly complex.
Brian Harej, inventory analyst for entertainment company TopGolf, can vouch for that. Harej oversees four TopGolf locations in the U.S. - from one warehouse. His time was consumed with the company’s spreadsheet operations. It was nearly impossible for Harej to know what location needed equipment or parts.
“We never had a true handle on inventory in the warehouse and keeping the sites running at full capacity was stressful. We didn’t know when orders were coming in, and we had difficulty tracking what we were sending out,” said Harej, “If a facility was running low on a part, sometimes we weren’t notified until a day or two before it was needed - it would be impossible to get the requested parts to the facility on time.”
Poor inventory management can result in unnecessary operational downtime and loss of business and revenue.
If you find your small business struggling through the following inventory challenges, then it may be time to make a change to your processes.
Don’t let your capital — or your dreams — go down the drain due to poor inventory management
When you don’t have a handle on your inventory levels, it’s likely you’ll purchase too much stock, and that means increased carrying costs. These potential budget-busters can hit your bottom line in a number of ways:
- Write-downs happen when products don’t sell, and the price has been marked down far below the original purchase price. And every write-down must be recorded as an expense on your income statement.
- Write-offs occur when a company recognizes that a portion of its inventory no longer has value. In addition, a company may complete a manual inventory assessment and find that items are missing from the warehouse. These items also must be written off.
- Excess storage costs mount up when you have too much inventory. To keep items safe you must cover security, climate control, janitorial staffing, and even the cost of the physical warehouse space, to name a few
- Increased service costs: You need to protect inventory while it’s in your warehouse. Insurance must be paid, along with higher taxes if you keep too much stock on shelves. Not to mention, when there’s too much inventory, items are more likely to get lost in the shuffle.
Racesource, a maintenance team for monster trucks Grave Digger and El Toro Loco, didn’t have an effective inventory management process in place. And company VP Paul Huffaker said he would often reorder or manufacture parts simply because he didn’t know if he had them in stock or not. This failure caused thousands of dollars in unnecessary costs every year.
Human error can make or break a small business
Research shows even the best typist makes a keying error one out of 300 keystrokes. Over time, that adds up and makes reporting needlessly difficult and time-consuming. Whether you need to check on a particular item in your daily routine or generate reports for an important shareholder meeting, inaccurate information will cause a lot of headaches. You’ll spend too many hours sifting through paperwork, trying to track down even one mistake. And if it’s not found, you could inadvertently report inaccurate information to the powers that be or order inventory that you don’t need (remember all those expensive carrying costs?). Or think of a healthcare company that sends the wrong medication to a patient due to one wrongly keyed number. In this case, simple human error is a matter of life or death. These scenarios can reflect badly on your brand and make customers go to your competitor instead.
TopGolf’s Brian Harej implemented a new inventory management system for the company and now operates a much leaner operation. In fact, he projects the company now saves a minimum of eight hours a week since they no longer manually track inventory and inventory errors are no longer an issue.
Barcode technology is not only innovative, but also eliminates mistakes, prevents mix-ups, and is completely traceable and auditable.
Distribution centers need to run efficiently to grow your business
Are your warehouse employees throwing items haphazardly on shelves? Are you frustrated with products or parts piling up in the aisles? Well, I hate to say it, but the inefficiency and disorganization of your warehouse is likely your fault. How can you expect warehouse operations to run smoothly when workers don’t have the right tools?
As mentioned at the beginning of the article, your inventory is the lifeblood of your business. However, many overlook how costs decrease and productivity increases when a distribution center is highly organized. An inventory management system is the first step to increase efficiency and your bottom line.
In this podcast, SCORE mentors talk with Jami Schwartz and Allison Boswell of Kabbage on how to manage your small business's cash flow and inventory.
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