Key operations of a small business begin with an inventory of products or services that will be sold to a customer.
Setting up your inventory management best practices is essential for success. Can you imagine how years of manual inventory control can wreak havoc on your costs and profit?
A good inventory management strategy will help you decide what to buy, when to buy, and how to sell.
CASE STUDY REVIEW:
When Jeff Bezos opened his revolutionary business in 1995, Amazon.com was intended
to be a “virtual” retailer—no inventory, no warehouses, no overhead—just a bunch
of computers taking orders for books and authorizing others to fill them. Things
clearly didn’t work out that way. About 500 million items are now available, amid hundreds
of thousands of bins on shelves in hundreds of warehouses around the world.
Inventory Management Provides Competitive Advantage at Amazon.com
Successful small business owners establish strategies for managing inventory. The objective of inventory management is to strike a balance between inventory investment and customer service. You can never achieve a low-cost strategy without good inventory management.
Ingredients for a good inventory strategy are:
(1) how inventory items can be classified (called ABC analysis) - Setup your inventory into 3 to 7 categories of products e.g. a retail store may have women, men, and kids. Then 3 - 7 size categories (small, medium, large). A restaurant may design its menu (i.e. product inventory) into breakfast, lunch, and dinner options.
(2) how accurate inventory records can be maintained - At most, you should use 2 systems to manage your inventory: an eCommerce content management system and an enterprise resource management system. We recommend focusing on eCommerce capabilities rather than a point of sale implementation. A major focus here is scheduling regular administration of the inventory system and training staff to do so.
(3) how to manage holding costs - Inventory costs are 2 fold: cost to acquire inventory vs. cost to deliver the inventory items to customers. Setup, shipping, storage, shrink/spoilage, handling, and investment costs should be researched and monitored. The overall cost to carry an inventory average 15% (Heizer, Render, Munson - Operations Management). Therefore, the focus must be given to driving that cost percentage down - even to 0. For example, setting up a kanban system where inventory is demand-driven or keeping a single case of each inventory item in stock regardless of demand.
Thoughts? Tell us what you are doing right now with managing inventory ...
ZERU Center, an information technology and design firm provide business development products and services to young entrepreneurs and small business owners. The company can help customers navigate the startup landscape or implement various projects that grow the business. Consulting services can help with analyzing the existing inventory management process you have and establishing a strategy for continuous improvement.
