Read Start Your Own Business Online
Authors: Inc The Staff of Entrepreneur Media
Start Your Own Business (45 page)
Oftentimes, as much as 80 percent of a company’s revenues come from only 20 percent of the products. Companies that respect this “80-20 rule” concentrate their efforts on that key 20 percent of items. Most experts agree that it’s a mistake to manage all products in the same manner.
Once you understand which items are most important, you’ll be able to balance needs with costs, carrying only as much as you need of a given item. It’s also a good idea to lower your inventory holding levels, keeping smaller quantities of an item in inventory for a short time rather than keeping large amounts for a long time. Consider ordering fewer items but doing so more often.
Tracking InventoryA good inventory tracking system will tell you what merchandise is in stock, what is on order, when it will arrive and what you’ve sold. With such a system, you can plan purchases intelligently and quickly recognize the fast-moving items you need to reorder and the slow-moving items you should mark down or specially promote.
You can create your own inventory tracking system or ask your accountant to set one up for you. Systems vary according to the amount of inventory displayed, the amount of backup stock required, the diversity of merchandise and the number of items that are routinely reordered compared to new items or one-time purchases.
Some retailers track inventory using a manual tag system, which can be updated daily, weekly or even monthly. In a
manual tag system
, you remove price tags from the product at the point of purchase. You then cross-check the tags against physical inventory to figure out what you have sold.
manual tag system
, you remove price tags from the product at the point of purchase. You then cross-check the tags against physical inventory to figure out what you have sold.
For example, a shoe-store retailer could use the tag system to produce a monthly chart showing sales according to product line, brand name and style. At the top of the chart, he would list the various product lines (pumps, sneakers, loafers), and down the left margin, the various brand names and different styles. At the intersecting spaces down the column, he would mark how many of each brand were sold, in what style and color, whether the shoes were on sale or discounted, and any other relevant information.
Dollar-control systems
show the cost and gross profit margin on individual inventory items. A basic method of dollar control begins at the cash register, with sales receipts listing the product, quantity sold and price. You can compare sales receipts with delivery receipts to determine your gross profit margin on a given item. You can also use software programs to track inventory by type, cost, volume and profit. A few programs to investigate include inFlow (
inflowinventory.com
), AdvancePro (
advanceware.net
), and Inventory Traker for Manufacturing/ Distribution (
trakersystems.com
). (For more on computerized inventory tracking, see the section on “Computerized Inventory Control” on page 290).
show the cost and gross profit margin on individual inventory items. A basic method of dollar control begins at the cash register, with sales receipts listing the product, quantity sold and price. You can compare sales receipts with delivery receipts to determine your gross profit margin on a given item. You can also use software programs to track inventory by type, cost, volume and profit. A few programs to investigate include inFlow (
inflowinventory.com
), AdvancePro (
advanceware.net
), and Inventory Traker for Manufacturing/ Distribution (
trakersystems.com
). (For more on computerized inventory tracking, see the section on “Computerized Inventory Control” on page 290).
JUST ONE LOOKR
adio frequency identification—or RFID—is largely the domain of big companies because of its cost, but small businesses should still keep an eye on this growing tech trend. Patrick J. Sweeney II, author of RFID for Dummies and president and CEO of RFID solutions firm ODIN Technologies, describes the technology as “bar codes on steroids.”Small tags affixed to individual products or to pallets of merchandise absorb and reflect radio waves that can be read by an RFID scanner, revealing such helpful facts as when and where the product was manufactured, when it was shipped, price and other information. According to Sweeney, the applications for small businesses include asset and inventory tracking and management, loss prevention and even automated checkout.“Rather than scanning one product at a time, you can scan a whole cartload without any human intervention,” says Sweeney. “Customers could simply walk [their carts] past an RFID scanner, and their total is read with a properly designed system.”The price of RFID technology has fallen recently, from $50,000 for an entry-level solution to around $300,000 for an initial pilot system—and Sweeney anticipates that the prices will drop further. Large retailers like Target and Walmart, and even government agencies like the Department of Defense, require RFID-tagged merchandise from their suppliers, so it’s definitely technology worth considering.
Unit-control systems
use methods ranging from eyeballing shelves to using sophisticated bin tickets—tiny cards kept with each type of product that list a stock number, a description, maximum and minimum quantities stocked, cost (in code), selling price and any other information you want to include. Bin tickets correspond to office file cards that list a stock number, selling price, cost, number of items to a case, supply source and alternative source, order dates, quantities and delivery time.
use methods ranging from eyeballing shelves to using sophisticated bin tickets—tiny cards kept with each type of product that list a stock number, a description, maximum and minimum quantities stocked, cost (in code), selling price and any other information you want to include. Bin tickets correspond to office file cards that list a stock number, selling price, cost, number of items to a case, supply source and alternative source, order dates, quantities and delivery time.
Retailers make physical inventory checks daily, weekly or as often as is practical—once a year at the minimum. Sometimes an owner will assign each employee responsibility for keeping track of a group of items or, if the store is large enough, hire stock personnel to organize and count stock.
Computerized Inventory ControlWhile manual methods may have their place, most entrepreneurs these days find that computerizing gives them a far wider range of information with far less effort. Inventory software programs now on the market let you track usage, monitor changes in unit dollar costs, calculate when you need to reorder, and analyze inventory levels on an item-byitem basis. You can even expand your earlier ABC analysis to include the profit margin per item.
In fact, many experts say that current computer programs are changing the rules of ABC analysis. By speeding up the process of inventory control, computers allow you to devote more time to your A products to further increase your profitability. You can even control inventory right at the cash register with point-of-sale (POS) software systems. POS software records each sale when it happens, so your inventory records are always up-to-date. Better still, you get much more information about the sale than you could gather with a manual system. By running reports based on this information, you can make better decisions about ordering and merchandising.
With a POS system:
• You can analyze sales data, figure out how well all the items on your shelves sell, and adjust purchasing levels accordingly.
• You can maintain a sales history to help adjust your buying decisions for seasonal purchasing trends.
• You can improve pricing accuracy by integrating bar-code scanners and credit card authorization ability with the POS system.
There are plenty of popular POS software systems that enable you to use add-on devices at your checkout stations, including electronic cash drawers, bar-code scanners, credit card readers, and receipt or invoice printers. POS packages frequently come with integrated accounting modules, including general ledger, accounts receivable, accounts payable, purchasing, and inventory control systems. In essence, a POS system is an all-in-one way to keep track of your business’s cash flow.
AHA!APICS can provide expert advice on inventory management and suggest software programs to use; you can contact the company at (800) 444-2742 or
apics.org
. In addition, many computer and software vendors sponsor free seminars to introduce new lines of inventory control products to prospective buyers.
Features to consider in a POS system include the following:
•
Ease of use.
Look for software with a user-friendly graphical interface.
•
Entry of sales information.
Most systems allow you to enter inventory codes either manually or automatically via a bar-code scanner. Once the inventory code is entered, the systems call up the standard or sales price, compute the price at multiple quantities and provide a running total. Many systems make it easy to enter sales manually when needed by letting you search for inventory codes based on a partial merchandise number, description, manufacturing code or vendor.
•
Pricing.
POS systems generally offer a variety of ways to keep track of pricing, including add-on amounts, percentage of cost, margin percentage and custom formulas. For example, if you provide volume discounts, you can set up multiple prices for each item.
•
Updating product information.
Once a sale is entered, these systems automatically update inventory and accounts receivable records.“The definition of
salesmanship is the
gentle art of letting
the customer have it
your way.”—RAY KROC, FOUNDER OF
MCDONALD’S CORP.
•
Sales tracking options.
Different businesses get paid in different ways. For example, repair or service shops often keep invoices open until the work is completed, so they need a system that allows them to put sales on hold. If you sell expensive goods and allow installment purchases, you might appreciate a loan calculator that tabulates monthly payments. And if you offer rent-to-own items, you’ll want a system that can handle rentals as well as sales.PHONE PHONIESW
atch out! As an entrepreneur, you’re a potential target for one of the most common—and potentially most costly—business scams: telemarketing con artists selling overpriced, poor-quality office supplies. Here are some tips to protect your business:• The FTC requires telemarketers to disclose that it’s a sales call, who they are and the total cost of what they are selling—so don’t be afraid to ask.• Make sure your employees are scam-aware, and establish a procedure for handling such calls.• Keep track of all orders, and limit the number of staff who are allowed to order.• If you receive merchandise you didn’t order—and the seller cannot prove you did—you can keep the materials and are not obligated to pay.
•
Security.
In retail, it’s important to keep tight control over cash receipts to prevent theft. Most of these systems provide audit trails so you can trace any problems.
•
Taxes.
Many POS systems can support numerous tax rates—useful if you run a mail order or online business and need to deal with taxes for more than one state.
Perhaps the most valuable way POS systems help you gain better control of your business is through their reporting features. You can slice and dice sales data in a variety of ways to determine what products are selling best at what time and to figure out everything from the optimal ways to arrange shelves and displays to what promotions are working best and when to change seasonal promotions.
Reporting capabilities available in POS programs include sales, costs, and profits by individual inventory items, by salesperson, or by category for the day, month and year to date. Special reports can include sales for each hour of the day for any time period. You can also create multiple formats for invoices, accounting statements and price tags. Additional reports include day-end cash reconciliation work sheets and inventory management. Examine a variety of POS packages to see which comes closest to meeting your needs.
TIPAs your business expands and becomes more complex, you’ll need more complex inventory techniques to keep up. Tap outside sources to beef up your own and your employees’ inventory management expertise. Inexpensive seminars held by banks, consultants and management associations offer a quick but thorough introduction to inventory management techniques.
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