Posted by: Matthew Molinari | February 15, 2012

Inventory Optimization Keys

For many companies, the largest investment they make is in the inventory kept on hand. There are huge amounts of money wrapped up in holding inventory – from buying and shipping to storage and shrinkage the costs are endless. So how exactly do you control it? Check out this Video Blog for some good insights:

At first, the thought of getting your inventory under control may seem extremely daunting. Even for a small company with a relatively low inventory level, the task can be overwhelming. The typical measure of how well you manage your inventory comes in your cost of sales.  If you take the price you sell at less the price you purchase at you get your cost of goods (COGS). Many believe that if you keep this number low you are doing your job managing your inventory.

While this is certainly a critical aspect of managing your costs, it is not the only one. What if your COGS are on track, but you consistently have too much inventory? Granted, the purchase of goods goes on the balance sheet and isn’t counted as an expense until it is used, but that is cold hard cash sitting on your shelves. Imagine if you could reduce your inventory on hand by a small percentange – how much cash would that free up?

So what should you be tracking and how? There are lots of different metrics you can use that are somewhat dependant on your line of business. For our restuarants, my company tracks COGS but also monthly waste sheets, daily purchase tracking, weekly purchase budgets  compared to projected visits and inventory on hand compared to prior periods.

Everywhere you look there is data that can be used to get your inventory right sized. Take for instance a comparison to last month’s inventory count. If you notice high quantities with low depletion you can work with purchasing to track orders to avoid over stocking items.

It’s as easy as collecting data and inputting it into Excel, so how can your company start on the road to optimizing inventory?

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