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Reduce Costs Through Inventory Management

Whether you're a small business owner or a franchisee, efficiently managing your inventory system will not only make your inventory flow more smoothly, but also help reduce your costs.

When you have a business to run, inventory management can play a large role in your success. Whether you're a small business owner or a franchisee, efficiently managing your inventory system will not only make your inventory flow more smoothly, but also help reduce your costs.

Regardless of industry, people rarely spend enough time managing their inventory, says Shawn Casemore, president and founder of Casemore & Co., an Ontario-based business that partners with clients to improve operational performance.

Consider these steps to prepare and maintain an efficient, cost-effective inventory system.

Data Entry Accuracy is Key

Entering data correctly from the beginning plays a critical role when establishing a good system, says Malcolm Felt, an inventory solutions specialist with Fishbowl Inventory, based in Orem, Utah. 

"The data that you're putting into the system has to be done on a daily basis," Felt says. Procrastinating on daily up-keep can lead to inaccuracies, and as a result, employees might begin to distrust the numbers they receive, he says. 

"If I'm going to purchase something, I may not trust the number that I'm seeing on the screen," Felt says, "and I might order some excess inventory just to ensure I have enough."

This can lead to extra inventory costs. "You'll end up having to clearance it or sell it at a discounted rate," Felt says. 

Reduce inventory where possible to mitigate costs, Casemore says. To achieve this, you might consider a vendor-managed inventory system. A good solution for low-value, consumable items, this system is an arrangement with a vendor who will replenish your supplies, but they don't charge you for them until you've used them. According to Casemore, if your vendors can do this, you should consider outsourcing to them. 

Position Inventory Properly 

How you store, organize and position inventory in a warehouse can increase the efficiency of your inventory system.

For example, keep your fastest-moving inventory up front, making it easier for those pulling the items.

When warehouses are organized, everything has a flow, says Ben Philbrook, managing partner and director of operations at Chase Canopy, a tent and special event rental company, with locations in New England. Philbrook says it's important to have like items together. For example, his warehouse stores both tents and their parts, as well as fragile items, like glasses and china. 

"If you're looking for the framework for a certain size tent, the side poles are right next to the framework," Philbrook says, "as opposed to being mixed in with the china and glassware."

Label Item Numbers Correctly

Whether you're using a manual inventory system or a software-based system, make sure you have clear descriptions assigned that are built around a standard nomenclature. Using a consistent format in describing inventory items will reduce confusion in order, replenishment and reporting. 

In addition, it's best to have segments in the item number, says Felt, who also manages a retail shoe store called Sole Envy, based in Provo, Utah. "Oftentimes for us, it's the style number, the color of the shoe and the size of the shoe," Felt says, "and that represents that specific item number in the system."

So when items are easier to identify, you can avoid ordering something you already have in stock. In turn, this will reduce your costs and allow you to set aside money for faster-moving items. 

"It's a matter of looking at your historical figures and looking at what some of the trends are," Felt says. "When you're looking at the trends, you can gauge exactly how much you may be stocking for the future."


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