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Inventory Management – How Accurate Are Your Inventory Stock Balances?

by | Sep 1, 2006 | PKF Texas - The Entrepreneur's Playbook®

Note: Running most Fridays in FromGregsHead.com, this is a continuing series of inventory control tips by Jon Schreibfeder. These run Saturday mornings during the BusinessMaker’s Radio Show on FM Newschannel 97.5. Audio files can be found on the Entrepreneur’s Playbook page of the PKF Texas website.

How accurate are your inventory stock balances?

Accurate Stock Balances Are Needed for Success
– No computer system will replenish inventory with the right quantity of the right item at the right time in the right location if the quantity in the computer system does not agree with the quantity physically in stock.

Maintaining Stock Level Accuracy is Difficult
– Not all material related transactions are properly recorded
– Material is put away incorrectly
– Damaged material is mixed with good stock
– There is a lack of warehouse security

A lot of distributors try to make up for stock level inaccuracy with more sophisticated computer software.  Every Employee Must Know the Cost of Bad Inventory Management.
– Inventory is valuable 
– Paychecks result from the sale of inventory
– If inventory is lost, stolen or destroyed, it must be paid for with net profits
– Management must lead by example

Assuming a 4% net profit, it takes $2,500 in new sales to make up for a $100 material loss.  If $100 is lost per week, a branch needs $130,000 in additional sales each year just to break even.  If your employees have not bought into concepts of Inventory Control (Controlling what is in your warehouse) and Inventory Management (Managing your inventory investment to maximize net profits), you will have difficulty reaching your financial goals.

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