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 Supertalk 97.5. Audio files can be found on the Entrepreneur’s Playbook page of the PKF Texas website.
Separate your “stock” from your “stuff”.
When you stock material you are making a commitment. A commitment that an item will be available in reasonable quantities for immediate shipment or delivery to customers. Most distributors’ warehouses are filled with two things: “stock” and “stuff.” Stock is the material you intend to have in the warehouse. These are the items that you anticipate your customers will want. Stuff is everything else. You have got to separate the stock from the stuff in order to have effective inventory management . Our goal is to liquidate the stuff and arrange the stock items in the best way to facilitate filling customer orders.
To determine which products you should stock, we suggest you sort the items in a warehouse based on each product’s “annual hits.”
Annual hits represents the number of times each product was ordered by customers, transferred or used in an assembly during the past 12 months, regardless of quantity. Why do we rank products based on hits, instead of the total quantity or material value ordered?
Annual hits more fairly represent that actual expectations of your customers and not the hoped for, or budgeted sales of your sales and marketing personnel. Track items based upon the number of annual hits and compare this to the quantities ordered. Once you start eliminating products with few annual hits your own the way to improving your cash flow and achieving effective inventory management.