Whether your company has lubricant or retail inventory, accurate control of that inventory is essential to maximizing profit. Try using these practical solutions to typical problems.
Purchase errors resulting in overstocking.
Solution – Analyze the excess merchandise to determine source of overstocking. It’s either altogether wrong products for the customer base or simply ordering appropriate products in too large quantities. Move wrong products out through return to vendor, transfer to a location with a different customer base, or sale. If the problem is order quantities, revise your ordering procedures to reflect current demand. Shoot for inventory levels of no more than 1.5 times vendor delivery frequency on any product.
Purchase errors resulting in understocks and run outs.
Solution – This usually requires updating and scheduling demand forecasts with subsequent changes input to“build to” numbers. Scan data history can be extremely useful in analyzing demand trends.
Vendor errors including price and category.
Solution – formalize the notification system. In the ideal world, vendor data would flow seamlessly into your computer system so that price would always be correct. The reality now is that few vendors or marketers have the software sophistication to accomplish seamless transactions, so you need a formalized procedure with your vendor. Then, you absolutely must be entering data daily into your system to stay up with all changes.
Solution – limit the number of people authorized to receive and then train them diligently. Make sure they know exactly what to do if delivered goods do not match purchase order. Have procedures in place for lost invoices. If coding is a problem, track coding errors for common sources. Reward accuracy and do not tolerate inaccuracy.
Vendor, Employee and Customer Theft
Solution – Training and cameras. Begin with training your people about all three types of theft. Yes, you even train about employee theft because the more employees know about it the less likely they are to do it! Technology can also reduce theft. There are sophisticated camera systems that link video to register transactions allowing quick audit as needed.
Solution – As these are purely human errors, the entire solution lies in training. By limiting the number of personnel used for this function, you can increase knowledge through more intensified training.
Solution – The orrect cut-off point needs to be clearly communicated and understood with coordination between the counters and accounting. In some instances, counters have selected a cut-off, which is physically impossible for accounting due to the current capabilities of the accounting system. In some instances, the system has flexibility for the desired cut-off point, but staff does not know how to use the system with anything but for instance a month-end cut-off. If you wish to have varying cut-off points, be sure accounting staff checks with your vendor for system capability and that you allow whatever training time may be required.
Solution – If you’ve already implemented the preceding solutions, any remaining shrink is due to improper markups and/or markdowns, internal product use without proper recording procedures, or intercompany transfers.
For each of these four scenarios, flowchart your current procedures to detect weak points and potential areas for errors. For many companies, the actual procedures are fine; it’s just that no one follows those procedures! If that is the case, discover why the procedures are ignored. Does staff know the procedures? If so, and they choose to ignore them, why is that? Are the procedures too onerous? If not, are there consequences for not following them? Educate staff and then reinforce needed procedures.
Solution — Good inventory control requires good communication between those in the warehouse or store and staff in the corporate office who in turn must be in good communication with vendors. Even with good communication, whenever possible, automate. The less room for human error the better!
Solution — Scanning! It pays for itself! Scan inventory in and then scan it at sale. This scanning, together with very tightly controlled pricing, will eliminate many inventory problems. Couple that scanning and accounting technology with compatible security technology and you will have the battle virtually won.
Finally, one last tip. Many Meridian clients report success with random inventory counts conducted by a highly skilled inventory team. They report that by taking inventory at various times during the month, it’s illuminated situations that wouldn’t have caught at year-end. Plus, the randomness keeps everyone in the warehouse or store on their toes since they never know when the team will show up!