The slowest selling "C" items account for half the items you stock, but only generate 10% of your sales. The next highest-selling 30% of items, the "B" items, will typically generate about 10% of sales. Spend most of your effort on those "A" items, forecasting, reviewing in-stock position and reordering more frequently. Generally, 80% of demand will be generated by 20% of your items.
To fix it: Focus on the items that matter most. It can take an outsized amount of time and resources to keep track of all the details for each inventory item. Best sellers should get counted more often. Huppertz suggests implementing a system of so-called "cycle counting." Choose a few items a day and compare the inventory record to the actual count.
To fix it: Using electronic data interchange (EDI) and bar code scanning can help eliminate data entry errors. In manufacturing, says Huppertz, you've also got to account for yield or scrap during production. Opportunities for miscounts are everywhere: during receiving, during order fulfillment and the all-too-common pilferage. Once you know how much you need, you have to make sure you actually have it on hand. Then there's seasonality: Do you usually see a fourth quarter spike with holiday sales? Or, if you're in the home and garden business, do you see more activity in the spring selling season? "You can also identify and quantify less obvious patterns such as month-end spikes," says Huppertz.
If you've sold 100 items per month for the past 12 months, chances are that you'll need 100 this month. The best gauge is what you've sold in the past. To fix it: Start with some decent projections of how much supply you'll need and when you'll need it. "You may end up marking it down, selling to discounters, or shipping it to overseas liquidators." Your options aren't great, says Paul Huppertz, a logistics expert with The Progress Group, a supply chain consulting company based in Atlanta. Warehousing isn't free, of course, and inventory that sits on a shelf is subject to damage, depreciation, and even obsolescence.
Here are some common mistakes entrepreneurs make in managing their inventory, and how to fix them.Īfraid of being caught short, it's easy to spend too much on inventory, which can eat up working capital and erode profits. Properly managing your inventory involves more than making good hires and getting blue dots next to your best sellers-although those are excellent first steps.
"They don't have to deal with the frustration of not being able to fulfill an order." "Not only does this mean we don't have to disappoint our customers, but this has raised morale among the staff as well," says Isaacson, whose Bethesda, Md.-based company has about 50 employees.