In the fifth edition of his book Retail in Detail
,
retail business owner and consultant Ronald L. Bond offers
small-business owners an updated, no-nonsense guide to the world of
retailing. In this edited excerpt, the author explains what type of
inventory system you should put in place and why.
One of the most time-consuming tasks you'll face in operating a retail store
is keeping up with your stock. Unless you have a very narrow product
mix, you'll spend a significant chunk of time tracking inventory.
Although it requires work and discipline to maintain, a good inventory
system will make it easier to meet the needs of your customers -- the
key to growing a successful business.
Here are some advantages of a good inventory tracking system:
- Theft control. Without an inventory system, it's impossible to know if you're being ripped off by customers or employees until it's too late
- Customer service. You can avoid running out of
stock and can determine if an item's in stock and locate it more readily
if you keep track. You can also locate out-of-stock items, their
prices, and manufacturers.
- Financial management. Inventory systems help
you keep track of how you're doing. It makes little sense to go for an
entire year without knowing the status of your stock.
- Product tracking. You can track specific items and weed out low sellers with sales or markdowns.
There are a number of computer software programs available for
tracking inventory. Some are relatively inexpensive. Many allow you to
print and read bar code labels, print invoices, and provide a complete
array of reports and statistics.
One disadvantage of using a package inventory system is the inability
to use stock numbers that relate an item to a specific product and
vendor. You can always look up the information in the system, but it's
not transparent from a stock number and you may not have the time to
chase it down when you're waiting on customers.
You can also use a database program, such as Microsoft Access, to
manage inventory. These programs can handle almost any kind of
descriptive product code, but they'll require more computer skills to
develop than a package system. You'll also have to develop your own
reports and statistical analyses.
If you're not comfortable starting with inventory software, you can
begin with a card system. You can purchase preprinted inventory cards
from an office supply store that have spaces for the item code,
description, supplier, cost, selling price, beginning stock, sales, and
current balance.
When a new item arrives, you'll assign it a unique inventory code and
enter a description, your cost, selling price, and the amount of your
beginning stock on the card. A simple coding system is to use
alphanumeric codes, with the first few digits being an abbreviation of
the vendor's name, followed by an item number. For example, items from a
company called Homespun Cottage could be coded HC-1, HC-2, and so on.
When you sell an item, put the inventory code on the sales ticket. At
the end of the day, update the inventory cards from the sales tickets.
Even if you use a computer system, you can still use the same sales
tickets, merchandise coding, daily posting, and pricing systems. The
only difference is, you'll enter the daily sales and receipts on a
computer-generated printout, which you then input into the computer
weekly or monthly. Each month, update the inventory and generate a new
printout for the succeeding month.
Now that you understand the mechanics of inventory systems, you'll
need to establish some policies for managing inventory. Obtaining
knowledge about inventory is useless unless you use it to improve your
store's sales and profitability. Watch for these indicators:
Items that are selling well and have low stock balances.
With this type of item, you'll find it helpful to establish and
indicate on the inventory card or computer sheet a desirable reorder
point.
Slow sellers that have been in inventory a long time. Unless
these are seasonal items, which will sell later, you should consider
putting them on sale to move them out so you can put your money into
faster-moving items.
Hot sellers for which sales have increased. For these items, you should increase your order quantities or put in a special order to take advantage of the selling surge.
The final inventory activity is the annual physical inventory.
This is essential to the prudent financial management of your store and
shouldn't be skipped. You must do this at the end of your tax year,
which is almost always the calendar year.
To get started, make lists from your inventory system before the
physical count and use these to make your count. These lists should
include the item code, cost per item, and inventory quantity shown on
the records, along with a space for the actual count and a space for the
total value of that item in stock.
After the count, calculate the value by multiplying the cost times
the actual count. Then total this column for all items to get the total
inventory value. With a manual system, you do this by hand, but a
computerized inventory system can calculate the values, along with
differences between actual and recorded inventories. By comparing these
inventories, you'll have an idea of the loss of goods through theft or
disappearance.
In the fifth edition of his book Retail in Detail,
retail business owner and consultant Ronald L. Bond offers
small-business owners an updated, no-nonsense guide to the world of
retailing. In this edited excerpt, the author explains what type of
inventory system you should put in place and why.
How does one go from investment banking to starting a wildly successful online jewelry store? Just ask Amy Jain and Daniella Yacobovsky, founders of BaubleBar, who did just that. After meeting nine years ago in a banking class at Harvard Business School, they ditched the prospect of becoming financial analysts to open BaubleBar.
