What is Inventory Control?

By Jessica Bosari Inventory consists of the goods and materials that a retail business holds for sale or a manufacturer keeps in raw materials for production. Inventory control is a means for maintaining the right level of supply and reducing loss to goods or materials before they become a finished product or are sold to the consumer. Inventory control is one of the greatest factors in a companys success or failure. This part of the supply chain has a great impact on the companys ability to manufacture goods for sale or to deliver customer satisfaction on orders of finished products. Proper inventory control will balance the customers need to secure products quickly with the business need to control warehousing costs. To manage inventory effectively, a business must have a firm understanding of demand, and cost of inventory.

Uncertainty in Demand
Methods to control inventory can depend on the kinds of demand a business experiences. Derived demand, or the demand of raw materials for production and manufacture, can be met through calculations in manufacturing output, balanced with demand forecasts for a given product. Independent demand comes from consumer demand, making it more susceptible to market fluctuations and seasonal changes. By coordinating the supply chain businesses can reduce uncertainty in this area. Inventory costs are controlled through different models that will apply to varying products. Items that are in continuous supply benefit from the Economic Order Quantity model (EOQ). Products available for a limited period are best suited to News Vendor models.

Inventory Costs
There are three main types of cost in inventory. There are the costs to carry standard inventories and safety stock. Ordering and setup costs come into play as well. Finally, there are shortfall costs. A good inventory control system will balance carrying costs against shortfall costs.

Safety Stock
Safety stock is comprised of the goods needed to be kept on hand to satisfy consumer demand. Because demand is constantly in flux, optimizing the Safety Stock levels is a challenge. However, demand fluctuations do not wholly dictate a companys ability to keep the right supply on hand most of the time. Companies can use statistical calculations to determine probabilities in demand.

Ordering Costs
Ordering costs have to do with placing orders, receiving and stowage. Transportation and invoice processing are also included. Information technology has proven itself useful in reducing these costs in many industries. If the business is in manufacturing, then to production setup costs are considered instead.

The Cost of Shortfalls

Stock out or shortfall costs represent lost sales due to lack of supply for consumers. How these costs are calculated can be a matter of contention between sales and logistics managers. Sales departments prefer these numbers be kept low so that an ample stock will always be kept. Logistics managers prefer to err on the side of caution to reduce warehousing costs. Shortfall costs are avoided by keeping an ample safety stock on hand. This practice also increases customer satisfaction. However, this must be balanced with the cost to carry goods. The best way to manage stock out is to determine the acceptable level of customer service for the business. One can then balance the need for high satisfaction with the need to reduce inventory costs. Customer satisfaction must always be considered ahead of storage costs.

Inventory Counts
Retail businesses rely heavily on counting to manage inventory. Counts are compared with records to identify shortages, errors or shrinkage. In many cases, counts must be retaken to ensure the discrepancy is accurate before the source of the problem can be tracked. When low stock is identified, ordering levels can be increased to adjust for changes in demand. Paperwork errors will be more difficult to find, requiring checking and rechecking of receiving slips with inventories taken when the goods were received. Shrinkage problems are often the result of employee theft, requiring a thorough investigation.

Cyclical Counting
Cyclical counting is preferred because it allows for operations to continue while inventory is taken. If not for this practice, a business would have to shut down while counts were taken, often requiring the hire of a third party or use of overtime employees. Cyclical counting usually utilizes the ABC rule, but there are other variations of this method that can be used. The ABC rule specifies that tracking 20 percent of inventory will control 80 percent of the cost to store the goods. Therefore, businesses concentrate more on the top 20 percent and counter other goods less frequently. Items are categorized based on three levels: A Category: Top valued 20 percent of goods, whether by economic or demand value B Category: Mid range value items C Category: Cheaper items, rarely in demand Warehouse staff can now schedule counting of inventories based on these categories. The A category is counted on a regular basis while B and C categories are counted only once a month or once a quarter. Cyclical counting can also take place by physical location within the warehouse during slow hours, as long as transactions can be tracked during the inventory taking.

Flow Management
Manufacturers are less likely to use cyclical counting and often rely on flow management, by analyzing cycle times in the manufacturing process. This involves calculating lead times for raw materials and the manufacture time in which the materials are used to create the product. By analyzing the time cycle,

manufacturers learn when the optimal ordering times are for raw materials. Businesses that process raw materials for other industries are not likely to employ inventory management techniques, other than ensuring there is sufficient space to store processed materials until they are shipped or picked up by the manufacturer that will use them.

Special Concerns for Retail

Retail businesses have a greater risk of loss to goods than other businesses. They suffer from shrinkage due to employee and third party theft on a regular basis. Because of this, hiring practices play an important role in inventory control for these businesses. By screening potential employees for criminal records and drug use, retailers are able to reduce shrinkage

What is Warehouse Management?

By Jessica Bosari Running a warehouse is not as simple as having a place to keep stock. Warehouse management is vital to ensuring you maximize profits in your business. It involves managing your facility, stock, technology and employees so that things run smoothly, and more importantly, profitably.

Facility Management
Housekeeping is not just for homes. The environment in your warehouse reflects your expectations from vendors and workers. A sloppy warehouse in disrepair shows the business does not really care how efficiently or safely the work is done. As a result, workers cut corners and do as little as possible to walk away with a paycheck. After all, if the person with the greatest stake in the business does not care, why should they? Even older warehouses can be kept in good working order and neatened up. You should have workers responsible for cleaning up at shift changes and be certain the building is in sound working condition. Visual reminders to employees about cleanliness and safety help to show them you care about running a safe and efficient operation. Experienced businessmen will tell you that no sloppy warehouse has efficient and motivated workers and no bright, clean operation tolerates sloppy workers.

Slotting Optimization
The places you choose to store stock within the warehouse makes a huge different in picking time, accuracy and safety. By creating a picking or slotting profile in your warehouse, you can ensure efficient operations and give your business the ability to easy adapt and change to market trends in ordering. If your slots are too small, you will be replacing stock more frequently than necessary. Too large, and you will waste space and making your workers travel farther to pick orders. When planning your picking profile, first consider the items that come in and out of your warehouse the fastest. Ensure you have allocated slots for these items that make receiving, picking and shipping

faster. Obviously, the slots must be set up in a way that maximizes your ability to store and move such items in relation to their size and weight. They should be easy to access with all necessary worker safety gear nearby. When initiated from the beginning, slotting helps your business to evolve as it grows. You can set up the appropriate hardware and shelving in advance. Otherwise, you may need to set aside time to reorganize your warehouse and invest in new storage solutions. Clearly, this is not the best option for your business, so get it right from the beginning if at all possible. There is software available that uses the science of product slotting to help you get the most from your warehouse space. By using the measurements of a product and its order frequency, you can calculate the best locations in your warehouse. The software calculates and compares storage combinations until you come up with the optimal layout for your warehouse space. You can then change input in comparison with market trends to reconfigure as necessary.

Taking Advantage of Technology

In the old days, warehouses were run through individual order and picking slips that were sorted by hand. One worker would highlight items and makes notes for the picker, which would then be used to locate and pack orders. This method took an enormous amount of energy and employee resources, creating a bottle neck in operations. The modern warehouse uses various technologies for optimizing efficiency. This can be as simple as ensuring a computerized picking system or as complicated as using robotic means to pick orders. Many companies now use voice systems to direct warehouse floor employees in all activities including equipment checks and order picking. Technology benefits the warehouse and the entire business by improving speed and accuracy. Voice technology is the latest trend in warehouse management, focused on keeping workers safe and productive. Voice technology allows order pickers to work hands free. Instead of holding a piece of paper in one hand and driving a fork lift with the other, workers are able to keep both eyes on the warehouse floor, dramatically reducing warehouse traffic accidents. Some warehouses have doubled efficiency by using this technology. Not only does this technology direct employee activities, it tracks inventory, eliminating the need for barcodes and scanning. Not only are the workers more productive, they are happier, resulting in a 50% reduction in turnover. In the future, voice technology will direct stowage and replenishment as well. It may even be used in cycle counting, receiving and yard management.

Labor Management
To keep things running smoothly, you must have the right employees for the job. An effective warehouse supervisor is needed to coordinate receiving, stowage, picking and shipping. There is a fine line to walk in balancing speed and efficiency with worker safety. Injuries damage morale and the companys bottom line. It is not enough to keep employees safe, they must also be kept happy to prevent turnover. Supervisors must also understand the aspects of your operation dealing with point of sale and supplier relations. Otherwise, they will not be able to initiate procedures in the warehouse that can benefit other aspects of your business. Good customer service starts at the warehouse, making your warehouse supervisor an important foundation to successful business relations with your customers.

The supervisor must know his subordinates jobs as well. He must be able to do all tasks that other employees perform so that he can train new employees and optimize operations for long standing employees. It is important that your supervisors are provided with structured training materials, manuals and software to teach proper safety and handling procedures to workers. Informal on the job training is more costly to efficiency and safety in the long run. Instituting a long-term training and development program for both supervisors and subordinates allows businesses to reduce turnover. Employees trained under such programs are more satisfied, capable and efficient. Developing such a program will pay for itself in lower turnover, higher productivity and fewer work injuries. The warehouse is like the human heart, taking in products and pumping them to where they are needed. When warehouse productivity slips, the entire organization is effected. By paying attention to the facility itself, the contents in it and the people running the operation, you will ensure the life of your business continues to thrive.

What is Logistics Management?

By Jessica Bosari Logistics refers to the movement of material goods, people or energy from a point of origin to the consumer. Logistics management involves optimizing every link in the supply chain to ensure goods reach consumers in an efficient and timely manner. It begins at the production facility or warehouse and ends at the point of sale. The term logistics has military origins, initially referring to the methods an army used to get men, ammunition and supplies to the battlefield. The term has evolved to cover the organized movement, often of materials, in the business world. There are several components to logistics management, because it covers a businesss entire supply chain. Transportation logistics is the most commonly addressed component in supply chain management. How a company transports goods from one location to another can have a strong impact on the businesss overall performance. In many cases, this part of the supply chain is contracted to a third party that specializes in transportation. This helps a business to manage seasonal and market demand changes, minimizing the need to hire and lay off workers based on business cycles. However, transportation is only one piece of logistics. There are five main areas in the supply chain governed by logistics management. They are supply, transportation, warehousing, order fulfillment and customer service.

Supply
Supply deals with the ability to secure the goods or raw materials that will eventually be sold to the customer as a finished product. Maintaining appropriate supply requires demand forecasting and understanding the minimum production requirements to turn a profit. Buyers in a purchasing department are responsible for locating the appropriate goods or raw materials for the best price available and having those goods on hand when they are needed.

Companies must be aware of seasonal and market trends to predict the supply that will be needed and to then manage raw materials for production or goods from vendors to meet the demand. For manufacturers, this part of the supply chain can be complex. They may have several vendors on hand to ensure they are always able to locate the raw materials needed. They must be aware of lag times for the raw materials to reach them. If a raw material takes three months to secure from the date of order, then the business must have at least a three-month supply on hand. Supplies must be regularly counted and monitored, especially for vital or difficult to procure materials.

Transportation
Transportation logistics apply not only to getting raw materials and goods to the warehouse, but also to supply retail locations. In some cases, the sales force carries the goods with them in a route to different retail outlets, as with snacks and beverages. In other cases, major retailers receive shipments of goods from the warehouse. Where transportation takes freight across state lines or country borders, logistics management must address compliance with regulations both local, federal and international. Improperly registered vehicles or failure to meet Department of Transportation regulations can seriously hamper a businesss ability to transport goods when they are needed. Such delays create additional expenses as third parties must be hired to get goods where they are needed on time. This is another reason why companies often outsource transportation logistics.

Warehousing
There are many different ways to manage storage of goods and raw materials. Manufacturers will often have a plant with raw materials on hand and a warehouse nearby where additional materials can be secured when needed. Some businesses have central warehouses that feed smaller local warehouses. These are often placed strategically throughout the country to take advantage of shipping routes from major cities. In some cases, companies even bypass warehousing altogether by using cross docking. Cross docking is a method of moving products from the point of origin or manufacture directly to the consumer. There may be some minor handling or packaging in between, but warehousing is eliminated. This method reduces the cost of shipping and handling for businesses while eliminating storage costs. Efficient picking and packaging rely heavily on the logistics management of the warehouse. The slotting profile, or arrangement of stored goods, can have a great impact on how safely and how quickly workers can pick orders and pack them. Items that frequently come in and out of the warehouse should be easy to access and have sufficient space to store a large quantity. Less frequently ordered goods are best stored in less accessible locations. How and when stock is received, unloaded and replenished will influence the speed and efficiency of order fulfillment. This is where technology plays to greatest role. By using software and communications technology, warehouses can pick orders more quickly with few errors.

Customer Service
The final component in logistics management has to do with keeping the customer satisfied. Order must be processed swiftly and delivered on time, in good condition. Systems must be in place to ensure customers can get information about the status of the order while it is in transit. The shipping system used by the business plays a major role in ensuring timely and accurate information to customers about

their orders. In addition, logistics management must have methods in place to handle returns and defective merchandise. Such problems in the supply chain must be investigated and resolved to ensure customer satisfaction and a reduced level of return merchandise in the future.

Logistics Integration
Modern businesses are learning to integrate logistics so that considerations for all aspects are considered in an overall strategy. Traditionally, logistics management focused on production, operating independently from marketing and sales. The production department focused primarily on efficiency and high output without regard to distribution chains or market trends. Sales departments did what they could to sell as much product as possible, without consideration of the raw materials supply or time lag for manufacturing. Marketers sought to maximize customer service and profit without considering transportation logistics or distribution chains. By integrating logistics along every point in the supply chain, businesses leverage the efficiencies of all aspects of its business to maximize profits and customer satisfaction.

Inventory Control Software

By Jessica Bosari Inventory is the life blood of your business. Whether you keep an inventory of raw materials for manufacturing or if you store finished products for sale, you need to know what you already have to know what you will need in the future. You can minimize inventory costs with inventory control software.

Benefits of Inventory Control Software

Large companies benefit from inventory control software because it allows them to process large amounts of inventory with relatively few resources. Even small businesses benefit because this kind of software comes with multiple business tools helping to track, handle and manage the supply chain. Manual management of inventory is no longer an acceptable method of doing business in the modern world. Tracking inventory manually is like starting a fire by rubbing two sticks together. It is much easier to simply buy a lighter and flick your thumb! Even computer management of inventories through human means leaves too much room for error and loss of information, putting a company at great disadvantage against competing businesses. A properly managed inventory supplies the right amount of goods to meet demand without wasting resources in procuring and storing the goods. Inventory software lets a business manage all aspects of inventory management including purchasing, receiving, warehousing and sales. To remain competitive, businesses must maintain a balance of adequate supply but minimize the supply they keep to meet demand in order to control costs. Overstock is a waste of space where other profitable items could be stored. Shortfalls result in missed sales opportunities and can lead to loss of customers. Inventory management software is ideally suited to maintaining this balance, helping to

forecast demand in the coming weeks or months.

Choosing the right Software

Many businesses, especially manufacturers, have various sets of inventory management controls, making inventory management a highly complex task. The job is further complicated by other aspects of the business that are affected by the way inventory is managed. It is important you choose software that meets the complex and wide reaching needs of your business, leaving you time to make thoughtful and intelligent decisions about your business. Firstly, the software you choose must be compatible with your current computer systems. Companies that offer integration support will be worth the added cost in saved time and productivity. It is a good idea to use a trial version of any inventory management software before purchasing. The software you choose will be able to track serial numbers, print barcodes and store images of the products or raw materials. The software will allow you to set definitions for automatic reordering on the goods that you choose. Where pricing requirements are in place, the software can be programmed to account for them. There will also be ways in which you can adjust counts based on your physical inventory checks and audit the trail of goods to find where items were lost. Because inventory control is such an important aspect of your business, you should not leave it to chance. Go with a brand you know and trust. Be sure the company has deployed the software in many industries, proving a wide range of capabilities. The more flexible the software in tracking different types of goods, the more useful it will be to your business. Look for software with features that give added benefit to your business. Look for analytics functionality to help you forecast demand and trends. If your business involves perishable goods, look for expiration date tracking as well. Remote data collection is another useful feature in inventory management software. Top software producers provide combined software and hardware packages that offer remote access to inventory data.

Online Inventory Software

The leading edge of inventory software gives you nothing to install on your computers at all. There is no concern with compatibility because all you need is an internet browser. Such programs are especially useful where a great deal of travel is required for your business. These systems let you access date from anywhere, even your Blackberry. Internet based inventory systems are often cheaper that traditional software because no additional license purchases are required. You may be concerned with the security of your data, but internet bases systems are reliable and secure. Servers are protected behind firewalls and other security programs. These servers are backed up on a regular basis, keeping your information safe. Regardless of the system you choose, look for features that you will use now and those you may need to use in the future as your business evolves and expands. This will ensure you maintain the competitive edge you gain by purchasing this kind of software.

Using Inventory Control Software

In most cases, inventory software is quite easily implemented and put to use in daily operations. Most

come with tutorials. You will be even better served if the software vendor provided integration support and training. Some programs even train your staff on how to manage inventory. With your software installed, you will be able to manage most aspects of your business with one application. You can track costs, expenses and outstanding debts. You can often track your equipment and its accounting value as well. Your inventory software is only as good as the data you put into it. For this reason, there are certain best practices you should keep in place. This includes ensuring entries from stock receipts are accurate, initiating replenishment strategies and installing procedures for managing dead stock and excess inventory. Inventory software will monitor materials as they are received at the warehouse and stocked. It will reconcile inventory balances, track and report on replenishing methods, and analyze projections for inventory status as well. You can even set periodic goals and try out different ways you might be able to achieve them by changing parameters within the program. The return on investment for inventory control software is great. Some businesses have reduced expenses six fold with the implementation of such programs. The money you save can be put towards marketing your business and improving your infrastructure.

Online Inventory Tools

By Jessica Bosari Online inventory tools are available to help your business reduce costs through structured inventory control and accounting. Such tools are really just accounting software that has been modified to serve the needs of manufacturers and resellers. Gone are the days of tracking your inventory in a spreadsheet. Today, web applications are available that give you the flexibility that inventory software offers, without the constant upgrades. Because online inventory tools are web based applications, they are able to help your business stay on the cutting edge of inventory management in many ways. The advantage of web-based software has long been seen in back office functions, such as day to day accounting and cash flow management. With the inclusion of inventory management, you end up with a full suite of tools that can all be accessed online. For a low monthly cost, companies can use browserbased applications to handle all aspects of the business faster and more accurately. These applications make reports easily accessible to any person in your organization that needs them at any location. In the old days, a companys buyer would periodically check stock for inventory items in short supply and then place an order based on his best guess of how much of a stock will be needed. Such methods resulted in overstock and shortages on a regular basis. Today things are different. Now we can go online for the tools we need to accurately track and replenish supply. Just as computers revolutionized the business world in the 80s, the internet is changing everything today. This every changing medium has evolved to a level where all your business needs can be handled in one web based application. The easy and speed of such applications have given rise to new thinking about the supply chain and how inventory is managed. These new methods are increasing customer satisfaction and the ability for

Web Browser Interface

One of the best aspects of these applications is that the user interface is your web browser. There is less training needed for managers and employees because they are already familiar with web browsers. This universal interface gives you easy access to your information from any location in the world, whether it is on your desktop, laptop, cell phone or PDA. Browser interface means that you no longer need to worry about the operating system you are working with. All platforms like Windows, Mac, Linux or Unix are compatible with internet browsers.

Centralized Store for Information

The reason computers have been such a powerful tool in the corporate world is that they allow companies to keep all of their data in a centralized location. This means anyone in your business, no matter their location, can access the information needed to get business done. Your inventory database, inventory procedures and market forecasts will all be in one place for you to access.

Security Management
Online inventory tools take care of security for you. Your data is kept on secure servers using state of the art technology. This will be an enormous boom for your budget, no longer needed to invest in IT and security systems to keep your data safe. These systems allow you to set security levels and protocols for users, so only those employees that truly need to get the information can have access. Your information is backed up daily on remote servers ensuring your data can be recovered should anything go wrong. In most cases, you can also create your own data backup if you prefer to have the information onsite.

Less Down Time

Web based application upgrades are done automatically and remotely, saving you the time to have a service representative come in to reconfigure your system. This also means that you do not need to service and maintain servers at your location if you prefer not to. This saves on IT infrastructure and labor costs. Because your data is all online, the need to integrate software and upgrades with your current system becomes obsolete. Organizations with remote offices will benefits enormously from this feature. Most applications do not charge for these regular upgrades.

Manage Multiple Locations

Online inventory tools also allow you to manage several warehouses at once, letting you set different replenishment levels for each location and product. The information is available to the users you choose, so your warehouse managers can each access the information whenever it is needed. You can monitor inventory not only in your warehouse, but at any point along the supply chain. You can look at data as a whole for your business, or look only at specific locations or groups of locations. Whether your distribution chain involves external customers or internal departments, you can allow users to view the inventory available when placing orders, eliminating back orders and other problems. Users can easily print catalogs of your merchandise and place orders from remote locations. Many of these applications allow you to check your stock levels and reorder from the same interface.

You can monitor distributions, run reports and forecast trends all from one simple application. You can look at the inbound orders and when they are expected at your warehouse to track the timeliness of your suppliers. It also allows you to check your outbound orders against shipping orders so you know when the materials will leave the warehouse, and coordinate with inbound orders. You can even view open orders that remain to be filled.

Improved Communication
Internet based applications can also allow you to communicate more effectively with your team through messaging. If you notice a problem at one location, you can easily contact the location manager and work out the solution. These applications give you access to every business function you may need.

Streamlined Accounting
Because online inventory tools allow you to track all aspects of your business in one location, end of year accounting becomes much easier. Now you can create a separate listing for assets not found instead of poring over reports and invoices to get the data. You will have a clear picture of your assets and the ability to track them at all times. Systems allow you to manage both tangible and intangible assets.

Inventory Accounting
By Jessica Bosari Inventory accounting is the method by which a business determines the value of assets both for financial statements and tax purposes. Inventory is comprised of fixed assets that are intended for sale or being used in production. The value of your inventory is determined by taking the value of the beginning inventory, adding the net cost of purchases, and then subtracting the cost of goods sold. This results in the ending inventory value. Retailers and manufacturers cannot expense the cost of goods sold until those goods have actually been sold. Until then, those items are counted as assets on the balance sheet.

Common Inventory Valuation Methods

The methods a company uses to value the costs of inventory have a direct effect on the business balance sheets, income statements and cash flows. Three methods are widely used to value such costs. They are First-In, First-Out (FIFO), Last-In First-Out (LIFO) and Average Cost. Inventory can be calculated based on the lesser of cost or market value. It can be applied to each item, each category or on a total basis.

FIFO
FIFO operates under the assumption that the first product that is put into inventory is also the first sold. An example of this in action can be made when we assume that a widget seller acquires 200 units on Monday for $1.00 per unit. The next day, he spots a good deal and gets 500 more for $.75 per unit.

When valuing inventory under the FIFO method, the sale of 300 units on Wednesday would create a cost of goods sold of $275. That is, 200 units at $1.00 each and 100 units at $.75 each. In this way, the first 200 units on the income statement were valued higher. The remaining 400 widgets would be valued at $.75 each on the balance sheet in ending inventory.

LIFO
LIFO assumes instead that the last unit to reach inventory is the first sold. Using the same example, the income statement and balance sheet would instead show a cost of goods sold of $225 for the 300 units sold. The ending inventory on the balance sheet would be valued at $350 in assets. When this method is used on older inventories, the companys balance sheet can be greatly skewed. Consider the company that carries a large quantity of merchandise over a period of 10 years. This accounting method is now using 10-year-old information to value its assets.

Weighted Average
Average Cost works out a weighted average for the cost of goods sold. It takes an average cost for all units available for sale during the accounting period and uses that as a basis for the cost of goods sold. To site our example again, we would calculate the cost of goods sold at [(200 x $1) + (500 x $.75)]/700, or $.821 each. The remaining 400 units would also be valued at this rate on the balance sheet in ending inventory.

Specific Identification
A less commonly used, but important method to valuation is called specific identification. This method is used for high-end items that are more easily tracked. In some cases, this method can be used for more common items, but less value is realized from this accounting method is such cases. This is because powerful and detailed tracking software is required to employ specific identification on large numbers of goods. The cost of such software often outweighs the financial benefits that might be gained.

Inflationary Effects on Valuation

No matter how you look at it, you are still coming up with 700 widgets that cost you a total of $575. This would all be well and good if the value of money remained static. However, market conditions change causing inflationary changes. When this happens, your accounting method can have a strong impact on how healthy the business looks on income statements and balance sheets. The affects cash flow when businesses seek credit to pay for ongoing operations.

Rising Prices
When prices are rising (and they usually are), each of these valuation methods produces a different result on a companys finances. Using FIFO under such conditions will show a greater value on the balance sheet, thereby increasing tax liabilities but also improving credit scores and the ability to borrow cash for ongoing operations. Older inventory is being used to determine the cost of goods sold and newer inventory is being used to report assets. LIFO decreases the value on the income statement, but can reduce the level of depreciation you are

able to take on assets. This is good for taxes but bad for borrowing. Industries most likely to adopt LIFO are department stores and food retailers. The method is rarely used in defense or retail apparel.

Falling Prices
When prices are falling, the effect on FIFO and LIFO values is reversed. FIFO produces a lower income statement and higher balance sheet. LIFO produces a higher income statement and a lower balance sheet. In either case, Average costs falls somewhere between, while specific identification will give the most accurate and reliable results. It is important to understand that LIFO is only used widely in the United States. This valuation method is disallowed under International Financial Reporting Standards. When firms adopt LIFO, it is for the tax advantages during periods of high inflation. Once adopted however, switch back to FIFO during a period of market growth can be painful. The switch will create an artificially lower net income.

Making the Commitment

The problem with committing to either FIFO or LIFO is found in tax filing. Once a company uses one or the other on its tax filing, it must use the same method when reporting to shareholders. So using one method to a companys benefit on taxes can harm earnings per share. In either case, the companys financial statements must disclose the method used. It must also disclose the LIFO reserve, or the difference in value between what the inventory would have been worth under FIFO accounting. The method a company chooses does not necessarily have to reflect the actual flow of goods. The method chosen will be used for tax and accounting benefits and will rarely be based in reality.

Inventory Management Software

By Jessica Bosari Inventory management is important to every business, especially so for manufacturers and resellers. Managing materials and goods so that they utilize the fewest of an enterprises resources can give the company a competitive edge in an ever-increasingly tight market. Inventory management software lets a business manage inventory along all points in the supply chain, from receiving to the point of sale.

Functions of Inventory Management Software

Inventory management is a highly complex process that involves many variables. A business must coordinate receiving and stowing with outbound shipments, always ensuring there is ample space for new stock and that all items are accounted for. The flow of goods in and out of a business must be monitored closely to identify market trends and to create strategic plans for the enterprises future.

Flow of Goods
Not only must a business keep track of the goods coming in and going out, it must also track the costs to procure, store, sell and ship these goods. The company must also account for damage, loss, and labor costs associated with handling the merchandise. Inventory management software allows an enterprise to track all of these things, while detailing the precise location of goods to allow for fast and efficient order picking.

Replenishment
The business can determine the appropriate ordering times for inventory replenishment with inventory management software. Software allows for controls to be set that determine stock levels for reorder, ensuring the business always have enough product to meet demand. The software even helps determine what an items reorder point should be by taking in factors like lead time, seasonal changes and the time between receiving and stowing. These settings can easily be altered when needed.

Tracking
Inventory management software also lets a company monitor and track multiple locations or the business as a whole. The business can review complete histories of lot numbers so that products can be tracked throughout the life cycle. This feature is especially helpful for resellers working with perishable goods because it allows the business to set expiration dates for the products. Accounting is made easier with such software as well. It allows the company to track specific cost for each lot. The lot can be tracked all the way to the point of sale.

Additional Functionality
Some software packages carry other functions that allow the company to extend operations beyond brick and mortar, addition E-commerce capabilities. Further enhancements allow the business to consolidate shipments, and process back orders, returns and substitutions.

Choosing the Right Software

Selecting the right software will depend on the scrutiny the company places on core business functions. It is easy to become distracted by the bonus features some software offers. A business must determine the core functions needed and focus on acquiring software that fills those needs most efficiently. It is not safe to assume a given software package has the basic functionality all businesses should have. Always scrutinize the list of functions the software vendor provides and ask questions to fully understand the depth of capability for each function.

Tailoring to Business Needs

Not all software is created alike and most packages were designed with specific businesses in mind and then later marketed to a wider audience. For this reason, it is vital that a company seek software that fits the core business model. Manufacturers will seek to find software design specifically for that type of business. For such an enterprise, a software package that is designed around accounting and has simply added on a feature for manufacturing will not fit the bill. Not only must the software be designed for manufacturers, it must also fit well with the particular business model. For instance, make-

to-stock manufacturers will not be as well served with software designed for make-to-order manufacturers. Distributors will want software that functions well in order processing, inventory management and transportation logistics. In most cases, software packages are designed for one of these elements and then altered to include the other two. By finding out who a software vendors customers are, a company can better understand the types of business the software is good for and make a more informed decision before purchasing. It is rare that the software salesman is the same person that answers customer questions, solves problems and coordinates implementation. The salesmans main goal is to get a business to buy his product. For this reason, the purchaser must ask detailed questions and never accept an answer that is not crystal clear. Ask questions about each aspect of the softwares functionality and be prepared to settle for some functions to be limited. Focus on meeting the companys core business functions and negotiate other functionality modifications with the seller.

Customer Service
No company should purchase a software package without first speaking to other clients who use the software. While contacts can be made through the salesman, it is obvious that the salesman will only point to positive reviews. A business can research forums online to connect with other users of a software and collect user experiences before making a purchase decision. The research should focus on customer satisfaction, responsiveness of the help desk and ease of use.

Usability
While core functions are the most important aspects to software, usability is also important to minimize training costs for staff. Pay special attention to tasks that will be commonly performed in the organization. Consider how many clicks, how many screens and how much time is involved in performing a specific task. The old adage, garbage in, garbage out rings especially true when it comes to procuring the right software. The successful implementation of a given software package depends greatly on the effort spent in investigating all options available and selecting the most appropriate package.

Challenges of Implementation
No matter which software package a business chooses, it is important to understand that implementation is an even greater challenge than choosing the right software. Implementation always takes more time, money and energy than anticipated. By making a good choice in selecting software, a firm minimizes the challenges associated with implementation.

Inventory Management Systems

By Jessica Bosari Look at any large successful retailer today and you will be astounded at the sheer numbers involved. Wal-Mart alone carries items manufactured in over 70 countries. The logistics of managing such an inventory is astounding. Other discount retailers like Wal-Mart are able to maintain low prices by using inventory management systems and sharing the information with store managers. The goal of inventory management systems is to ensure there is always enough supply to meet demand while keeping as little stock as possible. Selling out of a product causes damaged customer relations and lost sales. Large retailers can offset these problems by offering low costs to consumers, who will keep coming back even when a store is sometimes out of stock on items they regularly buy. Smaller businesses will have less success with this strategy as they are simply not capable of securing the same bulk discounts on goods that larger retailers benefit from.

Tracking in Inventory Management

Inventory is managed primarily through tracking. Systems are put in place that monitor sales, available supply, demand and market forecasts. Businesses must be able to communicate quickly and efficiently with suppliers and central offices to keep up with the every changing demand and availability of goods.

The Human Element

A good system does not make purchasing decisions directly, but allows employees to make good decisions based on information provided by the system. This also leaves more room for human intuition in the purchasing process. Such systems provide information such as demand forecasting, and warehouse supply information. It will link employees to suppliers quickly and seamlessly. Other benefits to an inventory management system allow for strategic planning, providing sales forecasts and procuring information on raw materials and finished goods. Some retailers avoid the need to manage inventory altogether by employing vendors to do the work. Product vendors visit a retail location, stocking and placing products. Store managers and vendors share information to maximize sales. This reciprocal arrangement is often ideal for both parties in that the retailer has no duty to track inventory and the vendor receives important feedback to use in marketing and product development.

Bar Codes and Scanners

Most businesses manage inventory through the use of bar codes and laser scanners. The barcodes represent a product identification that a computer recognizes when scanning the code. In this way, companies can count items as they come into the warehouse, are shipped off to the retailer and finally sold to a customer. This allows the retailer to know how much has come into the store, how much has been sold, and by extension, how much should remain on the shelves. This tells retailers which items are selling well and also alerts them when products need to be reordered.

The Trade Off

Whether the big discount retailers have found the best inventory strategy or not remains to be seen. There are still several good reasons for carrying safety stock. Primarily, maintaining a backup supply of goods ensures you can always provide items to customers when they are desired, resulting in high customer satisfaction. Time is saved as well. Lags can occur at every point along the supply chain. Safety stock compensates for these delays by preventing disruptions in the flow of products from warehouse to retailer. Safety stock also gives businesses more certainty in planning. As demand fluctuates, they can be sure a supply remains on hand. There are also cost savings in buying large lots, so businesses are well served to purchase extra inventory to keep as safety stock.

Upcoming Technologies in Inventory Management

In coming years, expect to see more automation in respect to product tracking through the use of RFID, or radio frequency identification. This method uses a microchip to transmit the information about a product to a data collection source. Because radio waves travel in all directions, there is no need for a specific scanning point. This means a business can receive information about each item in a large shipment without ever opening the container. This will allow for greater flexibility in order consolidation and shipping for resellers. In addition, workers will no longer need to climb up on high shelves or use a lift to reach items stored high in warehouses. The method can also give specific location information to a store manager, allowing better theft protection for high-ticket items. On the down side, RFID signals are generally frowned upon by consumer advocates who complain that the level of data transmitted infringes on their privacy. There are concerns that the data will be misused or sold to other retailers for marketing purposes on related products. Businesses can run into problems with RFID signals, which can interfere with each other and create inaccurate readings. Still, RFID is generally becoming accepted as superior to bar codes. Such devices allow for more efficiency, more compact storage of merchandise, and swifter movement of inventories through the business. All this drives down costs for everyone, both business and consumer alike. Heavy reliance on technology has its share of headaches. There are problems with computer crashes and software failures that can severely disrupt a companys ability to do business. Many large discount retailers are caught off guard by unpredicted surges in sales because they rely too heavily on inventory management systems instead of keeping safety stock. This results in lost sales.

Inventory Accounting
It is also important to look at the role of inventory management systems in inventory accounting. Those who do not keep safety stock have fewer assets on the books, limiting cash flow in the business. Consider, however, that this is offset to some extent by tax savings. Therefore, the big retailers who rely heavily on technology to manage inventory justify the lost sales with the savings in taxes. The level of reliance on technology in inventory management systems depends on the business. It is notable that this methodology is not widely used. While larger retailers have trended towards reducing or eliminating safety stock, other businesses have not adopted this model. They instead rely more on traditional methods of inventory management which include keeping a buffer stock on hand. This allows such companies to leverage the buffer stock as an asset in securing loans

What is Distressed Inventory?

By Jessica Bosari Distressed inventory is comprised of those goods or materials that have spoiled, become ruined, or are otherwise impossible to sell on the standard market. It can also be items in good condition that have remained on the shelf too long, taking up valuable resources that could be used towards more profitable merchandise. Sometimes distressed inventory comes about due to overstock; other times, demand simply dries up. Distressed inventory is a serious threat to the livelihood of any business.

The Cost of Distressed Inventory

For many businesses, the cost to buy goods for sale or manufacture eclipses even the cost of labor. When inventory levels are allowed to grow beyond sales forecasts, margins are reduced because excess stock must be sold at discounted rates, resulting in lower margins. Stagnant inventory is a source of money a business cannot access when it may be most needed. This slows down a companys ability to maneuver in a competitive market. The money would be put to better use in purchasing the next highmargin product of the day. Beyond tying up dollars, unsold inventory declines in value over time, creating a double jeopardy. Not only is the business losing profits it could be securing, it is also losing monetary value on the product itself. This makes it harder to sell, forcing deeper discounts and lower margins. This is especially damaging if the inventory was purchased with a loan. Now it is also costing to company money in interest fees.

Product Life Cycles

Every product stocked by a company has a life cycle. There will be increasing demand until a peak is reached and then the demand will subside. These trends may run along seasonal lines or simply be a one-time fad event. Once demand begins to ebb, huge mark downs are needed to keep sales going. The value of the merchandise can go down as much as 50% annually while it sits on the shelves taking up the space of cash that could be used to grow the business.

Why does Overstocking Occur?

Overstocking comes from several sources, most of which are forces from within the company. This means the business can control overstocking through proper management. Market forces are only the cause of overstocking in a small percentage of cases.

Internal Causes of Overstocking

Various managers are encouraged to maximize inventory investments to paint a rosier picture on balance sheets. In addition, buyers look at the cost per unit, rather than paying attention to the bulk of the inventory. The more they buy, the cheaper they get it, making them look good at review time. Operations managers like to over-buy so that the production line will not come to a stall because the supply of a part has been depleted. Salesmen are ever-optimistic and will over-buy in anticipation of gains in sales and fears of running out of stock just when a big sale is being closed. The various motivations of these workers are well-intentioned, but they lose sight of the effects over-buying has on

the companys bottom line.

Trying New Items

Market forces can also contribute to over stocking and dead inventory. The biggest culprit is often a new product that the business tries in an effort to find new sources of profit. Too often wholesalers try out new items based on a vendors recommendations without getting any assurances about what will happen to items that do not sell. When agreeing to try a new product, wholesalers should negotiate terms for the vendor to take back unsold merchandise at or near cost, within a specific time frame. A good target date is six to nine months after the wholesaler receives shipment of the stock. Market surveys show that only a small percentage of customers who said they would try a new product actually come through with a purchase. This means that the market research done by the vendor is skewed to present higher sales forecasts than can really be expected. Another way to reduce the risk of dead inventory on new products is to search the market for smaller quantities of the item that can be tested to see how the sales will be. Even if the cost per unit is higher, the reduction in dead inventory will be well worth the extra cost.

What to do About Dead Inventory

Distressed or dead inventory is a problem for any company in the distribution business. While sooner or later every company must deal with this problem, any business caught in a cycle of over-buying must take measure to break the trend. This means ridding the business of distressed inventory, freeing up cash to purchase goods that will sell quickly and monitoring stock more closely in the future. Managers must be level-headed and sober in assessing the steps needed to liquidate the inventory.

Mark Downs
The most popular method for ridding the business of distressed inventory is to mark the goods down for quick sale. It is common for businesses to keep a regular practice of scheduled mark downs as long as particular products remain in inventory. Managers must be merciless in discounting merchandise to make it move quickly. While marking items down as much as 75% can be painful, the cost of keeping the goods is even more so.

Returns
In some cases, the company can communicate with distributors to request that they take back excess inventory. Proposals should be structured in a way that benefits the distributor, such as offering the merchandise in exchange for other merchandise that may sell better.

Charitable Donations
If all else fails, charitable donations are always an option. If goods have been drastically reduced and still remain on the shelves, a charitable donation allows the business to write the donation off on taxes.

Monitoring Stock
Close monitoring of inventory levels is needed to keep them at healthy limits. Cycle counting should be done to maintain control of stock on a regular basis. This allows the business to spot problems before they cause serious financial concerns. In addition, strong inventory management systems should be kept in place that base purchase decisions on market forecasts and stock levels, not on the influence of salespeople or operations managers.

Bonded Warehouse
By Doug Brinlee The global economy is made up of importing and exporting goods from one country to the next. The management of these goods from point A to point B is known as logistics. Logistics deals with everything from shipment arrangements to customs to storage. In many industries that deal in imports and exports, putting your materials in a bonded warehouse is common practice.

What Is A Bonded Warehouse?

A bonded warehouse is a typical warehouse like any other but the goods which normally have a duty on them has been unpaid. These goods are stored at the bonded warehouse under joint custody of the importer and the customs officers. Bonded warehouses are usually third party institues and are paid a separate fee for the storage of the unpaid products. Some warehouses are run by individual companies while others are government warehouses. This system exists in all developed countries of the world. Bonded warehouses exist in countries all over the world. They specialize in products such as frozen goods, large quantities of liquids, agricultural goods, commodities, and transportation. Bonded warehouses also store construction materials before they are used on construction projects and sites. This is often the case when there is too much material to store directly at the job site. Bonded warehouses are subject to specific laws which vary from country to country and state to state. These laws cover who can use bonded warehouses and what kind of goods can be stored there. Specific ports may also have their own set of regulations that bonded warehouse operators need to abide by. This may include proof of insurance, adequate security systems, safety measures for fire prevention.

History of Bonded Warehouses

Bonded warehouses have not always been around. Before they became common practice in England, anything that was imported had to pay their import duties and fees at the time the shipment was imported. If this was impractical for a company, then a secured bond could be given to authorities as a promise for future payment. One of the problems with doing business this way was that if you did not have the money to pay the fees, you had to immediately sell your goods to raise th emoney. This often resulted in loss of profits due to low markets. Another problem was that businesses would increase the price of their goods to pay the high duty fees. By doing this, they became less competetive on the market.

In 1733, Sir Robert Walpole tried a solution to the import problem when he came up with his system to place tobacco and wine in designated warehyouses. His system was adopted in 1803 and according to it, imported products were placed in warehouses and importers were given bonds for payment of duties after the products were removed. Years later, The Customs Consolidation Act of 1853 did away with the bonds and set up a means of securing duty fees. These provisions were also included in the Customs Consolidation Act of 1876, the Customs and Inland Revenue Act of 1880, and the Revenue Act of 1883. According to the Act of 1876, these warehouses were referred to as the kings warehouses and were approved by the crown. According to the various acts, before any goods can be warehoused, the importer had to give a security by bond or other means that were approved by customs officials for the full payment of the duties. The acts also set up rules that governed the shipping, unloading, inspection, and warehousing of imported goods. Finally, while the imported products were held under bond, the importer could prepare the goods for market. This included mixing, packaging, bottling of liquids such as wine and liquor, and and manufacturing of raw masterials.

Types of Bonded Warehouses

Bonded warehouses are owned and operated by either a government agency or a private company. Private companies generally contract out their warehouse space. These private companies will sometimes cover the cost of the duties and fees for the importer. Individual companies must file the correct paperwork with the government and customs officials where the warehouse is to be located. The paperwork can be long and complicated. Companies that are unfamiliar with the procedures can hire a lawyer who has experience dealing with the detailed forms. Other than government or third parties, bonded warehouses may be maintained by a large import or export company. By having their own warehouses, it is more convenient for companies and helps to speed up the import/export process. Company-owned warehouses that are bonded are a good idea if the company does a large amount of importing or exporting.

Advantages of Using Bonded Warehouses

The common practice of storing goods in bonded warehouses has several advantages. First of all, and most important, the importer can store their goods without having to pay the immediate duties on them. Plus, if the importer sells the products for re-export, they do not have to pay any duties at all. By placing the goods in a bonded warehouse that has adequate insurance, the value of the goods will be covered should they get damaged or destroyed while in storage. This covers such events as fires, flooding, or other means. If the products are damaged or destroyed, then the importer does not have to pay custom duties. Custom duties are not cheap, especially on imported shipments of large quantities. By having bonded warehouses, it frees up cash flow for importers. They can also take their time to market their good properly to get the best price possible.

Economic Order Quantity

By Doug Brinlee Economic Order Quantity is the calculating method used to determine the best level of inventory for production while being the most cost effective for holding and ordering. EOQ, as it is referred to, has been around since the rise of modern manufacturing processes back in the early 20th century. The first model for calculating EOQ was designed in 1913 by F.W. Harris. What EOQ basically does is determine the best point where the costs for inventory holding and ordering are at the lowest. This helps to determine the number of units of stock to order to re-supply inventory without spending too much money on overstock.

How Does EOQ Work?

EOQ is not used in every type of business and industry. Most companies that deal with large volumes of stock use a form of EOQ. It is common in manufacturing where the ordering of stock is constant and repetitive. EOQ is primarily used for purchase-to-stock distributors and make-to-stock manufacturers. These are businesses that have multiple orders, release dates for their products, and have to plan for their components. Another type of business that uses EOQ are those that have maintenance, repair, and operating inventory (or MRO). Businesses that have a steady demand for stock are the most suitable for EOQ applications but some seasonal items can benefit from the method, too.

How To Calculate EOQ

Economic Order Quantity must be calculated using a mathematical equation. By using a set of numbers for production, demand, and a few other variables, a companys inventory costs can be minimizes. Here is the equation for EOQ: The sub-components that make up the equation are as follows: Annual Usage This part is pretty self-explanatory. Based on units, a company simply enters the predicted annual usage amount. Order Cost This component is the sum of the fixed costs that occur every time an item is ordered. They are not associated with the quantity ordered, only with the actual physical act required to process the order.Also known as purchase cost or set up cost. Carrying Cost This part is the financial costs of carrying and storing inventory at or near the business. The amount is mostly made up of the costs associated with physically storing the inventory and the financial investment for the inventory. It is also referred to as holding cost. As long as the data used for the calculations is accurate, this formula is a good method for determining EOQ. However, many inventory management systems are plagued with inaccurate data. Miscalculations such as exaggerated costs are common mistakes. If a company only uses the data from purchasing and receiving, or from product storage and handling, the calculations will yield very high numbers. Companies all across the world use software to determine EOQ but despite the accuracy of computers,

there can still be errors. Often, the users of this software do not understand how to properly utilize it. Also, sometimes the goals of a company do not meet the product of the EOQ calculations. When this happens, company leaders and executives usually ignore the EOQ calculations. The EOQ formula is not absolute and can be modified slightly from its original form. It can be used to determine many things such as production levels and lengths of time between orders.

Implementing EOQ
There are two main methods to implement EOQ in a business. It is assumed before you do that the data for costs have already been gathered. The first method is to use a spreadsheet and manually enter the quantity one at a time onto the inventory sheet. While simple, this can be very time-consuming. It also works best for companies that deal with smaller amounts of inventory. If the company in question has a large inventory, say more than several thousand units, then you will have to use the EOQ software along with your existing inventory system. This method will calculate it at a much quicker rate and save money on manpower and resources. The second method you can use is to download company data to a spreadsheet. Once the calculations are finished, you can upload them to your inventory system manually or with a batch program. Either way will work. To make sure that the EOQ you are using for your company is running efficiently, there are some things you can do. The first is to run a test on the model. This should be done before the EOQ model is finalized to make sure it is accurate and no glitches are involved. The best way to test it is to run the method on a sample batch of items. Afterwards, manually check the results to make sure they match the models final numbers. Adjust the EOQ formula if needed. By running tests, you can determine how the method will work on inventory storage and ordering costs. Try to look at a long term plan if possible. Small changes may not be readily apparent with the model and may only become noticeable over time. To reach the best inventory level, the EOQ model may need to be slightly adjusted.

Stock Management
By Doug Brinlee Inventory for a business is more than just materials and goods that are kept in a warehouse. Inventory plays a significant role in a companys physical assets. It represents a financial investment that if not used properly, can really drain a companys cash flow. To make sure that they do not just throw their money away on stock, a company spends quite a bit of manpower and resources on monitoring their stock. The process of monitoring inventory is known as stock management. Stock management is basically a series of processes for keeping up with rotating stock. This includes tracking, shipments, handling of goods, and ordering to resupply the current levels of inventory. Successful stock management can make or break a company. If not implemented correctly, a company can waste a lot of money on excess inventory or they could be short on supplies which slow down production.

What Is Stock Management?

A companys inventory is made up of a number of different products and materials. Having a good method of stock management is in understanding the different levels of stock and its dynamics. For instance, how much of one particular inventory item does a company use? Do they use one item more than others? When should additional inventory be reordered? There are several factors that play a role in stock management and the amount of stock that is used. Influences on inventory demand are either internal or external. Purchase orders are designed to keep all the chaos that is inventory in good working order. Stock management is mostly governed by inventory software. The computer keeps track of what comes in and goes out of the inventory. There are numerous third party companies that provide stock management software for a variety of businesses. The best systems are those that are compatible and capable of monitoring multiple stocks in several locations along with several users.

Common Methods of Stock Management

With the changing world economy, businesses are paying more attention to their inventory levels. They are looking into better ways to manage stock. A structured method is needed to make sure that inventory levels are optimized for production and cost. An automated method is preferred over the old fashioned manual method which consists of several disadvantages such as higher costs and inventory error. A successful system for stock management ensures that a company has enough supplies of raw materials for their production. A faulty or inadequate management system can slow down production if not enough raw materials are kept on hand. If production slows then there is a shortage of finished products which means lower sales. When a company runs completely out of stock, it is called a stockout. Stockout can hurt customer service and company image. A company that continually experiences stockout will lose customers to the competition. The same is also true of having too much stock. An inadequate stock management system can order too much raw materials which results in overstock. This is stock that will just sit there, taking up space, and waiting until it can be used. If the stock has an expiration date, it may go bad before it can be used in production. To prevent too much stock or not enough, stock management systems use one of two different methods to avoid these blunders. They are Buffer Stock and Just-In-Time Stock.

Buffer Stock
Buffer Stock is an additional amount of stock that is held in reserve during times of re-ordering. It works like this. Normally, stock is held at certain levels. When it drops below those levels, the management re-orders more stock to bring it back up to that desired level. However, there is a waiting period between the time stock is ordered and when it is actually delivered. Meanwhile, stock is still being used. Buffer stock is kept in case the delivery takes longer and supplies get low. Buffer stock keeps a company from running out of stock while they wait for a delivery. The benefit of Buffer Stock is that profits will increase as the price rises. Stock that was purchased at a lower price can be sold at current market levels that have risen. Buffer Stock also ensures the company has an inventory of supplies in case of emergencies.

Just-In-Time Stock
Just in Time Stock was developed by the Japanese in order to minimize holdings of stock. How this works is distributors deliver the needed supplies at the exact time the stock is required. Finished products are completed only so far as the next phase of production. The deliveries arrive at such regular times that a company does not have to deal with storage of production supplies. Also, a company does not have a build-up of finished products to distribute and try to sell. They are only produced as they are needed. The benefit of Just in Time Stock is that there is less risk of stock becoming obsolete or going past its expiration date. Also, more space is available because there isnt a large amount of stock taking up valuable space. This also provides a lower maintenance cost. The method promotes flexibility in a companys workforce. This flexibility is essential is problem-solving and increasing product quality. A successful stock management system can be achieved from several approaches. The first is the manual method. This is where all of a companys stock is manually inspected and counted. Mosty companies do their inventories once a year. There are even third parties who can come in and calculate stock for the company. While the manual method works well for many small businesses, it is quite impractical for large companies. Another element to successful stock management is stock rotation. This is the practice of using up older stock first. This is especially important for stock that has an expiration date such as produce and groceries. The older stock is moved to the front so that it may be used next. The newer stock is placed at the rear of the chain. This is an ongoing process. A computerized system is the most accurate method of keeping up with stock. For larger companies, it is also the most practical. It would be far too costly in manpower and resources to try to manually keep up with thousands of different items when a computer can do it faster, cheaper, and more efficiently. The use of a bar code makes a computerized system much easier than any other method.

Consignment Stock
By Doug Brinlee Consignment stock is goods which are stored at one location, such as a business or a warehouse, but are legally owned by a different company such as a supplier. Consignment inventory is very common in manufacturing, such as the auto industry. Stock remains under ownership of the supplier until the customer is ready to use it. The customer is not obliged to pay for these supplied goods until they remove them from their consignment stock. It is at this point that they technically buy the stock. If the stock does not sell or the customer decides that it no longer needs it, then the items that are left over are returned to the legal owner. Consignment stock is closely related to Vendor Managed Inventory (or VMI). Since the inventory is still under ownership of the supplier, an immediate invoice is not needed when the stock arrives at its location. Only when the stock is sold will the customer create an accounts payable. The supplier is responsible for crediting a customers inventory and debiting their stock.

Why Use Consignment Stock?

In todays fast-moving business world, the relationship between customers and their suppliers can make all the difference in a successful business plan. In order to stay competitive, customers must work with their suppliers for an arrangement that best suits the customers needs. That is the main reason for the consignment stock method. Consignment stock is often used to make it more convenient for the customer to have their supplies and raw materials close to where they manufacture their products. It is also used to reduce a customers total working capital. By having consignment stock on hand, either in a stock room or nearby warehouse, a customer can continue with their manufacturing without interruption.

Functions of Consignment Stock

In Vendor Managed Inventory, the supplier oversees a companys inventory items. But in consignment stock, it is the customers responsible to manage it. The customer is in charge or moving stock from storage to production. They are also in charge of keeping up with quantities and in contacting the supplier when stock runs low. They are also responsible to communicating with the supplier about moving the stock around, since the supplier still legally owns the items. The supplier normally inspects the stock quarterly or every half-year. If there are any errors in invoicing and more consignment stock has been used than recorded, the customer is billed for the usage. When setting up a contract for consignment stock, the supplier and customer will agree on the terms such as how long the contract will last and what to do with left-over consignment. Details are recorded on estimated usage and reorder quantities. Consignment stock contracts can vary in several ways.

Advantages of Consignment Stock

Dealing with consignment stock has many advantages. For instance, the customer knows that raw materials will always be readily available. They do not have to worry about hunting for new suppliers every few months. Consignment stock also saves on money that would normally be invested in unused inventory. This helps keep up a positive cash flow for the customer. Another advantage is that the purchasing of inventory is not tied into re-supplying and waiting for the new stock to arrive. Purchasing is automatic when the items are used. This saves on time. One of the main benefits of consignment stock is that customers store the consignment goods at their own warehouses. They can access the goods in the consignment warehouse at any time which makes it much more convenient for the customer. Customers do not get billed up front for the entire stock. They are only billed for the goods when they are removed from the warehouse and only for the actual quantity taken. Capital is increased because there is less money tied up in non-used inventory. Re-supply of the consignment can be made at convenient and regular times. This keeps production running smoothly and without having to stop. Dealing in consignment stock prevents customers from being susceptible to what is known as panic buying. This is when there is a change in the market and the customer panics trying to buy (or sell) stock in order to adapt with the change.

Risks of Consignment Stock

Although there are advantages to consignment stock, there are some risks and disadvantages as well. One disadvantage is that the supplier does not get paid until the stock is used. If customer production is slow, then this will be reflected in the suppliers cash flow. Although the customer is saving money by not buying the stock until it is used, it still takes up physical space. This is space that could be put to better use storing supplies the customer actually owns. Having a well supplied consignment stock is not necessarily a good thing. Stock inventory may increase due to duplicating inventories and to the suppliers negotiating inflated stockholdings. There is not as much pressure to reduce inventory because the customer does not have money tied up in it. While beneficial for the customer, it is a disadvantage for the supplier. Customers may not be properly motivated to come up with an optimal business plan. This is again due to the fact that they do not have any money sitting in stock that is not being used. One major disadvantage for customers is that any discrepancy in consignment stock that is short is the financial responsibility of the customer. So they could end up paying for stock that was misplaced and never used. Most of consignment stocks record-keeping is designed to be done by computer but usually ends up being done manually. Because accuracy is key, record-keeping must be of the highest quality. This can lead to the possibility of human error.

Inventory Credit
By Doug Brinlee All too often a company needs immediate cash for various needs and they just dont have it. Some industries require a distributor to pay for a product before they can sell it, requiring them to have cash on hand for their suppliers. Although the company will recoup their money plus a profit, it can be difficult having to pay that much cash up front. Of course, if they dont have the product, then they cant resell it and they will be out of business. So what does a company do for cash up front? One common solution is inventory credit.

What is Inventory Credit

Inventory credit is the business practice of using a companys stock or inventory as collateral for a loan. Ost banks, especially in todays economy, are reluctant to issue unsecured loans, even to established companies with good credit. But inventory represents a companys physical assets and has cash value if liquidated. Inventory credit has been used for centuries. The concept got its start in ancient Rome with agriculture and merchant goods. The practice is used worldwide, especially in third world countries where ownership of land titles (normally used for loans) can be somewhat dubious. One common product that uses inventory credit for financing and can be found in any grocery store is parmesan cheese from Italy. Inventory credit is also used for agricultural businesses in Latin American and Africa, manufacturing, and automobile dealers with a lot of money tied into their inventory.

How Inventory Credit Works

Before you can get a loan using inventory credit, you need a few things. Your business needs to have a good credit rating. This mean sit needs to be current with all bills and no outstanding accounts. The second thing needed to make a list, along with estimated value, of the inventory to be used. You also need to have a business plan worked out to pitch to the bank for the loan. Inventory values can fluctuate depending on the economy and the particular industry of the company. To make sure they do not lose money should inventory values plummet, banks usually only lend up to 60 percent of the total value of the inventory being used. Plus, physical inventory can be liquidated but you would not get the full value for it. The bank will inspect any inventory before they approve a loan. They will want to know exactly what they are loaning the money for and what kind of condition the collateral is in. If the loan is approved, the bank has the right to inspect the inventory at any time. When inventory is sold, it is up to the owner to keep track of it. A portion of the profits will need to go towards paying off the loan. Banks tend to frown on companies that borrow money based on inventory credit and then sell the inventory without paying off the loan. In agriculture, inventory credit works a little different. The produce that is used for the loan has to be stored in a reliable and bonded warehouse by a third party. In agriculture, inventory credit is used for imported produce, produce ready to be exported, and domestic products. The warehouse owner that stores the produce has to ensure that it remains in good condition and is secure. The agricultural company that borrows the money is charged a fee for the storage of the produce and to insure it against damage. This inventory credit process is used widely in Africa and parts of Asia

When Should You Use Inventory Credit?

Inventory credit is not a practical means of financing for every business. It largely depends on the type of industry you are in as well as the current state of the economy. Businesses that should not use inventory credit are those will a low turnover rate for their inventory. This means that if your inventory sits there for a long time and cash flow from it is slow, you would be better off finding an alternative means of financing. Otherwise, you may have a difficult time paying back the loan. This is also true for inventory that is out of date, expired, or obsolete. Businesses that would benefit from an inventory credit loan would be those who have a high turnover rate for their inventory. If business is good and your company is moving a lot of inventory product but you still need more money in order to keep up with demand, then you should check out an inventory credit loan.

FIFO Versus LIFO Accounting

By Doug Brinlee Inventory accounting is an important part of any business. Inventory plays a big part in a companys cash flow. But inflation and taxes can affect inventory values. Depending on what accounting method you use, your company could report what is called illusionary profits. These are profits that are

reported on financial statements but after taxes, the actual profits are less. When it comes to inventory accounting, there are two main accounting methods that are used: FIFO and LIFO. FIFO and LIFO accounting methods manage the financial end of a companys inventory. Each one has its own benefits and disadvantages and one of them is actually preferred over the other by most businesses. So what are some of the differences in the two methods? Why is inventory so important? If you are a business owner, you need to know these accounting methods in order to figure out which one will benefit you the most.

Why Is Inventory Important?

Inventory is the physical assets of a company that is intended for sale or for the manufacture of products for sale. Inventory is constantly changing as quantities are sold and replenished. A companys inventory is important on financial statements because it represents a large amount of the companys assets. That value is determined by which accounting method the company uses. Why are there different inventory accounting methods instead of just one? Because the cost and value of inventory is influenced by the cost of inflation. Over time, prices tend to rise due to inflation in the economy. Inventory that was purchased at one price may gain in value due to inflation. To rectify this, different accounting methods are used. Otherwise, inventory may be appraised incorrectly which could cause a problem with a companys profits. In a perfect world, there would be no inflation and thus no need for separate accounting methods. Different accounting methods can have an impact on the cost of inventory, monthly statements, and cash flow. LIFO and FIFO both have their advantages and can change the value of inventory to fit a companys needs.

What Is FIFO?
FIFO stands for first-in, first-out. What this means is that the first item that comes into a warehouse (and the oldest) will be the first item shipped out. FIFO is a more accurate representation of the flow of physical items in and out through a distribution center. It is a common accounting method where there are many identical items being shipped. Companies generally ship the oldest stock in inventory to prevent the items from deteriorating or expiring (such as with perishable goods). This allows the inventory to be continually rolled or turnedover which keeps the oldest ready to be shipped. FIFO is a better accounting method to use in times when the economy has stable prices. However, when inflation is high, using FIFO results in what is called inventory profits. These are profits that come just from holding onto inventory and increasing physical assets. But it does not provide the best results for matching costs and revenues. In times of inflation, smaller companies will use FIFO because the value of their inventory is higher and it makes their financial statements look better. As the first-in inventory is sold, the newer inventory, which is more expensive, remains on the companys financial records. A company can use this to their advantage for things such as attracting more business, mergers, increasing value of stocks, or acquiring a loan. The main disadvantage to using FIFO instead of LIFO is that at the end of the year, the company will have to pay more taxes due to the profits recorded on their statements. This is why after a company experiences some growth, they usually switch to LIFO.

What Is LIFO?
LIFO stands for last-in, first-out. How this works is that a company records its inventory as the last items that were purchased are the first items sold. Older inventory is left over. This method is also sometimes referred to as FILO (first-in, last-out). As inflation raises prices in the economy, the LIFO method records the sale of the most expensive items in inventory first. This is not an accurate representation of the actual flow of physical items through inventory. On paper this will show a decrease in profits but it also helps to reduce taxes because a company is not recording a false profit (which is the case with FIFO). In fact, LIFO has been the preferred accounting method since the early 1970s. During that decade, the U.S. experienced its first major rise in inflation in modern times which has continued steadily for almost forty years now. The theory in using this method is that costs will either remain the same or increase. Most of the companies that use LIFO experience a rise in inventory costs every year. LIFO is a better approach to matching current costs with current revenues. As inventory gets sold, it should be replaced with higher priced items. Companies that use LIFO do so merely for tax purposes so that they can increase cash flow over a long period. The drawback to LIFO is that it must also be used on financial statements and reports. This means that companies will show less net profit than if they used FIFO. In terms of business, this could interfere with future loans and attracting clients or partners. LIFO has been the preferred accounting method since the early 1970s. The U.S. experienced its first major rise in inflation during modern times which has continued steadily for almost forty years now. One aspect of using LIFO is that as older inventory gets left behind, it must eventually be liquidated. Sometimes companies have trouble replacing existing inventory, need cash flow, or must make room for newer inventory. If prices have continued to rise, then the older inventory will have a lower value. The problem is that if the company liquidates this older inventory, it must go on their financial statements as net profits and will increase their taxes. This is why some companies have a stockpile of older inventory sitting in warehouses becasude to get rid of it would have undesirable results.

Main Differences between FIFO and LIFO

When deciding which accountign method to use fo rinventory, you have to look at the major differences between FIFO and LIFO. With FIFO, you get a better estimation of the value of inventory. While it can be used to increase net profits, it will also increase the amoutn of taxes a company will have to pay in. LIFO is not a good indicator of inventory value because some of the inventory may be years old, deteriorated beyond use, or not compatible with newer versions. So the value will probabaly be lower than current prices. This decreases net profits which also effects net shares in the company. But using LIFO also gives you a break on taxes at the end of the year.

ERP Inventory Management

By Doug Brinlee Inventory management used to be paper-based and consisted of numerous files stored in filing cabinets that might stretch as far as the eye could see. Every once in awhile these files had to be cleaned out and trashed to make room for more files. Accurate counts of quantities took time and were not always immediately available. Inventory was also based more on guesswork than data. ERP inventory management takes control of a business inventory such as purchasing, shipping, and selling. ERP management enables a business to have instant and accurate access to their inventory at any time in order to meet customer demand. But what is ERP inventory management? What does ERP stand for? Here is an overview of the management system that has been adopted by numerous companies across the globe.

What is ERP?
ERP, or enterprise resource planning, is a computer network system that uses a database of information that is company-wide accessible. ERP is designed to replace paper-based systems by analyzing data from all areas of a companys resources. ERP covers all functions of a business such as purchasing, manufacturing, distribution, and inventory management. By using an ERP management system, a companys inventory is stored on a database that is comprised of physical stock, costs, vendor accounts, and lead-times for re-ordering stock. ERP management systems can improve costs, productivity, reduce time lag, reduce waste, and improve overall efficiency. To fully use an ERP inventory management system, a business needs to understand the relationship of their company compared to the rest of the supply chain. By understanding where they fit in, a company can improve delivery of products and services.

What Does ERP Inventory Management Do?

ERP inventory management handles everything from ordering, physical inventory count, scheduling, shipping, receiving, purchasing, and supply chain planning. Changes in inventory are automatically updated. It no longer takes hours (sometimes up to 24) before the changes are recorded. This helps inventory management employees to be able to see if an item is currently in stock. Faster service means better customer service. ERP management uses bar codes to keep up with inventory items. This makes tracking stock much easier. As the bar-coded items leave inventory, they get scanned and their product information is entered into the ERP inventory management system. Placing bar code labels on stock helps companies save money because it keeps the list of stock updated. Employees can easily see when certain quantities are low and need to be re-stocked. Customer service also benefits from this because businesses and customers can see what products are immediately available.

Installing ERP Inventory Management

ERP inventory management systems are often complicated to install using in-house IT. Most companies hire a third party contractor to come in and install the software and hardware. These inventory management firms offer not just installation but also offer consultation and can customize the system to a companys needs. Hiring a third party is definitely more cost effective as opposed to a company doing all the work themselves. There are numerous consulting firms that install ERP inventory management software and systems. Once the system is installed, these firms can help train a companys employees in how to use the software. They also act as tech support as a company learns their new system. Installing an ERP inventory management system is not a quick and easy task. The length of time to install the system depends on the size of the company, customization needed, and size of the job. Since ERP systems are divided in modules, it is easy to divide the installation process into several stages. On average, the amount of time to install a typical ERP system takes several months to install. Large projects can take up to a year.

Advantages of ERP Inventory Management

ERP inventory management has many advantages. The main advantage for a company is that the ERP system is company-wide and involves only one software system. Companies that do not use ERP management will sometimes have several different software applications that are not compatible with one another. Some other advantages include: Proper communication between different areas. Tracking of orders from the time the order was received to its delivery. Keeping up with the revenue cycle from when the invoice is issue through when the payment is received. No longer have to keep up with changes in different software systems. The one system is tied together. Provides a top down overview of the workings of a company. Reduces the risk of loss of information Sets up a form of security to protect against theft from outside or within a company.

Disadvantage of ERP Inventory Management

Despite the advantages businesses receive from using ERP inventory management, there are also some problems with it. Most of these disadvantages stem from inadequately trained employees as well as compromised data. But there are other concerns that can arise from this type of system. Customization of the ERP inventory management system is limited. Reformatting a business to make it more compatible with an ERP system and thus conform it to industry standards may cause a loss of advantage over the competition. ERP inventory management systems are not cheap. ERPs are not compatible with every type of business. They have been known to impede delivery of goods and productivity as the company tries to adapt. By creating a company-wide system that connects all areas, it makes it hard to figure out

accountability. Problems that may arise in one area could mistakenly be blamed on a different area. Not all departments in a company are willing to share information. This withholding of sensitive data can interrupt the workflow. ERP inventory management systems may to too comlex for the needs of a company. For more information about ERP inventory management, visit: ERP

Common Inventory Management Problems

By Doug Brinlee A successful business relies on many factors, one of which is a reliable inventory management system. Inventory management consists of everything from accurate record-keeping to shipping and receiving of products. Inventory management that is properly maintained can keep a companys supply chain running smoothly and efficiently. However, there are many common inventory management problems that can occur. Inventory management problems can interfere with a companys profits and customer service. They can cost a business more money and can lead to an excess of inventory overstock that is difficult to move. Most of these problems are usually due to poor inventory processes and out-of-date systems.

Common Inventory Management Problems

There are a number of problems that can cause havoc with inventory management. Some happen more frequently than others. Here are some of the more common problems with inventory systems. 1. Unqualified employees in charge of inventory. Too many companies put people in charge of their inventory distribution who either dont have enough experience, are neglectful in their job, or dont have adequate training. No matter what kind of system is used, companies need to pay closer attention in overseeing their inventory management and making sure employees receive proper training. 2. Using a measure of performance for their business that is too narrow. All too often companies will evaluate how well their business is doing. The processes they use are not wide enough and do not encompass all the aspects and factors in the company. Many areas get overlooked and can lead to either inventory shortages or inventory stockpiling. 3. A flawed or unrealistic business plan for a business for the future. To predict how well a company may do in the future, you have to collect enough data and accurately analyze it. The downfall of many companies starting out is that they give an unrealistic assessment of a companys growth. This affects inventory management because if a company predicts more growth than they actually experience, it can lead to an overstock of inventory. The opposite is true if forecasters do not predict enough growth and are left with not enough inventory. 4. Not identifying shortages ahead of time. It happens all the time. A business needs a number of products or materials but discover that they do not have enough in stock and must re-order.

Waiting for the shipment to come in can slow down the supply chain process. Not having enough product in stock to meet customer demand can lead to bad customer relations. A supervisor in charge of inventory management should look over their inventory on a regular basis to make sure enough product is in stock. 5. Bottlenecks and weak points can interfere with on-time product delivery. This means that if too many orders come in for outgoing shipments and do not get handled in an efficient manner, they can build up, or bottleneck. This slows down deliveries. The same is true for any weak points in an inventory management system. Weak points slow down the system and can stop it altogether. 6. Falling victim to the bullwhip effect. This is an over-reaction by a company to changes in the market. As the demand of a market changes, a company may panic and order an overstock of inventory, thinking the new market conditions will move the inventory. Instead, the market stabilizes and the business is now left with a surplus of products that just sit in the warehouse, taking up space and not making money. 7. Too much distressed stock in inventory. Distressed stock is products or materials in inventory that has or will soon pass the point where it can be sold at the normal price before it expires. This happens all the time in grocery stores. As a particular food product nears its expiration date, the business will discount the item in order to move it quickly before it expires. 8. Excessive inventory in stock and unable to move it quickly enough. This is probably the most common problem for most businesses. Cash-flow comes from moving inventory. If a company buys an amount of product for their inventory and they do not move it, the company ends up losing money. 9. Computer assessment of inventory items for sale is inaccurate. Nothing is more frustrating than going to a business that says it has a product but it turns out that they do not. The quantities are off and the actual items are not available. Too many people assume that the computer records are infallible. But the records have to be entered by a person and if the person responsible does not keep accurate records, it can turn into a real headache. Inaccurate inventory records can easily result in loss of money and strained customer service. 10.Computer inventory systems are too complicated. There are many inventory software programs available for business use. The problem is that many of these programs are not userfriendly. Computer software developers do not take into account that most of the people who will actually be using these systems are not tech savvy. A company does not always have the time and money to invest in training of personnel to use software effectively. 11.Items in-stock get misplaced. Even if the computer accurately shows the item as in stock, it may have been misplaced somewhere at the warehouse, or in the wrong location within a store. This can lead to a decrease in profits due to lost sales and higher inventory costs because the item must be re-ordered. Plus, the company must spend the time for employees to track down the misplaced item. 12.Not keeping up with the rising price of raw materials. This falls more into the accounting end of inventory management. By not keeping current with the rising price of raw materials, a company will lose profits because they are not adjusting the price of their finished products. Finished items in inventory must be relative to the cost of raw goods.

Hosted Inventory Management

By Doug Brinlee Inventory Management has always been a big concern for businesses. Inventory plays an important role in the supply chain. A good supply chain keeps the transaction of products from warehouse to customer running smoothly. In todays world economy, companies are paying more attention to the bottom line as they pursue avenues to cut costs. At the same time, companies must compete with each other in order to meet ever increasing demands. A solution to this is hosted inventory management.

What Is Hosted Inventory Management?

The main idea behind hosted inventory management is that instead of a companys inventory being managed within the companys own network and maintained by the company itself, a separate network host outside the company manages the inventory. The inventory is often accessible through the web on a secure network. With hosted inventory management, a company or institution purchases software packages from an inventory management provider. This software, while originally referred to as hosted software, has also been called on-demand software or even more recently as SAAS (Software As A Service).

Why is Hosted Inventory Management Important?

It takes time, money, and specialized personnel to manage a companys inventory. This can add to payroll and risk costs as well as keeping employees from performing their original job requirements and duties. In todays business world, inventory management can help control profit margins. Having software can help a business reduce waste and prevent inventory from stockpiling or bottlenecking. In order to implement a hosted inventory management system, a business must pay a licensing fee for the software. It is much cheaper than spending the money on your own system but care must be taken. Many hosted inventory management systems are either outdated or too complicated for general employees to maintain.

Advantages of Hosted Inventory Management

While some critics may claim there are disadvantages to hosted inventory management (such as inaccurate systems that are not properly updated) there are many advantages that have proven beneficial to successful businesses. One of the main advantages to a hosted inventory management system is lower cost which translates to a higher cash-flow. It is decidedly cheaper to buy a hosted software package versus traditional software. No special equipment or hardware is needed such as a network. All that users of hosted software need are reliable PCs which most companies already provide to their employees. The software and set-up, along with the license fees, are cheaper than traditional implementation. Also, you dont have to worry about additional costs for upgrades or maintenance like you do with traditional inventory systems. Another benefit of hosted inventory management is that it takes less time to install and can be up and running a lot quicker than traditional software. You dont have to mess with setting up internal servers,

network security, and other hardware. This fast deployment of the system means businesses and institutions can begin using their management system sooner. It also means companies spend less time in training employees. Hosted inventory systems are generally are less distracting because the software is doing most of the work. This leaves employees free to pursue other tasks. Hosted inventory management is less risky that traditional software. When a company begins a project, the longer it takes to get it off the ground, the more likely that something may occur to derail the project, including the projects team members losing motivation and momentum. The longer a project takes, the more money comes out of the companys pocket. With hosted software, there is usually a faster time period before a project is ready for completion. The less time spent on a project, the more money a company saves. Traditional inventory management systems require a business to manage relations and communications with multiple vendors and suppliers. With hosted inventory management, you just deal with one source which makes reorders faster and much easier. As a company striving to be successful, you have more time to focus on your companys goals.

How Does Hosted Inventory Management Work?

The beauty of hosted inventory management is that it does all the work for you. You still have to sit down and collect data but you no longer have to juggle every aspect of inventory single-handedly. Hosted inventory management manages all aspects such as: 1. Purchasing of products and materials 2. Shipping of all items to and from the companys distribution center. 3. Setting up bar codes on all items. 4. Management of work orders. 5. Inventory maintenance such as keeping up with quantities and item locations. 6. Management of a companys assets 7. Logging reports and sending them to appropriate departments. 8. Processing of all orders through the correct channels. 9. Able to keep accurate information on multiple distribution centers and warehouses. 10.Keeping accurate accounting records of all inventories as they are sold.

Buy Inventory Management Software or Build Your Own?

There is a question on whether a company should invest in hosted inventory management, or set up its own inventory system. It depends entirely on the companys needs, assets, and how much available capital they have on hand. Many companies that are just starting out or still growing would probably be better off implementing a hosted system. The cost is less and the company will spend less time getting it set up. This frees the company up to pursue the nature of its business without slowing down. If a company has plenty of capital to invest in their own system and has the time to install the hardware without impending the flow of business, then these companies might be better off setting up their own secure inventory network.

Retail Inventory Management

By Doug Brinlee The retail industry can be extremely competitive and one of the biggest challenges is managing a stores retail inventory. Businesses need to have space to store a wide number of products along with a wide variety. If a retail store does not carry enough of a product, then they are losing potential customers who will shop elsewhere. Retail inventory is different from other forms of inventory because of the quantities needed. Retail chains need warehouses to keep all of their stock and the means to transport it to their stores. Keeping up with such large quantities can be difficult for anyone, even with the help of an automated system. To track a companys products, a retail inventory management system needs to be successfully implemented.

What Is Retail Inventory Management?

Retail inventory management is the process and methods used to keep track of the stock in a retail business. These methods control everything from ordering, shipping, receiving, tracking inventory, retail turn-over, and storage. Retail inventory management can help keep a business profits at a steady margin as well as reducing theft and loss of inventory. Many retail businesses lose money every year because they do not have a successful inventory management system in place. Retail Inventory Management should provide the following functions for a retail business: Track and manage all of the inventory for the business Keep up with store markdowns Evaluate how well some groups of products do in sales Provides analysis for comparison shopping with competitors Collect data on the sales and inventory of individual stores using SKU Allows you to accurately review your inventory

How To Manage Inventory

Most businesses use some form of computer software to manage their inventory. Unless the retail business is very small, doing it manually would be very impractical, especially for large companies that deal in thousands of individual products. A business that has a successful system for retail management will allow the business to keep a sufficient amount of stock to meet customer demand. If a business does not have enough inventory, then it can slow down cash flow. Too much inventory can cost a business money and take up more room. When dealing with retail inventory management, companies will utilize one of these systems: Point-of-sale terminals These are check-out points that automatically update a companys inventory levels. Job costing and inventory systems Another automatic system that updates computerized levels of inventory. Barcodes and readers Every product these days contains a barcode with the items information. Barcodes makes it easy and quick track stock.

 Electronic Supplier Product catalogs This system can update inventory levels automatically through either the internet or media disk. Managing retail inventory involves several characteristics and steps. One of the most important steps is to make sure that you always remove products from the system as soon as they are sold. The same is true for receiving shipments of new stock. Make sure you record it as quickly as possible. Physical inspections should be regularly performed to make sure the computerized system is accurate with what is actually in stock. A physical inspection involves manually looking over the stock to see that they numbers match. Review sales reports weekly. You want to do this to see what is selling and what is not. Products that spend more time on the shelf should be re-evaluated or discounted to get rid of them. Another step is to research to find the right products to sell. Businesses should come up with a target market and try to carry the right type of inventory to meet that target. To make sure that you have the right product in your stores, you need to know what type of products to order and how much, when to order, and when the products should arrive. Keeping up with retail inventory management should be delegated to several individuals or a department. Supermarkets that have both grocery and non-grocery items have separate departments for each. By delegating inventory into smaller groups, it allows the individuals in charge of their group to have a better understanding of what stock is available an dhow wel it sells.

Prevention of Inventory Theft and Loss

One of the biggest problems to plague retail inventory is theft and loss of retail products. Every time this happens, it costs a business money. Preventing inventory theft can be difficult. But with the right system, you can definitely reduce it. Here are some tips: Do not share or hand out the same password for every cashier. Having separate passwords and log-ins tells who was manning the register at certain times. Always check out any transactions that were voided or canceled. This is a common way for inventory to disappear from a store. Set up a password-protected security on all computers and systems. Only when employees absolutely must have access should it be granted. Go over inventory reports every day to make sure sales figures match with the current quantities. Make sure the back door has a security alarm system that is activated every time the door is opened without authorization. If employees know the door should not be opened without permission, they shouldnt open it. Inspect the garbage every night before it goes out. Use clear plastic bags so that you can easily see inside the bag and make sure there is no inventory hidden inside. Set up security cameras not only in the store but in the back storage as well. This allows you to keep an eye on items out on the racks as well as in stock.

Inventory Management Companies

By Doug Brinlee While inventory represents a large portion of a companys assets, it is also a headache to manage. You have to oversee storage of stock, track inventory numbers, fill orders, shipping, and a hundred other small details. For small companies that do not deal in large quantities of stock, it is feasible, and costeffective, to manage their own inventory. However, larger companies, such as those that deal with thousands of units and hundreds of shipments a day, paying for the personnel and resources to manage it may not be the best option. In many cases, companies will outsource their inventory management to third companies. The outsourcing of inventory management is common practice in the current world economy. In fact, the third party industry has seen tremendous growth over the past several years. In the rapidly growing markets of today, it has become more profitable to outsource their inventory. The third party companies that handle inventory are referred to as inventory management companies.

What Is An Inventory Management Company?

Inventory management companies handle a variety of functions that involve other companies stock. These companies deal with warehousing and storage of materials, setting up bar codes, creating inventory databases, and installing any software or hardware that might be needed. Some companies even specialize in specific types of inventory such as chemicals or agriculture. The two most common types of inventory management companies deal in either storage or software development. The ones that handle storage also handle shipping, packaging, and other areas related to the physical materials. Companies that handle the computer end of things develop software platforms that are used to track and manage inventory as it is used or shipped. These companies do not handle the physical stock but instead offer tech support for their clients as well as do all the upgrades and databases. It is nice having someone else keep track of what can quickly develop into a chaotic mess. But is an inventory management company right for every business? Not necessarily. Some companies are better off managing their own inventory. Before deciding to use an inventory management company, a business should research the total cost of the supply service to see if it actually saves money. This requires a cost/benefit analysis to see what the cost of the service is versus how much a business would save.

Advantages To Using An Inventory Management Company

Using an inventory management company can have many benefits. Here are ten such benefits to help you decide if you should use one or not: 1. Frees up the costs you would have spent on managing the inventory yourself. This additional cash flow can then be invested in other areas to promote the business. 2. Frees up time that would have been spent tracking inventory as well as personnel man hours. You are now available to concentrate on other tasks and can delegate employees more efficiently. 3. Allows you time to concentrate on increasing business and improving customer service. 4. Frees up space and storage costs because you no longer have to store materials at your place of

business. Many inventory management companies houses client inventory at their own warehouses. 5. Set up a bar code system and tracks the inventory, Bar codes are fast and easy ways of tracking inventory logistics. Bar codes can store information such as unit weight, price, and overall quantity. 6. By using the Internet, clients can inspect and control all management of inventory from practically any computer. 7. Databases are created for cataloging all inventory as it moves through the supply chain. Clients do not have to create these databases themselves but can browse them through computer networks. 8. In some instances, inventory management companies take care of packaging and shipping. Again, this is one less thing the client has to worry about. 9. You do not necessarily need special software or hardware. Most inventory management software is adaptable for almost any operating system or web browser. 10.If special equipment is required, the inventory management company provides it. You do not have to go out and purchase it yourself which can get expensive. This is most beneficial fort equipment that you might not need but a few times a year.

eBay Inventory Management

By Doug Brinlee Since 1995, eBay has been the auctioneers dream, buying and selling any amount of items for cheaper than retail. Millions of buyers flock to eBay looking for bargains. Millions of sellers keep their eBay stores stocked with a wide variety of merchandise. But just like any retail store, sellers have to keep track of their inventory. Inventory management is just as important online as in a physical warehouse. If you dont keep track of your inventory properly, it can interfere with your cash flow. EBay provides the means for sellers to manage their inventory. There are also other companies that offer software to make it easier or they even do it for you.

eBay Inventory
The items in an EBay store are usually priced higher than items listed for auction. These prices are fixed, meaning there are no bids. Fixed price items are listed with no ending times. As long as the items are in stock, you can buy them at any time. With eBays inventory management, inventory appears as a list on the sellers eBay store and in a few other places. Stock shows up on main searches with 30 or fewer Auction and Fixed-Price items. Links to your eBay store can be added to auction items. This helps potential customers to find your store. Inventory information can easily be changed or edited. You can change individual items or entire groups. When listing items, you can select which category to place them in such as the auction listings or fixed price listings. Inventory can be managed using one of two programs: Selling Manager and Selling Manager Pro.

These programs allow you to pull auction items and add them to your store inventory. If an auction ends and an item has not sold, it does not automatically return to a sellers eBay store. You have to manually relist it using one of these programs. You can go in after the auction has ended and click for an unsold item to be relisted in inventory. However, sellers who use the Selling Manager Pro can go into their settings to have items automatically sent to inventory. Altogether, eBays inventory management programs can help sellers manage their listings and help sellers decide where and how to list their products. You can attract new customers and increase profits from inventory sales. Using eBays program can also help a seller save time. EBay even offers marketing solutions to assists sellers in determining a competitive price, duration for auction, and which listing formats to use.

Third Party eBay Inventory Managers (Dropshippers)

Some sellers use third parties to manage their inventories. These companies are called dropshippers. These inventory management companies act as a distributor between the customer and the eBay seller. The seller does not physically keep products on their own premises. The seller normally posts the items, manages the sale, and collects the money. The dropshipper keeps the items in inventory and ships them out after they have been sold. While this may not be as advantageous for sellers with small inventories of only a few items, it may be beneficial for eBays Power Sellers who have large quantities in stock. You have to pay management companies a fee for their services but if you have huge inventories and not enough time to manage them, it may be worth it. Here are some advantages to using dropshippers: Keeps track of sellers inventory levels Able to add the same product to multiple eBay sites Can set your eBay listings in different languages Automatically fills out eBay templates for all items Can set barcodes for all your products to keep track of large quantities Can archive all of your listings and photos for later use Manage all photos Provides shipping labels for all products Sets up defaults that automatically apply to all shipping, refunds, and policies Maintains eBay security such as passwords

While using dropship companies may seem like a good idea, there are some disadvantages to using them. Here are some of the more common: Additional fees for their services such as registration fees, processing fees, and maintenance. Sellers not being able to physically oversee the storage, handling, and shipping of the sold item. Sellers unable to verify that the orders have been filled correctly Some dropship companies are actually pyramid schemes that only want to get new members. There are too many of the same items on eBay that are supplied by the same drop ship companies, causing the site to be oversaturated. Returned items could cost you money as you still have to pay dropship fees As a general rule, sellers who use dropshippers have lower profits than those that do their own inventory.

MRP Inventory Management

By Doug Brinlee Manufacturing can be a highly detailed, highly complex process that requires specific planning. Material Requirement Planning (or MRP) is an inventory system that is computer based and used to manage the manufacturing process. It is designed to assist in the scheduling and filling of orders for raw materials that are manufactured into finished products.

What Does MRP Do?

The main objective of MRP is to manage dependent demand items. These are the raw materials and unfinished goods used in the manufacturing process. Raw materials must be kept as inventory stock. As they are used, stock must be replenished through re-ordering. MRP fulfills three mains functions: 1. MRP makes sure that dependent demand items on kept in stock. 2. MRP maintains the optimal level of inventory that is most cost effective for a company. 3. MRP is used to purchase new stock, deliver finished products, and plan the daily manufacturing processes. What makes MRP effective is that it works backward from a plan for producing finished products in order to develop the amount of raw materials that a company needs. How this works is MRP breaks down inventory requirements into separate stages. This helps to manage production and keep it flowing at an even level. It also helps to keep inventory costs to a minimum. The drawback is that MRP systems can be expensive to implement and the costs can be quite high, offsetting the amount of money that a company could save in inventory costs. Larger companies that produce large volumes of finished products may find it beneficial but the same may not be true for smaller companies. Plus, for MRP to produce accurate results, you need to have accurate data. Information such as orders, bills, item numbers, and records must be accurate or the results will be off.

History of MRP
The roots for MRP have been around since the early 1950s. MRP is one of the predecessors for Enterprise Resource Planning (or ERP), a computer software system that is widely used to link a companys entire infrastructure together. MRP was especially popular during the 1980s. Manufacturers needed better resources to manage their processes and inventory requirements. Manufacturing managers realized that computers could keep track of inventory quicker and with more accurate results. Mainframe computers that ran on custom software were built that could extract information from a list of raw materials and create a production plan. As MRP proved successful, it was eventually used to include information feedback loops so that managers could modify the inputs into the system for better production results.

Inputs For MRP

To get results, you have to input information into the MRP system. There are three main sources of information for input: a bill of sale for materials, a master schedule, and an accurate record of existing inventory. The bill of sale for materials is a list that contains all of the raw materials, components, subcomponents, and other materials needed to complete the finished product. The bill is usually arranged into separate sections so that companies can see what materials are used for each stage of production. This helps to determine the amount of materials needed. A master schedule is a production plan that covers all aspects of the manufacturing process. The schedule states the amount of finished products that can be produced and the time frame in which they can be finished. Master schedules do not take into account available inventory. They only cover how many finished products are needed. The record of existing inventory lists how much inventory is already available. This is useful for determining how much, if any, additional inventory is needed to fulfill production orders.

Advantages and Disadvantages of MRP

MRP has several benefits as well as drawbacks. As for benefits, MRP helps managers with the following: Keep inventory levels to a cost-effective minimum Keeps track of inventory that is used Tracks the amount of material that is required Set safety stock levels for emergencies Determine the best lot sizes to fulfill orders Set up production times among the separate manufacturing stages Plan for future needs of raw materials

However, MRP also has its share of drawbacks. They are: Information used as input must be accurate. Inaccurate information can result in misplanning, overstock, understock, or lack of appropriate resources. The master schedule must be accurate in order to provide appropriate lengths of time for production. MRP systems can be costly and time-consuming to set up. There may be problems with employees who, before MRP, were not disciplined in their record keeping. Also, some departments may hoard raw materials for their own use.

What Is MRP II?

The original MRP system was eventually expanded to the planning for all company resources used in manufacturing. This new system was called Manufacturing Resource Planning (or MRP II). With the success of MRP, manufacturing companies realized the same principles could be used to schedule and plan other areas. While MRP dealt mostly in raw materials, MRP II was concerned with areas such as human resources, financing, marketing, and engineering.

Stock Keeping Unit (SKU)

By Doug Brinlee Warehouses are full of boxes and boxes of stock. These boxes are full of items that must be tracked using some system or method in order to keep up with them. Besides warehouses, stock must be tracked in retail stores, manufacturing, grocery and supermarkets, and anywhere else that deals in inventory. One of the best ways to keep up with stock is to assign it a Stock Keeping Unit (or SKU). An SKU is a number or code that is used to identify individual products and services which can be purchased. But exactly what is an SKU and how does it work?

What Is An SKU?
An SKU is a stock number used by businesses and merchants that allows them to track inventory and services from point of distribution to point of sale. SKU is a type of data management system. Each individual item or package is given a code either by the distributor or the business owner. There is an SKU code applied to every product, item, or other forms of goods that can be purchased by a customer. SKU are not necessarily assigned to just physical products. They also are used to identify services and fees. As some companies provide services, they use SKUs for billing. As an example, if a computer store repairs a customers computer, they use an SKU to determine what services were completed in order to fill out a bill for services rendered. Other samples are deliveries, installation costs, and warranties. All SKU tracking varies from business to business and according to regions and corporate data systems. SKU also varies from other product tracking systems due to manufacturer regulations or even government regulations. Other examples of tracking methods are Universal Product Code (UPC), European Article Number (EAN), and Global Trade Item Number (GTIN).

How Does SKU Function?

SKUs are typically printed as a barcode on a label somewhere on the product. This makes it easy and quick to find the products information by scanning it with a barcode reader. Every item and variant item has its own SKU. This means that slightly different models have different tracking codes which makes it easier to keep up with the items. The first part of a SKU may contain the code for that type of product while the second part of the code may represent the color or style. Not only is the SKU given to an item, the same number is also used on the packaging. So if a box contains 12 widgets that all have the same SKU, then the box will also have the same SKU code. Retail stores generally track the individual items through their store while warehouses track the boxes. While pretty self-explanatory in a store, this can get tricky when ordering items online or through catalogs. Since the SKU represents the number of units in the item, you should read carefully to make sure you are ordering the desired quantity. In some cases, a quantity of 1 may mean one box full of a dozen separate products. The problem arises when you only need one product, not a dozen. SKU can also be used to determine how many sales occur at each separate location or where the inventory is stored. SKU can be used to track products through the supply chain as well as to use for

inspecting sales data. SKU can tell if certain products sell better than other products. Some SKUs come embedded with an RFID tag. Updates or changes can be made to the item by using an RFID reader. High volume stock can be processed quickly this way because you dont need to manually scan each individual item by hand. RFID system scans are done automatically. Since RFID scanners act similar to GPS trackers, you can use them to find products that might have been misplaced in large warehouses. Another benefit of using SKU is with seasonal products that need to be updated every year. Some SKUs contain the year somewhere in the code. If product from the following year is going to be used in a new year, then the year in the code can be changed. This is useful for products that do not change from year to year. Distributors and merchants need to pay attention to how they assign the codes used for a products SKU. This is due to the use of spreadsheets in the system. Codes that start with a zero cannot be quickly imported while codes with a forward slash can get misinterpreted. When it comes to warehouse storage and distribution, asigning SKU codes to all the items in stock can be a monumental feat. Luckily for distributors, there have been advances in computer software and systems that make the task of giving a product an SKU much easier. This new technology has made the task easier and more conveneient, not to mention more accurate because it is free from human error.

Single Minute Exchange of Die (SMED)

By Doug Brinlee One of the unfortunate characteristics of manufacturing is waste. From unused raw materials to faulty or damaged products, waste can end up costing a company quite a bit in financial loss. To reduce waste, there are a number of different strategies companies can use. One of the more popular strategies is Single Minute Exchange of Die (or SMED).

What Is SMED?
One of the drawbacks to manufacturing is set-up time for a production run. SMED is a method that allows set-up operations to be performed in less than ten minutes. In other words, set-up operations should be completed in a number of minutes that is represented by a single digit: one minute to nine minutes. This practice helps cut back on waste and time spent between each production runs. By using the SMED method along with other quick changeover practices, it reduced the amount of time spent to change out the machines in a production line from one product to the next. SMED also helps reduce the size of production lots and inventory because there is less waste, thus improving overall production flow.

History of SMED
The concept of SMED was originally adopted and used in Japan during the 1950s. The methods were later implemented in West Germany in 1974 and then the rest of Europe and the U.S in 1976. SMED

finally gained worldwide acceptance during the 1980s. During its origins in Japan, SMED was adopted for Toyota. Toyota needed additional space to store its manufactured cars. Because Japan is a small series of island, real estate is expensive. Because Toyota had to store their cars in high-priced lots, the companys profits were less than other manufacturers. Toyota could do nothing about the costs of land but an engineer named Mr. Shingo decided that if the change-over costs could be reduced, the company would realize higher profits. Normally, the cost of change-over on production machines was offset by the volume of product the machines could produce before they were changed. So the cost of change-over was faily low. But the costs for lot storage was exceeding what the company was saving. It took several yuears but Toyota managed to come up with a system that minimized the tools and steps sued in the manufacturing process. Also, by maximizing their existing components so that more cars shared the same components, the company managed to cut back on costs and to speed up change-over time.

How Does SMED Work?

In the manufacturing process, when the last item in a production run has been completed the equipment and machinery is shut down, cleaned, and new tooling is added and changed. This gets the equipment ready for the next run on a new item. This change-over can involve a number of small to large adjustments, resupply of raw materials, and system checks before the machines are started up again. Even after the machines have been started and materials used, operators may need to continue their adjustments to produce an item that meets the desired requirements. The time spent during change-over costs the company money as there are no finished items being produced. Also, the equipment produces waste as adjustments are made after the machine starts up the new production. All of this can be reduced using SMED. There are two types of set-up using SMED: external and internal. External Setup is procedures that are done while the machines are still operating and before they are stopped for the change-over. Internal Setup is procedures that occur only after the machines have been stopped for change-over. SMED uses a number of different steps that improve production and cuts back on waste. These steps help to separate the changeover process into several key components. The steps are: 1. Eliminating non-essential set-up procedures. This includes anything that is not necessary for the production of the new line of items. 2. Get all external parts ready for set-up. This includes making sure there is plenty of raw materials, gathering up required tools and parts, and having everything on hand before the machines shut down. 3. Simplify Internal Set-up Use pins, cams, and jigs to reduce adjustments, replace nuts and bolts with hand knobs, levers and toggle clamps remember that no matter how long the screw or bolt only the last turn tightens it. 4. Make sure that all measurements are accurate. Having incorrect measurements can lead to longer change-over times and can increase waste.

Benefits of SMED
Proper implementing of SMED can reap several benefits for a company. The most common are the reduction of downtime because of the changeover process and the reduction of waste that is inevitably

created during startup. Some additional benefits include: Less time spent on production. Machines have an increase in work rates. This means you actually get more work out of the equipment. Productivity sees an increase. Reduction in errors during set-up and after the machines starts back up. Less defects are produced. Inventory costs are minimalized due to less raw material needed. Also saves on space for storage. Level of safety is increased due to following proper change-up procedures. Less time spent cleaning up after production due to better organization. Overall costs of set-up are lower due to less time spent during change-over and less waste. Operation of equipment takes less skill and training due to simplified process. Deterioration of stock is kept to a minimum. Lot size reduction Reduction in finished goods inventory Profits are increased without having to spend more money on more equipment.