All things being equal in a dynamic business environment, where one has to replenish, track, store, supply or just generally deal with inventory, managing it can be cumbersome. There are many elements that come down to the actual science of it. Today's blog will deal with sorting what is truly needed.
Historical trends in several industries that have to manage their internal inventory show that nearly 75% of businesses across the US do not get a return on their inventory investment. That could translate to millions of lost dollars simply not working for you to bring you an ROI. The good news is that there are small steps that you can take to reap back the benefits of wise inventory investments. Moving forward less can be invested up front and continue to bring you an increase in revenue. Here we will discuss the first steps to be taken to do just that for your business.
Before we dive into the how, we need to understand the issue. That would be why is so much time, money & space devoted to inventory and managing it properly. Let's peel back the layers of this onion slowly. First off, inventory is purchased for two major reasons: insurance and convenience. Insurance being thought of more as "I need it for my job and it makes me feel warm and fuzzy to have it here on my shelves". Convenience being that thought of "I can get it off my shelf quickly if it's here so why not have it here all the time".
These feelings are very natural and it's in our nature as human beings to want to have as much of what makes us feel good around us as much as possible. Believe it or not, that does include filling shelves with stuff. But it's important to remember that that stuff has a dollar figure attached to it and what's the main reason we're in business? That's right, to increase revenue stream and earn money. If not, we'd all just be home or on vacation all the time and the discussion would be over now.
Of those two splits in inventory properties, insurance and convenience, it's important to take a very big step and further understand four true categories of your inventory and what they mean. By these categories, I'm referring to breaking down the nuts and bolts, hammers, face masks, folders, pens, AEDs, etc. and having a fundamental understanding of what they mean to the business. They are most likely going to fall into one of the following four categories: Critical, Fast, Slow and Inactive.
Critical items are those that you need to have in your facility no matter what happens over how long of a time span. I like to think of these as "life safety" items. In my personal life, an example of a critical item is Neosporin. I have two very active boys and cuts, bruises and bumps are a way of life in my house at times. I don't care that I may have it sitting in a drawer for 9-12 months, I need to have it! A critical item in your business may be a paraslide or a generator. In case of emergency, you need to have that item on hand, no bones about it.
Fast items are exactly that, quickly consumed. Another personal example of mine are diapers. I have a toddler and we go through diapers at rapid pace in my house. An example in your facility may be nitrile gloves or drill bits. In a twelve month period, you're going to go through a significant amount of these fast moving items and it can be proven that you're definitely getting a return on your investment.
Slow items are slower moving or consumed items. A slow moving item in my house is tuna fish. My husband and I love to have tuna sandwiches on a Saturday afternoon, but my boys won't touch it. I keep it in the pantry but we really don't go through that much every year because we have two less mouths consuming it. You may go through less in a twelve month period and they may not be critical to your business. Here's an opportunity to make adjustments in your inventory, but we'll get to that in another post.
Inactive items are just that, truly inactive. You've had them on your shelves for who knows how long. You may have inherited them from the previous person in your position. They have a layer of dust on them that would make Martha Stewart run out of your building faster than you can say boo. These items are also NOT to be confused with critical items. A great personal example old charging cords. I'm a technical geek, a gadget nerd, and I have had nearly every electronic gadget you can think of in my twelve plus years since college. There's absolutely no reason that I should still have a charging cradle for a Palm Pilot I no longer own. That's an inactive item. A great example in your business are those bins of nuts and bolts that are covered in spider webs. Even the spider in Charlotte's web is scared to go into those bins. Those items haven't been used in years and they're not critical to your business. This is a fantastic opportunity to start making some inventory adjustments and proactively get some of your money back!
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