Wednesday, August 13, 2008

Inventory Accuracy

by Jon Schreibfeder
Most distributors realize the importance of inventory accuracy – that is, having the available quantity of an item in your computer agree with what is actually on the shelf in your warehouse. Management realizes the bad things that happen when inventory accuracy doesn’t exist:

* Wasted Time: If your inside salespeople constantly have to go out to the warehouse to check stock, they’re wasting time. They can’t walk out to the warehouse and answer phone calls at the same time. And, your customers’ time is also wasted as they sit on hold while you dash out to check stock. Do they really enjoy listening to "muzak" or to a ten-minute advertisement describing your commitment to customer service?
* Wasted Money: If inventory is lost in your warehouse, whether through misplacement, theft, or breakage, it must be replaced. Buying replacement material is an expense. And, like payroll, rent, or any other expense, the replacement material must be paid for with part of the distributor’s net profits. For example, if $100 of material is lost per week ($5,200 per year), this $5,200 comes off of your bottom line. If your net profit before taxes is 4%, it takes $130,000 in new sales to make up for this loss ($130,000 x .04 = $5,200)!
* Disappointed Customers: If you promise material to a customer based on what your computer says is in stock, but the material isn’t actually available in your warehouse, the result is often a disappointed customer. You’ll lose your reputation as a reliable supplier. And not being a reliable supplier is the best way to increase your competitor’s sales.

There’s little doubt that management realizes the importance of inventory accuracy. But, how do you convince your employees that inventory accuracy is important? Well, there are two ways:

* Inventory accuracy is a crucial element for the success of your company – and that their professional futures are dependent on the success of your company.
* Provide economic incentives for maintaining accurate inventory.

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