Tracking products Featured

10:07am EDT July 22, 2002

The inventory-control system seems good enough. It's very low tech, and only requires a new pencil or notebook page every so often for maintenance.

As items are shipped or sold, the product number is entered in the notebook. By reviewing the pages of sold items once a week, you can determine what needs to be reordered to stock the inventory. These orders are placed on another sheet of notebook paper so you have a running list of everything you've ordered.

But how often is your inventory turning over? Can you save money by ordering greater quantities of fast-selling items? Which products cost more in inventory expenses than you make back in sales? The notebook pages are silent.

"It is extremely important to have some sort of electronic inventory control," says Jerry Grady, principal of Follmer, Rudzewicz & Co., an accounting and business consulting firm based in Southfield, Mich. "The livelihood of the small business can be destroyed by not knowing where or at what point their inventory is at."

The notebook system was fine back when the business was located in your garage, but now it's time to upgrade.

"A computer system is going to give you more timely information," says Grady. "It won't give you as many mistakes, and it will lead to better profitability."

He recommends switching to some form of electronic inventory control if you have $1 million or more in annual sales. Once the inventory is entered into the system, you will have an accurate account of what the inventory status is at any given moment.

Depending on the size of the business and the nature of the inventory, the costs involved with installing a computerized system can usually be recouped in 12 to 24 months. The biggest obstacle is often the data entry of the information needed to maintain the inventory database. Before choosing a system, talk to your vendors. Many will already have computer disks or CD-ROMs of the information preformatted for some systems.

"The reporting functions you can get out of a software system are very valuable," notes Grady. "You can find out how often your inventory turns, analyze your product lines and see what's making a better profit. It allows you to offer a more profitable mix of products. You can better identify where you need to spend your advertising and marketing dollars. If you have a manual system, you can't really do that, because you don∏t have time.

"One of the biggest advantages," he adds, "is the help it can give you with vendors. You can quickly determine how much you purchased from any one supplier. It will help you negotiate trade and purchasing discounts, and you won't have to rely on the vendor to tell you this."

The software can be configured with minimum and maximum numbers for each inventory item. When a particular part reaches the minimum number, the program will tell you to order the number needed to restock the inventory to its maximum amount. You will never have too many or too few of an item. If the system indicates you have a certain number of products left, but a physical check reveals fewer than that, it's an indicator that you may have a theft problem.

"I think it's important for anyone of any size, and particularly for most retailers, to have a good system to track their inventory," says David Bassiri, general manager of Cougar Mountain Software, an accounting and inventory software development firm. "If you are building bikes, and you set up the system so that it knows which parts make up a particular bike, every time you sell one, the software will subtract the correct number of parts from each category."

The systems often include an integrated accounting package that can track customer accounts. Cougar Mountain integrates its system into a point-of-sale cash register that keeps track of total sales, including whether the payment is by cash, check or credit card.

"At the end of the day, you should know how much you have in the drawer," says Bassiri. "This gives you tight cash control. A sales clerk cannot override a price in the system without a manager's approval.

For a trial version of Cougar Mountain software, go to