Some Inventory Rules Need Greater Attention

Every Missing Item Adds Loss To Your Bottom Line.

I am watching the sour economy interfere with good inventory management.    I understand how important it is to cut back on how much inventory needs to be on hand.  I also understand how certain 'slow selling' items need to disappear from the product presentation mix during tough economic times.  These kinds of inventory control moves appear obvious.  However, there is danger lurking in those moves.  Sometimes the obvious logic can sneak right up and bite your sales off worse than the economy can deliver.  I see it happen to business owners all of the time.  There are steadfast rules that have surfaced over time about how a good manager should control the effectiveness of their inventory mix.  Those rules stand the test of time.  They are real, they are effective, they are consistent and the produce better sales results if they are respected.  I am watching some business leaders 'cut back' on inventory without any regard to the heart of some of these inventory rules.  I am watching some business owners actually destroy their sales potential by managing their inventory incorrectly.  It breaks my heart.  They obviously do not know about some of these inventory rules or if they do know about them, they are not giving them enough attention.  They are adding gasoline to the fire of the bad economy.  It breaks my merchandising heart.  Remember, I shop in some of your stores.

Some inventory rules need greater attention.

Some of those rules need to become better defined so the operator can honor how they work.  If the respect for certain inventory rules were increased the sales results would improve.  This is true even in a rotten economy.  The retail outfits that skip practicing the fundamentals of inventory control are the same business models who cannot produce profitable consistency.  If you are managing one of those 'bad results' business models...take notes.  I have a sneaky hunch that some of these inventory rules are getting placed on the back burner.  I also suspect some of these inventory rules are not known by the leaders of those failing models.  Do you think?

I am not your best employee.  I will speak up when I see a wrong being performed.  I am not shy about that kind of stuff.  I love it when I hear the leadership of an organization tell me how they want to have their employees be able to share and expose badly performed activities.  Are you operating a business model with this kind of approach?  Do you work hard on allowing your employees to practice sharing what they think is going wrong?  Do you permit this employee process to flow without fear of retribution?  Does your organization work on correcting wrongs it performs from the bottom up or the top down?  How do you find the wrongs that are going on in your business model?  If some of you are having trouble with this process in your organization, go read Jack Welch's book, "Straight From The Gut."  I know, reading.  Reading is something you do not have time to do.  I am sorry but if you skip reading this book you are skipping the chance to learn a ton about how to build a great employee working organization.  Jack did that thing right.  I think it might have something to do with why that company eventually developed into one of the largest market cap conglomerates in business history.  That company has not measured up to its true potential since he retired, by the way.  I like Jeff Immelt, who took over after Jack's retirement, but he is no Jack!  Jeff does not do it with the same qualities that Jack did.  It shows.  How does you organization measure up to its potential?  Let's examine that question deeper.  Let's get the right information flowing.  I do not necessarily care if it comes from the bottom or the top.  I just want your organization to begin getting the right information flowing.  You want to win, right?  That's what I thought.

Some inventory rules need greater attention.  In order to give those rules some greater attention we must first examine to see what those rules are.  Something tells me that most readers could not even begin to list five of those most important inventory rules.  If I was to stop writing right now, many business owners would still not be able to list those five most important inventory rules.  Many business owners are operating their model without knowing what the most important rules of inventory control are.  They have no idea about what those rules are, how they work, why they are important and how to manage them into constant existence.  A lot of business owners are operating their business model blind.  I suspect those might be the same business owners that are complaining a lot about this poor economy we are seeing.  Any thoughts, here?  If you do not agree, go ahead and list five of those most important inventory rules to practice on a separate piece of paper.  Let's see how well you did.

Make Sure Your Inventory Control System Highlights The Errors!
Don't Hide The Errors.

Did you write down five of those rules?  Are you one of those embarrassed people who will not do that step because you do not want to expose what you do not know?  My goodness, you are only exposing this unknowing to yourself.  How much of a real threat is that?  Are you really afraid that you will discover how you did not know something?  Who cares?  I do not know everything.  It ain't no big deal.  Go forward.  That is how you win, silly.  Move forward.  Admit what you do not know and get better information flowing.    Quit worrying about getting the wrong answer.  That is how we learn.  None of us were born with the complete understanding about how inventory works.  We did not come packaged at birth with the five top rules to inventory control embedded inside our brains.  We had to learn them.  All of us had to learn them.  At one time, none of us knew what they are.  Get over that junk.  Admit that we might not know what some rules need to be.  Examine those unknown rules, learn more about them, install them into your winning ways and learn how to pass them on to the others you employ.  If great working rules become manager secrets, how do you expect your organization and employees to practice making them happen?  Why restrict good information flows?

I want all of my organization to practice all of the good rules that help a business model win consistently.  I will repeat those rules and lessons until my staff gets it.  Once the get it and they get to experience more victories, they become more hungry to learn more.  It is a fascinating place to be when that happens.  You will find special skills surface from these once 'flat' employees.  They will begin to take on a larger share of the effort to win than you can ever control.  It is the dream spot for a good leader to arrive.  The pistons of your business model will magically get in harmony when this effect happens.  Your employees will begin to learn more about what works and what does not.  Your organization will quietly begin doing more of the things that work and less of the things that do not work.  They will be helping you to manage a winning model.  It is pure joy when that begins to happen.

Back to the inventory list.  What are the most important rules to practice?

Number one:  Get very familiar with the Pareto Principle. It is real and it is often forgotten during tough economic times.  Some inventory that does not sell needs to be displayed because it provides credibility to the ones that sell well.  I cannot explain that reality any better than that.  Quit believing that all of your inventory sells well.  It does not and never will.  Since that is the case, make sure you include in your inventory mix some of these products.  Just learn how some of the slower selling stuff helps to support the faster moving stuff.  Get this truth understood in your organization and quit thinking how all things should sell well.  They will not.  Only 20% of them will produce 80% of your volume.  That's it.  Quit trying to pretend it will be different.  It will not.  Above all, quit beating your head against the wall.  Do not skip the value of this inventory rule.  Practice it above all.  Make sure it dominates your thinking.  I wished I had discovered this rule.  I didn't.  It came from an Italian.

Sometimes we get so overwhelmed with economics and budget cutting that we skip this most important rule when we practice inventory cuts.  We look at the slow selling stuff and remove it from the inventory mix, straight across the board.  That is truly stupid marketing.  If you do that kind of stuff, quit it.  Remember the Pareto Principle.  Once you cut stuff out of your inventory mix your 20/80 rule still applies.  Now you have trimmed down to fewer items of the 20/80 rule to produce the needed volume you need in order to support the fixed costs of your business model.  The squeeze is on.  You helped the bad economy to squeeze harder.  In the beginning, all you need to do with inventory cuts is to reduce the depth of how much you carry in each item of your product mix.  Do not rush to eliminate the variety.  One of the five magical components to 'value' is to be able to provide 'choice' for the customers to examine.  Do not over-manage inventory cuts.  It will come back to hurt you and you will not see it happen.  Your customers will quietly go somewhere else.  They will be looking for more variety than you have offered.

Number two:  Do not skip taking 'perfect' care of your inventory receiving.  Two things here...one, get them done immediately.  Do not delay getting your inventory into your management system immediately.  Every single day of delay is a day for more errors to occur.  If it is taking your inventory more than two days to get entered into your data system, you are losing invisible money.  Either your system is flawed or your employees are not efficient enough to get it done within this two day requirement.  I suspect the system of processing efficiently is out of whack.  Most employees take better pride in the work they want to perform.  They lose that "will" when the system is not prepared to allow them to win.  Take a deeper look at this challenge in your organization.  If you skip this rule, you are losing unnecessary dollars.  You are making your other responsibilities harder to do.  Fix this one.  Two...make sure the person who checks in the product deliveries actually do accurate counts of what has been shipped.  Do not take the 'word' of the shipper and the suppliers.  I see both of them make many mistakes in this day and age.  Do not buy missing products.  A missing ten dollar package here and there can add up to thousands down the road.  Learn how to manage the dollars better and the millions will naturally take care of themselves.

Number three:  Store, display and locate all similar items in the areas where they remain consistently similar.  Do not store three quarters of your lumber stock in one building and one third of the other lumber you carry in another building.  Above all, if you stock two by fours of lumber in your business model make sure you do not display or store the inventory in three different places.  They should be stored all together.  I watch this kind of sloppiness occur and it will always kill your bottom line.  Stay consistent on where your items get stored.  Keep like items together.  Help your staff know where to find them, how many are truly in stock and how much to re-order when the items are almost gone.  This rule is often missed because we do not think these kinds of details can hurt us very much.  They can become tragic when someone has a customer looking for 30 two by fours and the employee only sees 15 in stock on one pile.  If the computer count is incorrect, that is all they sell to that customer.  They may not know another 300 two by fours are located in a separate place and not entered into the computer system yet.  Fifteen two by fours did not get sold because of this disrespect for those rules listed above.  In addition to the lost sale of that day, this customer comes to recognize that your place of business cannot be trusted as the one who can solve his problems.  He will find some other place to go when he wants to purchase a lot of stock at one time.  Repeat that last sentence again.  He will go somewhere else with his large purchases?  How do we make a bad economy worse?  This is how it is done.  I see it all of the time.

Number four:  Do not cheat on inventory counts.  Perform inventory counts often.  Make exact sure that what your computer says is there and what truly is there, matches all of the time.  If you fail at this kind of inventory management success you fail at providing your employees with the necessary confidence they need to build better customer relations.  How your staff reacts to the counts the computer reads is vital to the development of better customer relationships.  Customers do not tolerate for very long an inconsistent ratio for inventory success.  Customers already do not like the cumbersome stuff we do on our computers today to delay how long it takes for them to wait in line to complete their sale.  We include too much data gathering all ready.  They are already irritated with what it takes to close out a simple sale.  When the inventory counts become incorrect at that point, you lost the respect of that customer.  You can kiss their support for your operation, goodbye.  You will be adding more challenge to an already bad economy.  Shame on you.  Get this problem fixed, and right now would be the best time to do that.  Not next year.

Number five: When you take your annual inventory, go see how to do it correctly.  Go the extra mile to do a perfect effort on inventory control.  Do all of the recommended steps to make that inventory accurate.  Accuracy is the only goal you should have when you do your annual inventory.  If you lose money, you lose money.  Do not 'doctor' your results.  You will only be placing a new guarantee on losing more money next year.  How stupid is that?  I see this stuff happen everywhere, all of the time.  It disturbs me greatly to see owners actually plan to shoot their business models in the feet by practicing 'protection' practices in their inventory counts.  It is pure management stupidity.  If you employ a manager who does this kind of stuff, you are employing a thief.  You just have not accepted this truth yet.  It is probably a good thing you have not hired me to manage your manager.  I would have already terminated that managers employment.  I refuse to employ a thief.  Grow up and do what you should be doing.  I bet you have some other areas of missing money, too!  Go figure.  Wake up.  Do your job.  I know it is not a fun thing to do.  Unfortunately, you are the one that must do it.  Fill your shoes and do what you are supposed to do.  Your model will benefit greatly from courageous leadership.  Get rid of cheaters.  They are thief's. 

There are more on the list.  These are five of the most important ones to practice.  Some other important ones include the effort to make sure your software is helping you win the inventory control game.  Get a great point of sale package working well.  Make sure the mobile bar coding system is efficient, accurate and user friendly.  This will save your staff valuable time, produce greater accuracy and improve their willingness to do better work.

Some inventory rules need greater attention.

Tough times require tough leadership.  Go fill your shoes of responsibilities.  Get your inventory more accurately managed.  Be tougher about inventory control.  Your profits may hinge on how well you manage your inventory success.

Until next time...