Midsize companies may gain as much as 35 percent in annual revenue by improving business inventory management control. Inventory experts offer advice on how to recognize when it's time to upgrade, and how to make sure the change is effective. In Summary:| • | Do not overlook the importance of a sophisticated business inventory management system. | | • | Poor inventory control costs money, delays shipments to customers, and might hide serious business inventory management problems. | | • | New business inventory management system software tools can help midsize businesses track inventory, perform forecasting, and reduce costs. |
 | I've been with this business 13 years, and I know [Microsoft Dynamics NAV] has saved us a lot of money. |  | | Ron Futrell
Chief financial officer
Moulding Associates | |
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Moulding Associates had a problem that is common to many midsize businesses: a business inventory management system that wasn't keeping up with the company's growth. The Texas company was formed in 1981 as a small distributor of doors, but over the past 20 years it expanded its line to include many custom doors and decorative millwork that it sold to stores across the United States. Its old IBM DOS-based business inventory management system lacked the features and flexibility to manage a stock count that was surpassing 5,000 items. Moreover, Moulding Associates needed to track value-added processes such as the ability to add decorative effects. "That's inventory, but in a way it's not," says Ron Futrell, chief financial officer of Moulding Associates. "The old system just couldn't keep up with it." So, in 2004, Moulding Associates and Microsoft Gold Certified Partner SimCrest, Inc., of Richardson, Texas, implemented a new business inventory management system on Microsoft Dynamics NAV. The company now has a comprehensive business inventory management system that tracks stock units, accounts for custom additions, and works with the company's purchasing system to forecast customer orders and deliveries from overseas suppliers. The system has made it easier to enter order data and correlate that to inventory, and billing has improved because more detailed inventory lists reduce errors. "I've been with this business 13 years, and I know [Microsoft Dynamics NAV] has saved us a lot of money," says Futrell. Most small and midsize companies overlook a surprising source of revenue: their inventory. This goes beyond the mere value of your stock—by improving inventory control, you'll see significant improvements to cash flow and margins. Says David Pyke, author of a textbook on inventory management: "I have seen very few cases in the past 20 years where a business I've worked with doesn't have at least 10 percent—and maybe up to 35 percent—of savings sitting there on the table." Inventory control has grown in importance as supply lines to overseas sources have lengthened, with delivery taking perhaps weeks or months. And because midsize firms often have larger companies as customers, they have to balance carefully the requirements of serving those customers while not overstocking their warehouses. Yet small and midsize companies focus so much on basic business operations that they tend to ignore inventory issues. Additionally, it's uncommon for midsize companies to have an individual dedicated to inventory management. Today, many midsize businesses still use the same inventory system they had as a small or start-up business—sometimes just a Microsoft Office Excel spreadsheet. But tools designed for growing businesses, such as Microsoft Dynamics Retail Management System (RMS), make it relatively easy to understand and manage inventory to meet customer expectations and improve profitability. Microsoft Dynamics RMS, for instance, can help with complex tasks such as the analysis of seasonal purchasing needs and demand forecasting. Knowing when to upgrade
| I have seen very few cases in the past 20 years where a business I've worked with doesn't have at least 10 percent—and maybe up to 35 percent—of savings sitting there on the table. | | | David Pyke
Inventory expert and author
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It might be time to upgrade your inventory systems when it becomes difficult to perform these tasks: | • | Identify "dead stock" issues. A company might think its inventory is adequate and in good shape, but some items can become obsolete or languish in your warehouse for weeks or months. | | • | Decide where to locate inventory. It's cheapest to have inventory located as close as possible to the manufacturing site or distribution center, rather than in warehouses far from company headquarters or even on a customer's shelves. But you should weigh that against the ease of delivery to customers. Advanced inventory management systems help with this analysis. | | • | Track shrinkage. Some retail chains lose as much as 30 percent of their inventory each year to shrinkage—mostly due to shoplifting and employee theft. | | • | Track manufacturing status. If you manufacture complex products requiring many parts and days or weeks for production, you have to know the exact location and status of that product in the manufacturing pipeline, and whether the parts to finish it are on hand. | | • | Understand the appropriate amount of "safety stock"—stock needed in case of a supply problem or unexpected orders. Most businesses cautiously purchase too much safety stock. For example, monthly demand might vary from 900 to 1,100 items, or between 500 and 1,500, Pyke explains. Even though the average is the same, the safety stock you need is quite different. |
Don't upgrade with poor inventory numbers and processesEven if your company has a rudimentary inventory system, it only makes sense to upgrade if your current system has accurate data. The first step is to ensure that inventory figures are accurate and well documented in some electronic form, such as a spreadsheet. You don't need to count every item, Pyke says—a sample of fast-selling, medium-selling, and slow-selling items might suffice. Upgrading your inventory system also provides a good opportunity to thoroughly evaluate your inventory practices and business assumptions. You might have a supplier that could alter its delivery schedule to better accommodate your production schedule. Or you might wish to share inventory information with important suppliers so they can work together to ensure timely delivery of parts or raw materials. Once you get started on the inventory improvement process, you will find no limit to the efficiencies you can gain—and, the revenues you will recover. Douglas Gantenbein writes often on technology for Microsoft. A journalist for more than 20 years, his work has appeared in Business 2.0, Scientific American, Popular Science, and other magazines.
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