Take Stock of Your Stock

Jason Hollis from Reckon talks about electronic Inventory Management Systems and how to decide if one is right for you. ~ WizeOwl

Some of you by now will be finalising your half-yearly stocktake by tabulating the count sheets, calculating your stock on hand values, adjusting your stock control books and thinking “surely there is an easier way to do this?” Or perhaps your business is struggling for cashflow with too much inventory based on current sales.

As Simon Jupe, Managing Director of Fishbowl Inventory Australia notes;

“One of the biggest drivers for businesses to investigate inventory management systems is cashflow.  In a growing inventory based business one of the greatest impacts on cashflow is stock levels.  Having too much stock will mean you have excess cash tied up in items on the shelf whilst carrying too little stock means missed sales and customer dissatisfaction”

The good news is, Inventory Management Systems (IMS), have been around for decades. From the earliest beginnings, barcode scanning allowed the recording of sales data for each individual item, through to today where an application can perform all of the ordering processes for you. Sounds fantastic doesn’t it? No more manual stock counting, no more walking around the shop or warehouse to see what I do and don’t have, no more under or over-ordering. Where do I sign?

If the allure of full inventory automation sounds too good to be true, you may be right? It is not uncommon for a business to throw money, time and effort at technology to solve a problem only to create a bigger problem. So how does this happen?

  1. Manual inventory control systems are non-existent or poor, therefore an automated system simply automates chaos.
  2. The wrong system was implemented, or was poorly trained, or poorly embraced by staff and management, or all three.
  3. Lack of system monitoring and continued adjustment.
  4. You simply weren’t ready to automate

Automation of manual tasks can revolutionise a process, and if that process is significant, say… ordering 10,000 SKUs of inventory, it can revolutionise an entire business. That said, if you don’t do the basics well already, an IMS is likely to replicate your existing poor practices. So what are some of the basics?

  • Price check and barcode scan procedure
  • Daily sales per item reviews
  • Stocktake procedure manual and action plan
  • Identifiable inventory departments or categories
  • Shop floor and warehouse fixture map
  • If applicable, stocktake and re-stoking procedures for off-site locations such as bulk storage or service vans
  • Regular monitoring of ‘out of stock’, high sale and promotional items
  • Allowing for supplier lead time, minimum order and back-order policies
  • Soiled, damaged, and theft write-off procedures
  • Clearance and runout stock actions
  • Pricing policy eg. Competitor based, gross margin per category based etc
  • Know your stock-turns and minimum order quantities for your stocked items, and what this means

There are so many inventory management systems available today, both online and desktop, it’s hard to know where to start. Its therefore no great surprise to often hear a business admit they purchased the wrong application. Or the application is great, but was configured incorrectly for your business. Finally, and often the hardest to overcome, your staff hate it and were happy doing things ‘the old way’. Here are some simple tips to give yourself the best chance of success:

  • Create a scope document and list absolutely every feature you require as a WANT vs a NEED. Start with high level attributes such as online vs desktop and work your way down to micro-features such as ‘must allow for 20 barcodes per SKU. Great for establishing a shortlist of possible systems, and is highly valuable when included in your agreement with the vendor or consultant to ensure they deliver what they promised.
  • If you have an Accounting application already, such as Reckon Accounts, and simply need to automate your inventory management processes, will an add-on suffice rather than replacing inventory, accounting and payroll systems all at once? Furthermore, will the add-on integrate with your accounting system?
  • Does your trusted advisor such as a bookkeeper or accountant have any expertise in this area? What do their existing clients use? What is used by other businesses in your industry. Are there any online peer reviews I can check? The more information you have the better.
  • Determine if you can install / set-up yourself, or do you need a consultant? If so, what is their reputation, experience? Do they have testimonials? Do they understand my business and what we are trying to achieve? Poor implementations by yourself or consultants is more often the cause of a bad experience than the application itself.
  • If applicable, ask for a demonstration based on YOUR workflow and processes, not that of their sample data.
  • If the system is feature rich you’ll most likely need support at some stage. Make sure you know how much this will cost, the turnaround time, as well as the availability of in-product or online documentation including tutorials. Also note if there is a large user community you can leverage.
  • Get the staff on-board. Or, if you are the staff member, definitely get the owner or managers buy-in. It’s no coincidence that Change Management is an entire profession. Most people simply hate change because it makes them uncomfortable, and implementing a new system when they were quite comfortable with the old one is often a recipe for disaster.It is therefore important to ensure:
    • All stakeholders understand how current systems effect the efficiency or profit of the business, and relate this back to their own currency, whether this is loss of casual hours, less overtime, or less money in the owners pocket to pay back their business loan or buy that new delivery van.
    • You have managed expectations. Some will have more work, some will have less. Try to convey the benefit to the entire business, such as less overstocks to count, or better management reporting. Some benefits will have no impact on others, therefore it is vital they understand the overall benefits to the organisation as a whole.
    • You invest productivity gains back into team member pain points. It may seem simple to cut someone’s hours whose data entry role you just automated, however that doesn’t address areas of your business that are under-resourced and can’t be automated. Unless your entire operation is running at maximum efficiency, and you have automated every possible facet, you literally can’t afford to reduce employee hours

An IMS is definitely going to require additional tasks that are non-existent or less important under a manual process, such as:

  • Timely entry of inventory quantities upon receipt
  • Spot checks on out-of-stocks to ensure the system quantity on hand is also zero
  • Rolling stocktakes or cycle counts
  • Accurate reporting on short-delivered goods or goods received without paperwork

It is imperative that the system is monitored and tweaked as required. Garbage in / garbage out, so make sure your data is clean and accurate to you get the right results at the end of the day, and don’t end up with 1,000 widgets with a stock-turn of one a week. Monitoring processes include:

  • Adjusting safety stock levels for seasonal fluctuations
  • Updating supplier ancillary information such as bank details and email addresses
  • Monitoring lead times, margins and back-orders
  • Adding / removing barcodes linked to SKUs
  • Reporting on and actioning slow selling stock

The final fall to failure is you simply weren’t ready to automate. So how do you know when the time is right?

Jeff Keith, co-owner of Development-X, notes these common complaints from businesses who enquire about their IMS, Ostendo;

  • We don’t have real time quantity on hand figures and it’s effecting our ability to respond with a realistic delivery date to customer inquires
  • Inventory is either over stocked or under stocked because of the lack of forward demand, or supply commitments
  • Our company manufactures products, and there is a high level of un-finished work due to parts needed not being available when required
  • Stocktakes are carried out on a far too regular basis
  • Unnecessary time is being spent on urgent supply orders because of stock shortages
  • Some of our company’s products require a high level of traceability for compliance reasons (i.e. Batch, Expiry and Serial Tracking)

For more information on Reckon’s Add-on marketplace click here