When Your Start-Up Has Too Much of a Good Thing


What do start-ups need to know about inventory management?

“Knowledge is power” might sound like an overused cliche, but when you are a start-up company, access to information or lack there of can make or break your business. You may think that because you’re small right now, you can’t afford inventory management technology or that it’s not necessary. You would like your company to grow, right?  41% of small businesses expect at least 5% growth this year. Let’s say your product or service really takes off, and fast. Then what? Do you have the ability to keep up with demand and track trends in inventory?

Related Article: Optimize Inventory Management

Entrepreneur recounted the unfortunate story of the company Ship Your Enemies Glitter, where customers could do just that. It was an overnight success. Owner Mathew Carpenter wasn’t prepared for just how quickly customers caught on to the concept. The demand became so overwhelming that he ended up selling out after only two weeks in business.

Hopefully your business won’t meet the same fate as Carpenter, not to mention the 64% of businesses that lose $437 thousand every year due to poor inventory management. The point is that you can be proactive and prevent disaster. Ashok Rao, management education expert, told Entrepreneur that companies can experience 20-50%, or more, growth through carefully controlling inventory.

The upfront investment into an inventory management system pales in comparison to the revenues and cost-savings and growth your operations will experience in the long-run.

Inventory Control Tour

That brings us back to inventory management knowledge: specifically knowing what to buy, when to buy and how much to buy.

How to maintain inventory

Since your business is new, you won’t have any historical data to rely on, there are two things to know:

  • Since your company won’t have any past statistics, use your business plan as a guide as you project sales for your first year.
  • Factor in lead-time (how long between reordering and receiving a product).

If your lead time is two weeks and a product line sells 10 units a week, then you must reorder before the basic inventory level falls below 20 units. If you only reorder when you absolutely have to, you could have to wait two weeks until you can fulfill orders again. That means lost sales and time-consuming back orders. Not to mention, undoing all the hard work you’ve done marketing your business!

The impact of cycle times and turnover rates

Cycle times are dependent on the type of products you sell. For example, you will order food more often than women’s clothing because it will expire. On the other hand, consider whether your products are “deliberation items,” those items that customers have to put some thought into before buying, like floor tiles or paint colors.  You can expect lower turnover rates for these types of items.

Inventory turnover is a measure of the number of times inventory is sold or used in a time period, such as a year.  Knowing what inventory you have on hand, as well as how much it costs to maintain those items is crucial.  Lack of that data is one of the primary reasons small businesses fail.  When you implement an inventory management system, no more money will be wasted by balancing you inventory turnover ratio.  An unbalanced inventory ratio can cause you to order excess inventory that’s not needed as well as not ordering enough of the products customers actually want.  This ties up your money in carrying costs and physical stock, rather than on other important aspects of your operations.


The importance of forecasting

As you begin to plan for your first year, it’s important to account for supply and demand early in the process, avoiding the possible negative impact of inventory management problems. It’s important to carefully track the following areas:

  1. Current inventory:  Forecasting and demand planning are vital when it comes to meeting customer needs and minimizing inventory costs, as they help you make key stocking and replenishment decisions. Collaborate with your sales team and a few key customers to better predict future demand and improve product availability.
  2. Manufacturing:  Save yourself a lot of headaches by working closely with your manufacturing facility, in order to keep improving production schedules and supply chain procedures. Know when operations will be shut down for national or international holidays, so you can account for halted production. You can make orders ahead of time and avoid costly back-orders.
  3. Replenishment:  Replenishment is not as easy as thinking “I’ll just purchase more stock when stock is low”. A replenishment process is vital from day one. As you your business grows, you can learn trends and adjust the process over time. Study your manufacturing speeds and sales rates to figure out how quickly you need to restock your products.

“If you’re not in control of your inventory, you don’t know what you have,” said Lee Letawsky, parts technician and purchaser at Precision Drilling.

“If you’re not in control of your inventory, you don’t know what you have,” said Lee Letawsky, parts technician and purchaser at Precision Drilling.  Precision Drilling ran into inventory problems as their business grew. Since they were still using spreadsheets, mistakes became more frequent because proper inventory control counts were not being made.  They were duplicating a lot of items, resulting in too much unnecessary inventory. Switching to a barcode inventory management system helped them know lead times, shipping dates and amount of stock on hand so they could make better business decisions.

No question, good inventory management habits can make the entire tracking and ordering process easier and more efficient. So, put away the pen and paper or piles of Excel spreadsheets.  Wasp Barcode technologies offers solutions specifically tailored to small businesses.

Don’t drown in “too much” overstocked inventory, or orders you can’t fulfill. Effectively forecast, manage and replenish your inventory from the get-go with an inventory management system.

How would adapting good inventory management practices help your start-up to grow?

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Paul Trujillo

Paul Trujillo

Paul Trujillo is a Product Marketing Manager at Informatics specializing in Inventory Warehouse Management and Supply Chain product lines. His nearly 15 years of experience has put him at the forefront of industry technology and developing trends.