The slogan, "Inventory Is the Enemy", gave rise to such control systems as, Just-In-Time and Need-a-Part-Make-a-Part. These were solving the problem of too much capital being tied up in stocking costly supplies in manufacturing processes.
Besides being concerned with the effective use of capital, other inventory costs such as transportation, storage, obsolescence and shrinkage must be factored into your purchasing decisions. This is how the current group of big box retailers became more competitive on price. Almost every small retailer is affected by this competition. To remain successful in this new environment, the small business manager is wise to focus on appropriate inventory and purchasing practices. Maintaining the balance between customer service and procurement costs requires a control system.
You would be shocked to learn the huge losses suffered by larger organizations due to shrinkage. Shrinkage is mainly theft by customers and staff. Security devices are a growth commodity.
Customers do not look like thieves. The problem is: the thieves look like your customers. The same goes for casual workers on staff and, to a lesser extent, regular staff members.
In a small business the shrinkage is usually an accumulation of small items and incidents and is often unintentional. For instance, staff members are trusted more. Various persons are entrusted to make purchases instead of having dedicated persons who know how to follow appropriate purchasing procedures.
In many small businesses that have grown from a one or two person operation, large quantities of supplies are left in the open. This encourages "honest" workers to think, "they've got lots, who's going to miss one or two items?" Taking home such items as: paper clips, envelopes, advertising novelties, napkins and rubber bands is not considered theft.
When your staff increases to three or more, it's time to add: (a) a person to play the role of purchaser, (b) a controlled access storage area, (c) an inventory control system, (d) a simple purchase requisition procedure and other such security measures.
A small retailer should, on the other hand, avoid "stockouts" where there is no item on hand to satisfy a customer's immediate need. A casual customer will go away forever and a regular customer will have low tolerance before leaving to patronize a competitor.
I was saying a good night in the parking lot to a friend who operates several popular fast food outlets. In our preceding group meeting he was giving us the details of another robbery at one of his outlets that had gained quite a bit of attention in the local media. I asked for any advice to include in my sample business plan for a restaurant. To my surprise it had nothing to do with food quality or robbery prevention. His answer was plain and simple, "Control the inventory!"
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