TWO CRITICAL CONSIDERATIONS TO TRACKING YOUR INVENTORY.

Hey Founders,

Think inventory management is just for retail or food and beverage-based businesses? Think again. Almost every single one of you has a business that would benefit from tracking inventory, including those of you in the manufacturing, distribution and logistics, automotive, construction, and even service-based sectors.

Today, I'm drilling down on two critical considerations—the What and Why when it comes to tracking the products, supplies, and equipment that keep your business ticking.

WHAT IS INVENTORY?

Inventory isn't just about the "stuff " on your shelves. It's about the raw materials, finished products, supplies, and even the equipment and tools you rely on every day to keep your products and services moving through the doors. Here are some examples to consider, not exhaustive, but it gives you an idea :

Raw Materials: Basic materials or components used in the manufacturing process to produce finished goods, such as:

•    Wood for furniture manufacturing

•    Steel for construction

•    Fabric for clothing production

Finished Goods: Completed products ready for sale to customers, such as,

•    Training tools such as workbooks and posters

•    Food products such as jams and bottled wine

•    Clothing items such as shirts and jeans

Packaging and Supplies: Materials used for storing, protecting, and transporting inventory, such as:

•    Boxes for packaging products

•    Labels and packaging materials

•    Shipping supplies like tape and bubble wrap

Work-in-Progress (WIP): Partially completed products in various stages of the production process, such as:

•    Half-assembled furniture

•    Semi-constructed buildings

•    Partially sewn garments

Goods in Transit: Don't forget about your inventory being transported from one location to another. Examples include:

•   Goods being shipped from suppliers to warehouses

•   Products being transported from warehouses to retail stores

•   Deliveries in transit to customers

Goods for Consignment: Inventory not owned by the business but held for sale on behalf of suppliers or manufacturers. Examples include:

•    Products on consignment from vendors

•    Goods on display in retail stores but owned by suppliers

Maintenance, Repair, and Operations (MRO) Inventory: Supplies and materials used for maintenance, repair, and operation of machinery, equipment, and facilities, such as:

•    Spare parts for machinery

•    Tools for maintenance and repairs

•    Lubricants and fluids

Equipment: And while not traditionally considered inventory, equipment used in business operations can also be managed similarly. Examples include:

•    Machinery used in manufacturing

•    Tools and instruments for various tasks

•    Vehicles for transportation or service purposes

WHY TRACK IT?

Now that we have a handle on what we need to track, let's look at why tracking it is important. Not only is your inventory an asset on your balance sheet, but monitoring it is crucial for optimizing operations, minimizing costs, and meeting customer demands. And more specifically, not accounting for all the costs of buying and holding your inventory can significantly impact your bottom line if not properly managed. So let’s look at some of these hidden costs, shall we? If you're a Finanically Fierce Founder, here's where you're going to want to break out your Direct Cost Calculator Tool.

• Storage Costs: Storing inventory incurs expenses such as warehouse rent, utilities, insurance, and security. The longer inventory sits in storage, the higher these costs become, especially if space is not utilized efficiently.

• Inventory Holding Costs: This includes expenses related to holding inventory, such as handling, maintenance, and depreciation. It also encompasses costs associated with inventory obsolescence, shrinkage, and deterioration.

• Capital Costs: Investing in inventory ties up capital that could be used elsewhere in the business. The opportunity cost of tying up funds in inventory instead of investing in other revenue-generating activities should be considered.

• Insurance: Inventory often needs to be insured against loss, damage, or theft. This adds to the direct costs of holding inventory, especially for high-value or perishable items.

• Taxes: Inventory is typically subject to property taxes, which vary depending on the value and type of inventory held. Failure to properly account for inventory may result in overpaying taxes or incurring penalties for underreporting.

• Handling and Transportation: Moving inventory within the warehouse and transporting it between locations incurs direct costs such as labour, equipment, fuel, and vehicle maintenance.

Although the following two examples don't fall under your typical "hard" costs category, I am going to urge you to consider them when assessing your direct labour costs:

• Ordering Costs: Placing and processing orders, including administrative tasks, communication with suppliers, and order processing fees, contribute to the overall cost of inventory management.

• Quality Control: Ensuring the quality of inventory may require additional testing, inspection, and quality assurance measures, adding to the direct costs of inventory management.

THE BOTTOM LINE IS THIS...

Effective inventory management starts with knowing what it is, where it is, and how much it’s costing you. By doing so you can implement strategies to optimize inventory levels, reduce expenses, and improve the overall efficiency and profitability of your business. Today we drilled down on the What and the Why, be sure to catch us next week for more intel on how to effectively manage your inventory.

Ready to confront your numbers and hammer out a plan? Text 'NAILED IT' to 306-713-8321 and we'll build out your next steps together.

Until next week, stay focused, fearless and financially fierce!

Taunya.

ABOUT TAUNYA WOODS RICHARDSON

Taunya is well-known for her straight-shooting, bottom-line-building approach to founder finance. As the Founder of Nail The Numbers, she brings 30+ years of experience in entrepreneurship, finance, and neuroeconomics to our mission of strengthening the minds and bottom lines of Founders across North America.