March 28, 2005
Volume 1 Issue 6       

Simplified Saving Ideas Using Technology for Your Inventory (prt 1)

In last week’s issue we talked about basic financial formulas to track our inventory effectiveness. This week we will talk about technology and how it can affect our inventory costs if properly implemented.

Many technology magazines like Information Week, Info World and E-week, publish rankings of top technology innovators. Food Companies are scarcely in those rankings. This is not a surprise because of the low return on revenue for this industry as a whole. The latest return on revenue for food wholesalers is .8%. That number doesn’t leave a lot on the table to spend on technology.

The main reason for this lack of technology innovation is that this stable and mature industry is dominated by small and medium companies who use the tried and true method of eye balling their inventory. This is the extent to which they monitoring their biggest single investment

Many Companies use the ubiquitous spreadsheets, Excel, to track all sorts of things. They are better than pencil and paper but they are very difficult to maintain with current data without a lot of labor and they are not real good at allowing information to be shared. Also, because their input is totally manual, accuracy is a big problem.

Looking at systems today  that are shrunk-wrapped such as, Quickbooks, Peachtree, and a host of others do well in accounting but fall apart when you try to introduce  the complexities of food inventories, such as catch weight and broken case product.

When looking for a software package, look for the following in this order.

1.      Food Specific not a general package. Stay away from “customized” software for commercial accounting applications. The support is spotty and your teaching (paying) the techs to learn your business.

2.      Companies that support and train with their software. We aren’t  born knowing how it works and companies with food expertise should already know what you need to know.

3.      Companies that have offerings that “scale” i.e. grow with your business. This is a long-term investment to help you grow. Make sure it grows with you, not you stopping your growth for it.

After we’ve selected a technology package, the hard part comes. The most effective way to control inventory cost in an automated fashion. Purchasing software modules that can forecast your needs to keep your investment in the areas that you sell most of and not in the areas that you don’t (Remember your Turn and Earn ratio, gross profit % X turns). Again this is a simple concept. We discussed last week the analogy that this is like the stock investment, focus on your return on investment of specific items and buy them correctly. Good purchasing systems will help you buy correctly with your added knowledge of your business of course. Purchasing systems will track sales history, apply proper lead times and forecast your usage against present inventory stocks. If you temper that with the 80/20 rule and your highest Earn and Turn ratio items you will maximize your investment return.  Thus, you will have chosen the right “stock”, please forgive my play on words.

That’s enough for this week. We will continue this discussion next week and move into Inventory systems and how they help the cause of cutting inventory costs.

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