Step 10: Determine Inventory
The Concept:
The materials you need to be able to deliver a product or service and how you manage the process of obtaining them are vital factors for continued success. The quality of these materials directly influences the quality of the product you deliver.
What you need to know:
You'll now need to determine which raw materials—metals, woods, fabrics, chemicals, food, dry goods, etc.—you need for your business. Are they available locally or must they be shipped in from somewhere else? How quickly will that process occur? What will all these materials and their transportation cost? If you anticipate fast turnover of product you should have a “never run out” procedure to handle the situation. You should also consider whether outsourcing part of your production phase makes sense financially or from an efficiency standpoint.
One concept to consider is to have inventory "just in time" for production. This keeps funds from being tied up unduly in large amounts of idle inventory yet allows a business to fill orders fast enough to meet customers' needs. This practice requires a clear understanding of when to stock up and how often, which may be difficult for start-up businesses. Other points of concern:
Vendor reliability: Small firms can become over dependent on suppliers who provide a key component or service. A serious glitch in the vendor's performance might put you out of business if you don't have a backup source. Ask a potential vendor for references you can check, and if you or an employee is particularly knowledgeable of the vendor's product, ask permission to visit their site and perform an audit, interviewing managers and workers and looking for shortcomings in quality or production performance.
Inventory control: An inaccurate inventory system could cause you to make an incorrect decision that threatens the health of the business. Take physical inventories as often as possible, and take steps to ensure that counts are accurate, such as secured storage areas and checking vendor invoices against supplies received.
Points to consider:
What supplies (i.e. raw materials, products, energy) are needed?
Are the needed supplies available? Identify suppliers locally, nationally, and globally.
Which suppliers produce consistent quality product and deliver on time?
What payment terms do they offer (e.g. C.O.D., 30 day, etc.)?
How much of each component is needed?
When is it needed?
How much should you have in stock?
What purchasing system will you use to track, order and replenish inventory?
How much will the needed inventory cost?
What is your optimal inventory? Have suppliers been identified?
Address any inventory shortages. Given inventory costs, can the product and service still be provided competitively? |
