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The Ins and Outs of Inventory Management

(August 2010) posted on Tue Jul 27, 2010

Controlling inventory costs can create significant cash savings for your business.

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By Marty McGhie

For example, something you use for your customers every 60 or 90 days would probably not justify carrying in inventory unless it were very inexpensive and the costs of one-time orders make sense. On the other hand, if an item is used more frequently, but is very expensive, you could carry a lower amount in inventory and replenish as soon as an order is placed that consumes that amount of inventory. Again, this requires continuous analysis and fine tuning over time before you feel comfortable with the right amount.

Communication and relationships
Another helpful tool in managing inventory is good communication with your staff and customers. At Ferrari, we continually update our sales team with any changes to inventory stock and non-stock items, informing them of the lead times necessary to secure non-stock inventory. This way, we don’t get into a situation where we have promised the customer we’ll deliver on a deadline, then fail to do so due to inventory issues.

We also communicate with our primary customers in order to learn about large jobs coming our way. Let your customers know that an early heads up about large upcoming jobs will help ensure their products are produced in time.

And then there are vendor relationships. Approach your key vendors as a partnership and they will go to great lengths to keep you as a customer. For instance, one of our company’s primary vendors has a warehouse in our city. We’ve negotiated a deal with them where they carry a significant amount of the inventory we use regularly and allocate it in their warehouse specifically for us. So in addition to the amount of inventory we carry in our own location, we know they have another larger amount on their floor that we can secure in one day. This allows us to significantly reduce our inventory levels on those goods, thus avoiding a larger cash investment and producing much higher turnover on those goods.

Although you might not have that luxury in your own place of operation, you do have leverage with your suppliers. Use that to your advantage when negotiating the terms of your purchases such as shipping costs, discounts, overall pricing and expediting charges.

Marty McGhie is VP finance/operations of Ferrari Color, a digital-imaging center with Salt Lake City, San Francisco, and Sacramento locations. The company offers high-quality large- and grand-format photo, inkjet, fabric, and UV printing.