Consultant says inventory is cash, so manage it by looking for the little things that steal your money, not the big game you've already bagged
Mar 1, 2010 12:00 PM, By Rick Weber
COMPANIES should tear down signs that say WAREHOUSE and put up signs that say VAULT. Vault, as in, bank vault.
Why? Because inventory is just cash in another form, according to Jason Bader, speaker, author, and managing partner of The Distribution Team Inc, which specializes in inventory-management training, business-operations consulting, and technology utilization to the wholesale distribution industry.
In “Finding Cash In Your Business,” Bader said if business owners saw their inventory as cash, they would want to know exactly how much they had in there at the end of each day.
“So, do you know how much inventory, or cash, is sitting in your warehouse?” he asked. “No, we haven't made that mental leap. So how do we help the people who work with us and for us to do that as well? If inventory is cash, do you think there are people we wouldn't want wandering amid that cash? In general, your customers are going to be browsing. Who else? The competition. What are they looking for? What we are selling. How about our salesmen? What are our sales people really doing when they're wandering amongst our cash in our warehouses. They're pulling samples.
“We don't have good in-and-out procedures for where our cash is going. So let's be careful. I don't have a problem with samples. I just have a problem with how they're tracked. This is murder when we allow salesmen to take samples.
“What about sales reps? I have nothing against sales reps, but what are they really doing? They're checking whose cash we're really storing. Is that information we want to let out? We have to view it as cash. We have to lock down our organization.
“What about delivery drivers? What's the first thing a delivery driver wants to do when he pulls up to your dock? Use the bathroom. Since when did we become a rest stop for the trucking community? I have nothing against delivery drivers. I was one for many years. But you have some attractive things sitting around in your warehouse that can go away quickly.”
They're cash handlers
He said conversations should be broached with warehouse employees to let them know they're really cash handlers, and the mindset has to be changed so that they know they must lock down the vault.
“Kill some roaches,” he said. “We are looking for the roaches inside our business that steal cash from us each and every day. Don't go looking for big game. You already killed it. Let's go looking for the little things that steal your money.”
He said when the income statement of a typical distribution company shows the net profit going to zero, “everyone feels the pinch”: people are laid off, and investment isn't made in new product lines or software upgrades.
“It's the responsibility of all of us, not just the owner,” Bader said. “When there is more net profit, owners in this industry are more likely to distribute it. They tend to over-distribute. They take care of workers more than other industries I've seen. So for everyone in the organization from material handling to customer service to accounts receivable, get them on board and have them help you in your hunt for cash.”
He said a product-movement analysis is necessary. A “hits report” is basically an item-popularity contest. He said a “hit” is a transaction in a 12-month period in a sales order.
“It's the number of transactions,” he said. “Quantity sold is not considered. It's how many times your customer said, ‘I want that.’ This is a 12-month analysis. Do not subject new items to this analysis. This is for things that have been with you and have been producing income.
“Anything with less than four hits a year is a candidate for non-stick status. Salesmen might say, ‘Hold on. You can't get rid of my items here.’ But is that money I could invest elsewhere? The items at the top of the list are ones we never want to run out of. Customers expect us to have those items. It's not what items are most popular in the eyes of the manufacturers you represent or the eyes of your sales people.
“Look for dead and slow inventory. Dead stock is a problem. Don't you wish dead stock would stink? Wouldn't that make it so much easier to find? The hits report will show you where dead stock lives. This is a wonderful way to prevent writing checks for DOA inventory. Some great exceptions are if this is a repair part for a larger unit you sell or if it's a high-gross-profit item for a customer you don't want to lose.”
Next Page: A balance needs to be found
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