An article by USA Today on January 12, 2008 exposed the United States Army’s inability to control inventory. Like many business owners across the country that have an inventory, the Army has fallen into the trap of ordering too much, ordering things they don’t need or holding onto items that they cannot otherwise sell. According to the article, the Army has more than $3.6 billion in excess spare parts. Of that amount, the Army will never need some $900 million of the equipment that it has in storage. According to USA Today, the Army has “too little of the parts it needs and too much of others it doesn’t largely because it doesn’t set cost efficiency goals and has problems with the computer models it uses to forecast demand…”

The good news is that the business owner can learn from the mistakes of the Army. Any business that has an inventory also carries a debt load on that inventory. While the widgets sit on the shelf they are costing money. There is a price to purchase the item and a holding cost to have the item in inventory. As the item gets older, there is a risk of the part becoming obsolete. At that point, it is essentially worth zero because there is not market for it. The cost of a single obsolete part may not be significant, but the cumulative effect can be crippling.

Any business that carries an inventory needs to be accountable for proper inventory control. This means upholding a level of service that allows customers to purchase out of stock, avoids obsolescence, and generates a profit. To accomplish this, inventory managers need to be experts in inventory control, merchandising, pricing and profit. The good news is that a host of computer programs are available for every size business to automatically analyze inventory and alert the inventory manager when parts should be reordered to allow for a “just in time delivery.” This task is made even easier with the availability of overnight shipping.
Most inventory managers struggle in 5 crucial areas.:

1. Obsolete parts: Managers want to retain obsolete parts that cannot be sold in hopes of the sucker who walks in one day for that exact part. Don’t wait. It is a hard pill to swallow, but if the part is obsolete take the loss and sell it on e-bay, at a garage sale, to a junk shop or simply throw it in the trash and take the tax write-off. Continuing to hold the part only takes up space and costs more money;

2. Wrong Product Mix: Know your customers and what they are ordering. Have the correct product mix in your inventory for ultimate profitability;

3. Excess Stock: Don’t order too much just because you think you will sell more. Look at the selling history or “demand” for that part and order according to the demand history;

4. Poor marketing and merchandising: Every retailer has to market their product. Do so by whatever means possible. In the age of the internet, e-mail and blogs, guerilla marketing is a snap;

5. Poor use of compute information. Trust your technology. If you have a compute inventory manager and the parameters are correct then trust the information it is giving you.

Proper inventory control is crucial because obsolescence is one of those items that can creep up on the uninformed. Letting inventory get out of hand is a sure way to financial ruin. To avoid a listing in the bankruptcy filings, watch your inventory and your manager. This is the only way to insure that you do not fall into the same trap as the Army.