Home
>
Top Quick Tips
>
7 Secrets to Writing Inventory Procedures

7 Secrets to Writing Inventory Procedures

What would You do with $1,000,000

With $1 Million would you:

? Pay off debt?

? Purchase new equipment?

? Invest/save for the future?

? Give yourself a bonus?

$1,000,000 Waiting in the Wings

What do you and your business need that you have been putting off because you don't have the money today? $1,000,000 certainly would fill those needs. But where do you find $1,000,000 just lying around your business right now? Well, you probably have $250,000 in each of four areas in your everyday business, and you don't even realize it.

Money in Business Procedures

And so let's look at four places in your business where we will find $250,000 each and see how we can help you find it:

Part 1: Inventory - $250,000.00

Part 2: Receivables - $250,000.00

Part 3: Sales - $250,000.00

Part 4: Accounts Payable - $250,000.00

Part 5: Procedures - $1,000,000.00

Turn Cash into Time with a New Company Policy

But just what exactly is this source for cash? It's time. If you are looking for $250,000 then it costs you $4,808 every week that you delay. So what you do with your time quite literally amounts to either costs of delaying, or it can amount to savings when you take action and control of your time. To correct this cost of delay, an increase in velocity must follow - which will set the difference between 'good' and 'great'. The consequences of this shift in system velocity increases discipline and competency: the ability to maintain the increased velocity and the ability to make the adjustments to achieve the 'great'. So how do you realize the difference?

Eliminate Inventory and Increase Cash

Let's start with the biggest, most obvious source ? your balance sheet, specifically inventory. If you are a manufacturer with $300,000 or more of inventory (raw materials, work in process or finished goods) then STOP! We found it. Why? Because inventory is an unproductive asset. Inventory is money, and having it lying around your factory is not where your money belongs. So if we reduce inventory to Just-In-Time (JIT) levels, then we can eliminate 85% or more of your inventory, which translates into $250,000 in cash. But that's not all. You will also save another $50,000 or more in annual inventory carrying costs. With less inventory, there are lower costs of holding inventory. Let's look at an example of what we're talking about.

Manufacturing Business Procedures Case Study

A manufacturing organization with 2 Million in average inventory balances needed assistance. We examined their inventory consisting of raw materials, work in process and finished goods to understand and quantify the workflow, workload, and demand forecasting issues. Then we designed and implemented a process to improve their inventory cycle and tie it closer to their actual sales.

The metrics we developed reduced their inventories by 85% and increased their manufacturing cycle efficiency from 60% to 90% within 120 days of implementing the new procedures. With these new processes and reports, the company now tracks manufacturing cycle efficiency and delivery time variance rather than just units produced, as the measure of their manufacturing effectiveness. The result: extra capital plus a 50% increase in process capability (capacity).

Methods to Design the New Process

By becoming more efficient in the process, we can use time not as a detriment but as a significant benefit to our business. Step by step, let's take a further look at how time and efficiency plays a great role in your business.

Increase Demand Forecasting Accuracy. We only need enough inventory to satisfy demand, and that is where part of the problem exists. If demand can not be accurately forecasted, then we end up compensating for this unknown with inventory.

Increase Manufacturing Cycle Efficiency. How well manufacturing resources are used to produce a product determines the cycle efficiency. Defective product, product rework, and long lags between manufacturing cells cause inefficiency, which can be easily calculated. Raw materials should be converted into finished goods as quickly as possible. The speed at which this occurs defines your manufacturing cycle efficiency.

Increase Supply Chain Turns. Increasing the number of times purchases are made may increase acquisition costs and unit costs because of smaller order quantities. But you will benefit by increasing your cash flow and eliminating the carrying cost of the inventory (warehousing, material handling, taxes, insurance, depreciation, interest and obsolescence totaling 25% to 35%).

Eliminate safety stock. Safety stock is really just a buffer for forecasting variance and supplier delivery time. While many levels are set arbitrarily in automated MRP systems, your safety stock levels will need to be reduced due to improvements in demand forecasting accuracy, manufacturing cycle efficiency and supply chain turns.

Reduce purchasing errors. This can reduce overstocking and, more importantly, minimize stock outs that result in expensive expedited purchases. Sell excess and obsolete inventory or return it to your vendor.

Eliminate delivery variance. Do not allow vendors to deliver early or late and make sure the delivered quantity does not vary from the order quantity. After all, delivery errors cause the need to carry more inventory. Instead, provide suppliers with forecasts of future needs.

Train purchasing personnel. Provide your purchasing and material management personnel with formal training. This will arm them with better negotiating skills that will result in better prices and terms.

Procedures Provide Time Savings

So, as we have seen, we should use each element of the process to extract the most benefit from our business. With time-saving procedures set in place, you will let your efficiency work for you.

Time Savings Provide Cash in the Bank

With well-defined processes and procedures in place, you will increase efficiency by increasing inventory turns. And of course an increase in inventory turns means an increase in cash on hand. It's there - all you have to do is grab it.

Next part of this series, we will look at finding $250,000 in Accounts Receivable - another step as we work toward our goal of 1 million in savings. So not only aim to reap the rewards of extra savings to your bottom line, but also see more cash in the bank - $1,000,000 to be exact.

Chris Anderson is currently the managing director of Bizmanualz, Inc. and co-author of policies and procedures manuals, producing the layout, process design and implementation to increase performance. To learn how to increase your business performance, visit: bizmanualz, inc.

whole house cleaning Deerfield ..

In The News:

Essential phone settings to enable before losing your device, including Find My network, location services and security features for iPhone and Android.

The Fox News AI Newsletter gives readers the latest AI technology advancements, covering the challenges and opportunities AI presents.

Cybersecurity research shows weak passwords remain a major threat, with simple patterns and number sequences putting millions of accounts at risk.

New Android malware BankBot YNRK silences phones, steals banking data and drains crypto wallets automatically. Learn how this advanced threat works.

FDA approves first human trial for Paradromics' brain-computer interface that could restore speech for paralyzed patients through neural technology.

New phishing platform QRR targets Microsoft 365 users across 1,000 domains in 90 countries. Learn how to spot fake login pages and protect your accounts.

OpenTable now uses AI to track your dining habits and share insights with restaurants. Learn what data they collect and how to protect your privacy.

Google's discontinued Nest thermostats still secretly upload home data to company servers despite losing smart features, raising serious privacy concerns.

New Android malware NGate steals NFC payment codes in real-time, allowing criminals to withdraw cash from ATMs without your card. Learn protection tips.

DoorDash confirms data breach exposing customer names, emails, addresses after social engineering attack. Learn how to protect yourself from scams.

Concerned about Google's AI scanning your Gmail? Learn how to disable Gemini features that access your emails, Drive files and Chat messages for privacy.

Google warns Android users about dangerous fake VPN apps hiding malware that steals passwords, banking details and personal data from phones and tablets.

Apple's digital passport feature lets iPhone users breeze through TSA checkpoints this holiday season using Digital ID technology at 250+ airports.

A new phishing scam targets family photos with fake "Cloud Storage Full" alerts. Criminals steal credit card information through fake sites. Learn protection tips.

South Korean scientists create ultra-thin fabric muscles that turn clothes into robotic assistants, lifting 33 pounds while weighing under half an ounce.

Archer Aviation has acquired Hawthorne Airport for $126M to launch an LA air taxi network ahead of the 2028 Olympics, featuring AI-powered eVTOL operations and next-gen aviation tech.

Stay up to date on the latest AI technology advancements and learn about the challenges and opportunities AI presents now and for the future.

Fake AI apps disguised as "ChatGPT" and "DALL·E" are flooding app stores with dangerous malware that steals data and monitors users without detection.

Fake buyers demand specific vehicle reports from unknown sites to steal credit card information from car sellers, but warning signs can help identify these scams before paying.

Android users can now manage apps across multiple devices more easily with Google Play Store's updated remote uninstall button in the latest update.

NASA's Perseverance rover discovers shiny metallic rock on Mars that could be a meteorite from an ancient asteroid, containing high levels of iron and nickel.

Holiday scams spike during Black Friday and Cyber Monday as criminals exploit your leaked personal data. Learn how to protect yourself from fake stores and phishing.

Commerce Department proposes TP-Link router ban over Chinese security risks. Learn how this potential prohibition could affect your home network and devices.

Hyundai AutoEver America suffered a data breach affecting 2,000 current and former employees, exposing names, Social Security numbers and driver's license information.

Washington court rules automated license plate reader images are public records, even when stored by vendors like Flock Safety, setting precedent for transparency.

7 Secrets to Writing Inventory Procedures

Top Quick Tips