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.

---

7 Steps Toward a Better Website

Creating a website is one thing, making it better is... Read More

Increase Exposure, and Profits With Powerful Memorable Business Cards Using These Ten Strategies

Your business card is a valuable piece of real estate... Read More

Positioning Your Company for Debt Financing

Positioning Your Company for Debt Financing:There was a time in... Read More

10 Budgeting Tips for Business People and Small Companies

It is possible for small companies and individual business people... Read More

Brainstorming! The Key To Wealth

Advertising executive Alex F. Osborne first coined the word "brainstorming"... Read More

7 Online Banking Success Stories

You have seen their ads and you may have wondered... Read More

Top 10 Items For A 21st Century Toolbox!

Skilled workers of every age have prized their tools. I... Read More

Top 7 Ways to Profit from Foreign Trade

Here are seven excellent ways to earn income from international... Read More

Top Ten Ways to Manage Interruptions

So many people I worked with said they got more... Read More

Ten Ways To Sell Your Ideas To Anyone

You have a great idea you know is a winner.... Read More

Are You a Project Manager Or a Project Mangler?

Which one are you? An effective IT project manager, able... Read More

11 Things Small Business Owners Can Learn From Michael Dell

1. Think Big ? In college, Michael Dell said he... Read More

10 High-Impact Viral Marketing Strategies

Viral Marketing is allowing people to giveaway and use your... Read More

Top Ten Things to Do to Make your Signature File Sell

Always include a powerful signature on every email you send... Read More

7 Tips On Getting Ready To Put Attraction Marketing Into Action

Attraction marketing is about making a customer for life not... Read More

Your Leadership Shopping List

'Tis the season to give. And finding the right gift... Read More

Ten Top Performance Management Tips

Talk to Your People Often By building a great... Read More

7 Ways To Profit From Other Peoples Products

If you don't possess the time, money or inclination to... Read More

No More Lists To Remember

Are the endless lists of Top-7's and Top-10's taxing your... Read More

Ten Ways to Manage a Rapidly Growing Business

While some new business owners face the issue of not... Read More

Seven Ways to Get the Most Out of the Next Training You Attend

Sometime soon you will be attending some training. It may... Read More

Top Seven Reasons to Publicize your Business with Articles

Do you want to be #1-10 on Google and other... Read More

10 Marketing Tips For Your Business

Here are a few ideas to get you started, all... Read More

How to Apply the 12 Steps for Managment Conflict and Resolution

1. Admit there is a problem.The very first step in... Read More

7 Tips on How To Prepare for Business Events

Are you scratching your head after business events wondering why... Read More

Ten Tips For Starting A New Job

1. Get to know people. First meet those people in... Read More

7 Ways To Get One-way Links To Your Site

One way links will help you gain better rankings in... Read More

7 Tips for Home Business Start-up Success

1) Prepare a realistic business plan.Think of this as your... Read More

How To Eliminate Your Competition Without Bloodshed

So how do you eliminate your competition without bloodshed? You... Read More

The Top Ten Qualities that Allow Business Operations to Grow Easily

My husband and I were enjoying our dinner meal one... Read More

7 Secrets to Writing Inventory Procedures

What would You do with $1,000,000With $1 Million would you:?... Read More

Top 7 Business Tips For Small Business Starters For Online Business

1.) Brainstorming for an idea - You must select what... Read More

Top 10 Steps to Build Your Professional Practice Now!

1. Examine everything in your office from the view of... Read More