Maximize Your Efficiency by Automating Inventory

Are you still gathering your employees together after closing time once a week to conduct a physical inventory of all your merchandise? If so, you’re paying expensive overtime and managing your inventory in a way that’s both time-wasting and often inaccurate.

Small business owners often dip a toe into inventory automation and add systems piecemeal: A homemade Excel spreadsheet tracks orders, while a separate point-of-sale cash register system records sales. Because the two systems don’t talk to each other, stock levels still have to be reconciled by hand or confirmed with a physical inventory count. And neither system talks to suppliers; this means you're stuck handwriting orders or re-entering them in to yet a third system.

This type of inventory approach usually yields no customer-level data. You have no idea which customer bought what item, so you can’t develop a database on their shopping habits and target promotions to suit their interests.

By contrast, a fully integrated electronic inventory system can reduce labor costs, improve employee morale, and produce sophisticated information to help you keep shelves stocked and increase sales.

While no major retailer could live without their automated inventory system, many small businesses think automation is too expensive or not worth the trouble. But prices have fallen considerably on both software and hardware, bringing them within reach of most small business budgets.

Many small retailers today bypass proprietary point-of-sale cash register systems and simply put their inventory management system on their own personal computer. PC-based point-of-sale inventory solutions have become very affordable: Microsoft Dynamics Retail Management System, for instance, runs around $1,300 for a single store with one check stand.

Computer-based systems like these are easy to learn and come with built-in training modules, which is highly useful if you have young employees or frequent employee turnover. In short order, all your information is centralized and all your systems talk to each other. If your business grows, PC-based systems are easy to expand.

Most retailers that automate integrate bar code technology into their system. Rather than putting individual price tags with an exact price on items, the barcodes store price information. If you want to raise a price or put an item on sale, you enter that information into your system once, and the new price is instantly reflected when you scan it for purchase.

After you integrate your inventory systems, you can take your inventory management to a higher level by inviting key vendors to share your data. Instead of filling out merchandise orders, you’ll simply set up parameters with your vendor that note minimum inventory levels. Your inventory system will trigger refill orders, and your vendor will take responsibility for keeping the shelves filled. Vendor-managed inventory involves a certain level of trust, but it can yield huge benefits.

Once you’re enabled for vendor-managed inventory, you can more easily evaluate whether your business would benefit from vendor consolidation. If your key vendors can supply more items, you might save administrative time and get better unit pricing by narrowing your vendor list.

You can also undertake category-management studies to evaluate profit margins within a whole merchandise category, rather than just item by item. This analysis often leads to changes in the merchandise mix that can boost margins.

Business reporter Carol Tice contributes to several national and regional business publications.