Nonprofit Organization by The Staff of Entrepreneur Media Inc

Author:The Staff of Entrepreneur Media, Inc.
Language: eng
Format: epub
ISBN: 9781613083741
Publisher: Entrepreneur Press
Published: 2017-10-05T04:00:00+00:00

Insufficient inventory means lost sales and costly, time-consuming back orders. Running out of raw materials or parts that are crucial to your production process means increased operating costs, too. Your employees will be getting paid to sit around because there’s no work for them to do; when the inventory does come in, they’ll be paid for working overtime to make up for lost production time. In some situations, you could even end up buying emergency inventory at high prices.

One way to protect yourself from such shortfalls is by building a safety margin into basic inventory figures. To figure out the right safety margin for your business, try to think of all the outside factors that could contribute to delays, such as suppliers who tend to be late or goods being shipped from overseas. Once you have been in business a while, you’ll have a better feel for delivery times and will find it fairly easy to calculate your safety margin.

Avoiding Excess Inventory

Avoiding excess inventory is especially important for owners of companies with seasonal product lines, such as clothing, home accessories, and holiday and gift items. These products have a short “shelf life” and are hard to sell once they are no longer in fashion. Entrepreneurs who sell more timeless products, such as plumbing equipment, office supplies, or auto products, have more leeway because it takes longer for these items to become obsolete.

No matter what your business, however, excess inventory should be avoided. It costs money in extra overhead, debt service on loans to purchase the excess inventory, additional personal property tax on unsold inventory, and increased insurance costs. One merchandise consultant estimates that it costs the average retailer from 20 to 30 percent of the original inventory investment just to maintain it. Buying excess inventory also reduces your liquidity—something to be avoided. Consider the example of an auto supply retailer who finds himself with the opportunity to buy 1,000 gallons of antifreeze at a huge discount. If he buys the antifreeze and it turns out to be a mild winter, he’ll be sitting on 1,000 gallons of antifreeze. Even though he knows he can sell the antifreeze during the next cold winter, it’s still taking up space in his warehouse for an entire year—space that could be devoted to more profitable products.

On with the Show

Trade shows are the primary way for new businesses to find suppliers. All major suppliers in an industry display their products at seasonal trade shows, where retailers go to buy and look at new items.

Although retailers buy from various sources year-round, trade shows are an important event in every store owner’s buying cycle. Most retailers attend at least one trade show per year. Smart buyers come prepared with a shopping list and a seasonal budget calculated either in dollar amounts or in quantities of various merchandise.

Practically every major city hosts one or more trade shows relevant to specific retailers. You can contact your local chamber of commerce or convention and visitor’s bureau for upcoming shows in your city or state.

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