Product Management | Professional Associations

Inventory is rarely the small businessman’s friend. Too much and it soaks up critical cash, too little and it compromises sales. Wrong mix results in expensive restocking charges, and old inventory results in useless write offs. And to add insult to injury, the salespeople for the items in your inventory keeps pressuring you to take more! Having the proper entrepreneurial resources will go a long way tin making sure things are run properly.

The key to successful inventory management is your relationship with your suppliers. Getting it right BEFORE you sign the distribution or retail agreement is critical. Here’s a few important consideration to make when you negotiate your supply agreements:

Rotation. The concept of rotation keeps you from getting stuck with old inventory. Essentially it says that you can rotate old inventory for new. It’s particularly important for goods such as food products, software products, computers or electronic components. Often, the manufacturer will want to charge you restocking fees but these can often be negotiated favorably. Insist on free rotation for goods that just been obsolesced by a new product from the manufacturer.

Balancing. The concept of balancing is a means of dealing with the “too much of this and too little of that” problem. It means that you can return excess inventory to the manufacturer in return for more of the inventory that you need. Again the manufacturer will want to levy a restocking charge – and some amount of fees is appropriate. Generally, it is negotiable, and it should be done on a dollar for dollar basis.

Payment terms. Negotiating payment terms is critical. If you pay for a product COD (and many manufacturers will ask for just that!), it means that you have critical cash tied up in inventory. You may not be able to free that cash until you ship it to a customer, invoice them, and get paid! Often that can mean 60+ days before you see the cash for inventory that’s already gone. Push for 45-60 days – go shorter for quick moving inventory and longer for slow moving inventory. Failing to do this means you may have to get a bank to finance your inventory. Much easier to have your supplier do it for you!

FOB Destination. Freight-On-Board (FOB) is the location in which the inventory becomes yours. Always make it “FOB Destination” otherwise the risk of loss during transportation is on you.

Push back on the pushy salesman. For manufacturers that are always trying to load you up, make them share the burden of moving the materials off your shelves. Negotiate sharing of promotion or advertising expense with them. Often manufacturers have “co-op” marketing funds or “market development” funds to help with the sales of their products. Take advantage.,

These are some of the things small business persons can do to help manage their inventory. The key point is that the best way to deal with inventories is before you get them – negotiate with the manufacturer first!

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