Tuesday, January 28, 2014

Inventory Management for Start-Ups

There is no easy way to aboard this topic, because there is not good sources for it, and most of them are simply blogs (yes, like this) with good and sound opinions, well defended, but contradictory among them.

Some people says that spreadsheets are a good tool for small business (I'm not implying SB and Start-Ups are the same, but you can think they are similar on the sake of the argument), and spreadsheets in the cloud are even better because you can update it from distributed locations, over the internet and even on smartphones. Lisa Girard sets it on her list "common mistakes entrepreneurs make in managing their inventory" she quotes an IT logistics Service company director to bold that changes can be lost, records can be accidentally deleted  and synchronization has no foolproof on those systems. Any of them, a disaster for the inventory control. I adhere to her suggestion of an app for accounting, in order to use the inventory control included, and have a sort of inventory valuation.

Before having to perform a manual inventory and decide about the IT tools to keep it accounted, it is necessary to trace the policies to keep the inventory build-up controlled.  This start at the very business plan inception.

You should estimate the market size beforehand, and if you got capital from an angel investor or venture capitalist, your estimation have passed through a thorough analysis and validation... otherwise, be careful, check it again.

Much like big companies intend to forecast the demand for the next day, month, quarter and so on, it should be done by the entrepreneur. The exigence level is even harder... the entrepreneur can afford losses.

When it comes to a sub-product,  or any kind of post-manufactured product, the new venture attempt to get its inputs at the lower possible price (trying to demonstrate financial viability). It forces to buy some inputs in excess, far beyond the productive capacity or the demand in the market. Grand ma's home results the storage location of packaging materials for the next year, just because the provider offered an unbeatable price... But, as at any company, inventory in excess is work capital locked.

You can ask to any failed entrepreneur, they will have (almost for sure) two things in common:

  • They run out of money in the bank
  • They still have a certain amount of inventory as a souvenir for visitors. 

The answer can be guessed in the "lean manufacturing" arena (What is Lean Manufacturing? [infographic]), getting the key points to apply on the inventory management of an emerging company.

The remaining question is: How to get an impressive presentation for prospective investors with conservative production figures? 

What is Lean Manufacturing? [infographic]

Five Steps to Painless Inventory Management
Read more: http://www.entrepreneur.com/article/220631#ixzz2rjBRxbBN"

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