Journal of Business Case Studies – February 2008 Volume 4, Number 2 Inventory Planning In Small Business Ina Freeman, (Email: ), Universitie de La Rochelle, France ABSTRACT This article is about an inexpensive and easily adaptable inventory maintenance system developed specifically for small business using the commonly available Microsoft Office Excel program. This paper discusses a new system for inventory management that was developed in conjunction with a small business to determine the value, volume, and contribution margins of the product mix. Other entrepreneurs have subsequently used this system for decision-making concerning the allocation of scarce resources, inventory items stocked, determination of the profitability of individual businesses, and the future potential of the business. Download software faktur penjualan gratis.

Inventory in small business is a concern for a number of reasons including: existing management systems are expensive; turnover is a major factor in profitability; and profitability is directly attributable to stocking a saleable product mix. Entrepreneurs must optimize their resources to engender profitability and stability by selling sufficient quantities of desirable products at acceptable prices.

INTRODUCTION S mall business is big business in the United States. In 2005, over 25.5 million small businesses generated 97 percent of all exports (28.6 percent of known export value) and a net of 60 to 80 percent of new jobs annually over the last ten years (US Small Business Administration, 2006). Despite these impressive figures, only 44 percent of small businesses survive at least four years (US Small Business Administration, 2006) for many reasons, not the least of which is the constraint of money or lack of it. Although significant throughout the life of the business, the availability of money to purchase inventory is especially important in the initial stages due to start-up costs, including the initial costs of acquiring the start-up initial inventory and costs associated with introductory advertising and publicity. These start-up costs are especially significant because income is lower from start-up through to the firm establishment of the business in the community and stocking costs are higher because merchandise orders have neither the frequency nor the quantity to qualify for the shipping or ordering discounts afforded the existing larger firms. However, in the marketplace, small business often competes with these larger firms, placing a restraint on potential prices and reducing profitability.

With reduced profitability, few small businesses (only 36 percent) are able to afford the advice or products from the professional business advisors (SCORE, 2006). This does not indicate small business is not aware of the benefits of advice as evidenced by the findings of the SCORE survey that found small business seeks advice from: individual mentors (52 percent); social networks (52 percent); trade associations (44 percent); the Internet (31 percent); and Chambers of Commerce (27 percent) (SCORE, 2006). The reliance of small business on free advice is indicative of the desire to success but the lack of financial abilities to ensure success. For these reasons, the author developed an inventory system while working with a new small business (J&B) in the region known as the Delta, in the State of Mississippi.

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This system has subsequently been individualized and implemented in another small business (Tisket Tasket Basket or TTB) in Western Canada. J&B is a newly founded small business (operating less than one year). TTB has existed for approximately one year, but continues to struggle. Both businesses struggled with cash flow and a lack of formalized business systems resulting in the danger of closing.

During investigation, the author discovered primary difficulties included poor turnover, a lack of knowledge of on-hand inventory that was not immediately obvious, price setting that depended on “gut feel,” a lack of knowledge of individual product costs and profits, and high costs resulting from poor negotiating skills. J&B was particularly susceptible to the sales pitches of wholesalers, resulting in an eclectic 95 Journal of Business Case Studies – February 2008 Volume 4, Number 2 mix of products with unreasonable payment terms. The building housing TTB had limited storage space, resulting in the off-site storage of excess inventory.

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Inventory was not immediately physically observable or recorded resulting in rushed decisions to restock items stored off-site but not inventoried. In working with these two companies, one of the tasks undertaken was the re-evaluation of the company’s inventory and merchandise.

To accomplish this, an inventory system was structured allowing the owners to narrow their inventory according to sales profitability and add new merchandise according to the needs of their clientele. This paper discusses this system, using these small businesses as examples to demonstrate how this system could improve inventory structuring within any small business. BACKGROUND Literature Review Inventory is important to small business for many reasons, not the least of which is the requirement of the Internal Revenue Service that requires small business to match its inventory to the reported cost of goods sold in its tax returns. However, small business inventory is not the subject of substantial research within academic literature, with few exceptions wherein companies discuss their program in publications (Demery, 2006). In searching the EBSCO database, many of the articles examining inventory of small business were in the journal NFIB Small Business Economic Trends. The NFIB is the National Federation of Independent Business, an organization structured in 1943 as a non-profit, non-partisan advocacy organization that represents small and independent business (NFIB 2006).

The majority of articles published by the NFIB deal with trends, statistics, and opinions that predict the future based on past results. Other articles discussing inventory in small business discuss the tax implications (Wolosky, 2007; Christensen and Kenny, 2006), the importance of cash flow (Scott, 2007; Salkever, 2006), and the need for existing software to be adaptable to the individual needs of the small business (Bressler and Bressler, 2006), but rarely dealing with inventory management. In surveying small business optimism, Dunkleberg and Wade (2006) report a zero net gain in inventory with many reporting an inventory level that needs to grow. This academic inattention is not found elsewhere. Captain tsubasa episode list. The Internet has multiple commercial sites to sell software programs for inventory control, including sites that specifically target small business. These software businesses, like their potential customers, charge for their services and products, highlighting the economic squeeze that small business experiences. Small businesses’ ability to succeed may be compromised by the inability to afford specialized computer programs that fit their needs (Bhansali, Watson, Ernst, Cook et al, 2007).

The economic squeeze results in increasing pessimism as found in a survey completed by the National Federation of Independent Businesses conducted in June 2006 wherein a number of small businesses expecting the coming months to be favorable for expansion dipping from 18 percent to 13 percent (Kirchhoff 2006). The economic squeeze is not the only reason for the failure of small business. Reasons most frequently cited include lack of experience, insufficient capital, poor location, poor inventory management, over-investment in fixed assets, poor credit arrangements, personal use of business funds, unexpected growth (Ames 2005), competition, and low sales (Berle 2006). For many small business owners, economic well-being is further dependent upon the existing economy, not hard work, integrity, or responsibility. Recognizing J&B and TTB owners’ lack of experience in a depressed economy, the authors developed a system that would simplify the task of keeping track of inventory using existing computer software. J&B Small Business The small business (J&B) involved in this case study sells a variety of goods ranging from all-terrain vehicles (ATV’s) to women’s purses. Opening in the late spring of 2006, J&B is a small business intending to sell ATV’s and accessories exclusively.

However, in order to survive in the difficult period between start up and achieving an established status, J&B is selling an eclectic range of goods that appeal to those in the immediate 96 Journal of Business Case Studies – February 2008 Volume 4, Number 2 vicinity leaving the inventory as an amalgam of the owners’ long-term business plans and the immediate need for a cash flow. Long-term, the business anticipates operating as an ATV distribution warehouse, with one owner experienced in working with ATV’s. Because the business is located within easy walking distance of a university, J&B currently sells a variety of goods in addition to ATV’s, including women’s purses, backpacks, toys, and other assorted goods. The owners of J&B have limited experience in operating a small business and are working elsewhere to insure an income. Although this is not an indication of their commitment to the business, it is an indication of the available time they have to devote to the business.

The owners have investigated inventory systems, including QuickBooks, a simple and affordable (approximate price of $2,500) solution for small business. However, this accounting system lends limited inventory support. The Settlers 7 Offline Crack Mac Recipe on this page. Other available computer systems have more features accompanied by higher prices, starting from $10,000 (Industrious Software Solutions and SAP). For a new small business that is marginally breaking even, this expense is too high. In searching the Internet for inventory control software for small business, there are at least 16 companies listing their products as appropriate for small and medium sized businesses. In reviewing their sites, many do not list a price and include options for supply chain management that are inappropriate for a small retail business. TTB Small Business TTB is the small entrepreneurial shop that compiles gift baskets for all occasions from an assortment of stocked goods.

The owner/operator, AL is a creative individual with little business experience and a big heart. Although she has many standard baskets, she enjoys customizing baskets, creating a need for a diverse inventory with differing turn-over rates. AL’s business skills are challenged by the responsibilities of sole-ownership of a growing and potentially successful business. She currently keeps inventory and accounting records by hand in notebooks and accounting ledgers and two desk drawers, a fact her accountant has commented needs to change. Assumptions Before beginning to work with the companies, it is important to clarify as much information and data as possible to reduce the number of assumptions made.

However, as with all studies, the work did not progress without assumptions formulated by the researcher, including: the accuracy and authenticity of the data received from the companies; the compliance with governmental rules, regulations, and restrictions concerning the operation of and accounting for the business including the product mix; the companies’ fixed costs remain unchanged throughout the year; and sales volume differs between Peak Season and Off-Peak Season. DEVELOPMENT OF INVENTORY MANAGEMENT TOOL Recognizing the emerging evidence that the use of computers is positively correlated to the successful operations of entrepreneurships (Fairlie, 2006) and the proliferation of Microsoft on computers, the inventory management system was constructed utilizing the Excel program.

The author developed a spreadsheet through which all inventory transactions were documented. The spreadsheet system initially requires about one hour to structure using the business’s computer. Autocad Lisp Steel Sections Handbook. This initial set up time allows the business to individualize the records to meet their needs and requirements.

As the business grows, changes, and develops, the individualized system can be easily altered to stay concurrent without the monetary or time costs involved in contracting computer specialists.