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DAVID CUTLER editor-publisher

How about cutting 20o/o across the board?

THE first quarter of every new year often I brings renewed urgency within companies to save some money by cutting the inventory. While this can be a positive concept, the results are not likely to be favorable unless a good deal of thought, calculation and planning precedes the knife. Indiscriminate hacking of inventory can result in the company being short of what your customer needs.

Planning should recognize that the goal of the exercise is to increase profits, not merely cut costs. Saving money is only the method, not the objective. Remember that it's only the excessive inventory that should be eliminated, not the 200h of your stock that produces 80% of your profrt.

If you find the following four factors in your business you probably can productively trim some inventory. (l) growth of inventory not matched by balancing increases in orders or sales. (2) eyeball inventory indicates dusty or weathered products in stock. (3) inventory turns are slow for your company and/or below industry averages. (4) ttre buyer continues doing his thing as long as space is available.

The wise manager recognizes that a study of the inventory situation can also produce pressures to spend more money to purchase more inventory. While this may frustrate those charged with lowering costs it should not always be dismissed out of hand. The objective is, after all, profits, not merely cuts. If selling from a full wagon can be demonstrated to make more profits, that may just be the way to go.

The delicate balance between the cost of carrying inventory and the needs ofyour customers is not a one time or some time thing. The best run firms correctly treat these allocations as vital to a company's profitability and survivai.

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