If inventory isn’t PURCHASED, PRODUCED and RECEIVED with a systematic, documented process, we’ll never know exactly how much of any one product we own.  Without that knowledge, how will we know what we can sell? Well, let me rephrase: It’s not that we don’t think we have that knowledge -- we make an assumption that we do.  And that’s the crux of what makes inventory control such a sneaky beast.  We usually find out what we don’t know after a customer purchases a product (that we think we have)...and we go to the shelf…and the shelf is bare.

And of course, I’m running through one simple instance with one item and one customer.  However, once inventory accuracy begins to falter, this becomes a common, daily occurrence that can quickly spiral out of control.

This inevitably leads to:

1. High customer dissatisfaction and loss of revenue

2. Confusion and frustration over the missing item

3. Lost time and money trying to solve the problem

Hence, when we first start working with a new partner, we tend to follow the flow of inventory from PURCHASING to PRODUCTION to RECEIVING

What preventative measures can we take to prevent this from happening?  It all starts AT THE BEGINNING…with an accounting concept called 3-WAY MATCHING.  In its simplest form, 3-Way Matching ensures these three documents are in sync:

1. Your PURCHASE ORDER

2. Your RECEIPT

3. Your INVOICE

The first, and arguably, the most important step is to always have a documented PURCHASE ORDER.  It doesn’t have to be anything fancy, but it should be more than a paragraph of prose in the body of an email.  Purchase orders can be an official, binding contract between two parties that should contain, at a minimum:

1. ITEMS (with part numbers) and QUANTITIES

2. Expected DELIVERY DATES

3. PAYMENT TERMS

Beyond making your order clear and concise, a well-crafted PO establishes authority, shows you mean business and sets the tone that you will be holding your vendor accountable for accurate and timely delivery of your products.

Jumping ahead to when your product arrives (on time!), the first task is to grab your PO and start counting the product…one-by-one-by-one.  Just because your new vendor comes highly recommended and has a great reputation doesn’t mean he doesn’t make mistakes. Any discrepancies or damages should be reported to your vendor that day and, preferably, that hour.  This leaves no room for him to claim that you must have lost or damaged the product yourself.

At this point, you may also have an invoice in your inbox.  Now is the time to ensure that INVOICE matches your PURCHASE ORDER matches your RECEIPT.  Again, any discrepancies should be reported to your vendor immediately.

This process of 3-WAY MATCHING, while straightforward in theory, is much more difficult to execute in practice.  As your business grows, the time pressure to ship late deliveries to customers builds. “We’ll just skip matching today. We’ve got to get these orders out!”  And that’s when the trouble begins. Once inventory is incorrect. It takes a herculean effort to get it right. Usually, this means shutting down operations for a few days (no product in or out of the building) to count every single product in every nook and cranny of your warehouse.  And then lament, “How could this have gotten so bad so quickly??”

Practice 3-WAY MATCHING religiously.  From start to finish. It will save you an enormous amount of time, money and headache in the long run.

If you’re struggling with inventory control and/or scaling your operations to keep up with sales demand, feel free to reach out: mike@bluprintpartners.com.  We’d love to see how we might be able to help!