Asset Tracking -- A Critical Part of Business Operations

A key part of the MOI Inventory is the practice of asset tracking. This includes all assets: inventory, supplies, tools, equipment and even employees and customers. Each is an essential asset of your business. Although we often view assets as hard goods, even Canada Revenue Agency and IRS consider that there is a business value to personal services and goodwill – the reputation that is accrued during business evolution. A degradation or loss of any of the soft or hard assets impacts on business profitability, making the need to track those items and services critical to business success.

As an illustration, imagine that your key customer relations employee has a bad day and, in dealing with one of your new clients, acts in a manner that leads that customer to decide that he will no longer deal with your firm. Given that it is much easier to keep a customer than find one, your business suffers a long-term loss. Perhaps a new product that you have introduced experiences a series of failures. Even if you are not the manufacturer, but merely a retailer, your reputation and your relationship with that customer is jeopardized, unless you have a consistent warranty and/or service policy. Maybe an employee in the field demonstrates inferior skills. Unless you have a consistent practice of training, follow-up and retraining, you will place your company’s reputation at risk. These examples of soft goods and service issues show the need to implement a system of monitoring that allows you to respond to and pre-empt problems that may arise.

The SAP system used by many larger corporations attempts to integrate all aspects of the business operation. The MOI Inventory, on  the other hand, serves the purpose of identifying issues, allowing the small business operator to respond as budget, time and preferences allow. Tracking, though, is the vital first step. Once concerns are identified, you may choose your individual response.

Tracking enables you to evaluate consumption patterns across the entire business spectrum. Need to know whether your employees are operating efficiently and effectively, or whether your labour costs are not properly recovered in your end price charged to your customers? Track performance, pay, down time and so on, using a tailored spreadsheet or simple personnel software. Need to know if supplies are being used in the proper manner, or if supply cost is too high? Track consumption and yield per supply item. Want to know and control product performance? Implement a Mini/Max system and conduct regular counts. Need to know if your tools are finding their way into your employees’ garages? Track and control each item and develop a system of accountability.  Is equipment used appropriately? Your preventive maintenance schedule will reveal issues.  How about customer loyalty? A variety of programs can be devised to monitor, either passively or overtly, your clients. Tracking is the integral element in each solution.

Rental and leasing operations often are vulnerable to loss, most frequently because of lessee default. By keeping accurate records of your rental clients and their business or personal history, you will be in a better position to recover those assets. More importantly, obtaining the best information prior to renting or leasing serves to make clients aware of your diligence and thus decrease the likelihood of default or conversion. Similarly, any time your assets are allowed offsite, you expose yourself to greater risk which, in turn, demands greater pre-emptive vigilance.

The process of tracking may seem tedious and not worth the effort, but a good tracking program, integrated into your general operation, can be both inexpensive and efficient.  Using the MOI Inventory, many businesses report an increase of profitability ranging from .75% to over 4%, while costs of implementation and maintenance generally fall below .25%. This simple cost versus benefit statistic reveals a significant reality: using tracking systems does not cost. It is an investment.

Mini-max Inventory Management

Inventory tracking and sales tracking form the starting point for any good inventory control program.   Without knowing how much of any menu item you sold in a given week, or how much inventory you have consumed in that period, you will not know what your instantaneous food cost is, whether you are maintaining portion control, whether you are experiencing shrinkage, or whether you should adapt your menu.  By tracking sales, you can see where some menu items are dying, others are gaining in popularity.  By tracking sales, you can predict, year-over-year or week-over-week, what your sales might be in the upcoming period.  By predicting your sales, you can project your inventory needs. As a general rule, restaurants should conduct physical counts of inventory every month but preferably every week, and even daily on key items.  Without exception, restaurants should record the quantity of sales on every menu item, each day, and, if reasonable, during each peak period within the day.

However, tracking inventory is not just a task for restaurateurs and retailers. Every product-oriented business carries supplies, raw materials, finished goods and/or works-in-progress. These, too, should be monitored on a regular basis, and the most effective system of evaluation is the mini-max system.  

Mini/Max systems achieved a high level of popularity in chain department stores during the late 1970s.  By indexing prior period sales, factoring in an allowance for sales spikes, and multiplying that period’s demands by 2.5 times (allowing for double the order period and ½ to allow for emergency situations such as weather, shipment delays and supply shortages), the maximum inventory on hand is determined.  Using 1.5 times the period’s requirement, the store would know the minimum level to which that stock should fall before reordering to the 2.5 times level.  This was, in short, a minimum to maximum inventory ordering method that took subjectivity out of ordering, and the tendency to be overly cautious or overly optimistic.  Generally it works. However, if idiosyncratic demands of a local market are not considered in the national chain’s calculations, huge inventory spikes or shortages may result.  If there are anticipated peak demands (e.g. summer seasonal items or sale items), and mini-max order levels are not adjusted to reflect these needs, sales suffer.  In food service, as in any business, that simply is not acceptable.

Mini-max systems need to reflect the unique nature of each business and the particular demands of each market. They need to reflect potential supply line issues and waning demand or obsolescence. They should be fluid schemes, and responsive to emerging opportunity or problems.

A good mini-max system can provide the appropriate level of controls for any ordering program, but must be built into a thorough strategy of inventory management in order to be of greatest value.