Professional Jeweler Archive: Inventory Basics

September 2002


Inventory Basics

Knowing what's in your showcases gives you better control over sales, returns and security. Bar coding helps

For most of you, inventory is second only to reputation as the most valuable part of your business. The value of your inventory typically exceeds by several times the value of your cash in the bank. Yet while the value of your bank balance is determined readily and accurately, the value of your inventory is much less well-known and much harder to determine.

First, separate the problem into two parts: “What do I own?” and “How much is it worth?” You need to know the answers to both questions to understand how your business is doing, and the first question must be answered before the second.

Why do you need to know what you own?

1. Sales. You can’t sell it if you don’t know you have it.
2. Better use of capital. If it’s not selling, you need to move it out. Why tie up good money in slow movers?
3. Security. You need to know whether you still own what you think you own.

Unpleasant but Necessary

The above is obvious when stated clearly. But many store owners avoid dealing with the task because they hate taking physical inventory.

Using computers is a given as a first, essential, step to gaining control over the inventory in your store. Anyone not using a computer or unhappy with his or her software should go shopping. Here are some recommendations:

  • Look at the different kinds of transactions you make each a week and how many of each type. See how easily and completely different software packages accomplish these transactions.
  • Because bar coding is essential if you want to make updating inventory an easier task, ask your vendor about the software’s compatibility with the bar-coding system you want to use. Capabilities vary, especially among printers. Make sure the software you are interested in is compatible with the printer and the tags best-suited to your needs. If not, you can often use this as bargaining point if you raise the issue before you sign a contract for software.
  • Ask acquaintances for advice on inventory software. You can even ask competitors. While they may not be willing to share the name of a key supplier, they might be willing to help you in areas that won’t hurt them. Or check among non-competing colleagues when you attend a trade show or jewelers’ conference.

Bar Coding

Why is bar coding such an advantage where inventory is concerned? The main advantages are speed and accuracy of data collection; plus the thermal transfer tags used for bar codes are neater and easier to read than dot-matrix or handwritten tags.

A more subtle advantage: the bar code suggests there’s an “official” price set by a computer. For this reason, customers are less likely to ask your salespeople for discounts. Bar codes also send the message to store personnel that you are serious about keeping track of what you own. This discourages shrinkage – especially if you take inventory regularly.

What should you bar code and how? Do you track at the piece level or at the style level; that is, do you consider two identical pieces bought at the same time and at the same cost to be interchangeable? If so, you just need to put the style number in the bar code. However, if you track at the piece level or keep track of purchases made at different costs, then a unique item number (like a license plate) must go on each piece. The computer database determines the style, description and pricing for that item.

But how long is your style number? Space on tags is quite limited, and a bar code for a 16-character alphanumeric style number (each character of which means something to your salespeople) just won’t fit! Eight, 10 or 12 numeric digits will, but usually not more (adding letters to numbers requires more space, even for the same number of characters). If the item number won’t fit, you’ll need a shorter arbitrary “index” number that will correspond to your meaningful style number. The computer then makes the connection between index number and style number.

What do you scan with? A fixed laser scanner, attached to your computer, is fine for scanning when a sale is made, but it requires that the merchandise come to the computer for physical inventory. This works best when the inventory is relatively small or only a portion of it is scanned on any day on its way into or out of the vault.

A portable data collector (usually with a laser scanner) is the size of a TV remote control. You walk around the store with the unit (or units), scanning each item in each showcase. When you’re done, you upload the information to your computer. Software then compares the physical inventory information just collected with the perpetual inventory the computer has kept and indicates discrepancies.

Who and When

How often should you take inventory? Take a full inventory annually or even a few times a year. Rotate through departments (called a cycle count) maybe monthly, depending on the department. Employees should not be able to predict the sequence. Highest-value items need to be counted more frequently. Obviously, how often you conduct an inventory depends on the particulars of your store.

Who should be involved? Management should supervise and maybe bring in staff from another store. This makes the work go faster, and someone from outside the store is less likely to cover up a shortage. Unlike department stores, most jewelers don’t want outsiders from an inventory service touching their valuable and most portable merchandise.

Some jewelers are reluctant to convert to a bar-code system because they feel the task of retagging all their merchandise with bar-code tags would be overwhelming. A phased conversion avoids this problem by simply tagging just new merchandise with bar-code tags.

By the time the store has gone through an inventory turn or so, most of the items with the old tags will have been sold. Then it will be much easier to retag the many fewer items that still have the old tags before taking a complete inventory with bar-code scanners.

The easiest time to start such a phased conversion is when your inventory level is at a low point, such as well before the holiday season or just after it.

– by Peter Gollon

Peter Gollon is the president of Kassoy, a 65-year-old distributor of a full line of tools and supplies for retail jewelers. Kassoy first made bar-code jewelry tags available to retail jewelers in 1987 and has been a leader in bringing automated data collection to the jewelry industry. Before coming to Kassoy, Gollon earned an advanced degree in physics and spent a decade at a large government-funded basic research lab in the Midwest.

Copyright © 2002 by Bond Communications