Today, an adjustment in inventory flows immediately to the income statement and balance sheet. The owner, bookkeeper, inventory clerk, banker, and everyone else involved see the effect instantly. In order to avoid dealing with an angry business owner, the inventory stays wrong until year end. And then the manure hits the rotating blades of the ventilation enhancement device. Boy does it hit the fan! Meanwhile, salespeople have been selling inventory that didn't exist or not selling inventory that does exist. Purchasing hasn't been ordering because there was product in the computer inventory, even if it wasn't on the shelf.
If you're a client with an inventory and you're reading these words, you're shaking your head right now. You're thinking, "He's talking about me. He's talking to me." I am, not individually, but as a group. Every client I've ever seen with inventory has issues of accuracy.
Effective businesses know how not accurate their inventory is. They know specifically, statistically, not in general. They can tell you what the critical inventory items are and how long it's been since they have been counted. And they can tell you when the last inventory adjustment was done, and how much it affected the income statement. More importantly, they can tell you how much reliance they can place on the inventory quantities and why.
I use inventory as an example of information that is inaccurate in the last newsletter, it is not the only information in computer systems that is inaccurate. The concept applies to all the data in a computer system. It has to be accurate, or you must know how inaccurate it is. It's true of sales data, marketing data, accounts receivable, accounts payable, financial statements, and other computer-produced reports. If they aren't accurate, the computer system is giving you less than it could.
So how do you correct the problem? The solution lies in process and procedure. First, you need to verify that given the correct information, the computer system produces the right answer. Once you've verified that, focus on getting the right information into the computer. To accomplish that, you need to look at the business processes and procedures you are using.
How does inventory come out of the computer? What increases inventory quantities? How is an invoice generated? How is a credit generated? These are the types of questions you must ask and answer to get the data accurate. Accountants, logistical consultants, marketing consultants, and sales consultants can be helpful in this process in addition to computer consultants. The key is to design processes that put accurate data into the computer with the result that accurate data comes out of the computer.
How big a priority should this be? It is a NOW priority. Everything else you and your business can do with a computer system in the coming years depends on the accuracy of the base data. Without it, you're dead in the water. As the procrastination prophylactic says: "Do it now!" Or as that shoe company suggests, "Just do it!"
If you're a client with an inventory and you're reading these words, you're shaking your head right now. You're thinking, "He's talking about me. He's talking to me." I am, not individually, but as a group. Every client I've ever seen with inventory has issues of accuracy.
Effective businesses know how not accurate their inventory is. They know specifically, statistically, not in general. They can tell you what the critical inventory items are and how long it's been since they have been counted. And they can tell you when the last inventory adjustment was done, and how much it affected the income statement. More importantly, they can tell you how much reliance they can place on the inventory quantities and why.
I use inventory as an example of information that is inaccurate in the last newsletter, it is not the only information in computer systems that is inaccurate. The concept applies to all the data in a computer system. It has to be accurate, or you must know how inaccurate it is. It's true of sales data, marketing data, accounts receivable, accounts payable, financial statements, and other computer-produced reports. If they aren't accurate, the computer system is giving you less than it could.
So how do you correct the problem? The solution lies in process and procedure. First, you need to verify that given the correct information, the computer system produces the right answer. Once you've verified that, focus on getting the right information into the computer. To accomplish that, you need to look at the business processes and procedures you are using.
How does inventory come out of the computer? What increases inventory quantities? How is an invoice generated? How is a credit generated? These are the types of questions you must ask and answer to get the data accurate. Accountants, logistical consultants, marketing consultants, and sales consultants can be helpful in this process in addition to computer consultants. The key is to design processes that put accurate data into the computer with the result that accurate data comes out of the computer.
How big a priority should this be? It is a NOW priority. Everything else you and your business can do with a computer system in the coming years depends on the accuracy of the base data. Without it, you're dead in the water. As the procrastination prophylactic says: "Do it now!" Or as that shoe company suggests, "Just do it!"
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