Solomon Bruce Consulting Blog

Sunday, November 13, 2011

Look What We Found In the Storage Closet!!

   A business owner told me that the other day when I was in his store!  The product, small, but quite expensive, read over $4000, was a product that his store carries.  The product was in new condition, the original wrapping still on it, never having been opened or touched.  The store owner put it on the shelf for sale, hoping that the product will sell.
    Now, as I listened to the story, my first thought was how did this product get lost?  What about the inventory records?  Did not the inventory records get reconciled each year when inventory was taken?  Or, Was Inventory taken each year?  How could a store owner "loose" a $4000 value product?
    The questions continue to come as I sit and think about this matter.  Here is what is important--- you always need to reconcile your inventory records with the product on the floor.  In this case, this product must have gotten "lost" in the storage closet and never found.  Now, I don't know what happened, I doubt that the store owner does either.  What I do know is that the inventory records must not have been very thorough or this "discovery" would have been found at the end of the first year that it was identified as not on the shelf.
    The key point here is to make sure that your inventory records and product on the shelf match.  If they don't, find and figure out why!!  Yes, the product could have been lost, stolen or misplaced.  However, someone needs to identify what happened.  In this particular case, it appears that nobody in management paid close attention to what the store actually owned.  How this could have been done when inventory was taken or the financial records reconciled is beyond me!
    Know what is in inventory, what you have marked on the inventory records and what is marked on the financial records.  If all of the records do not match, figure out why!  Record reconciliation is tough stuff, however, this is the only way you know what you have in inventory, what the product costs and how much capital you have tied up.  With working capital always a challenge, this is a matter that cannot be overlooked.  Attention to detail is the key to matters such as these.

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