Uncover Thousands in Savings, Hidden in Your Inventory

hidden savings in inventoryWhen sales drop and budgets get tight, small businesses begin desperately seeking ways to cut costs. The options, however, are not attractive. Cutting people is painful, while slashing marketing has devastating long-term effects. Surprisingly, there’s an answer to this problem right within a business owner’s four walls: inventory.

Inventory encompasses everything from products to raw materials and even office supplies. Best of all, it represents a wonderful opportunity to save money.

Let’s face it, inventory isn’t glamorous. It’s bought indiscriminately, and when business is booming, there’s no need to worry about it. Right now, however, inventory languishing in a warehouse, shelf, truck, or supply room serves as a painful reminder of the overly exuberant past.

Fortunately, by acting now to improve inventory management, business owners can positively affect the bottom line in more ways than one:

  • understand demand, so the business can stock and sell more of what’s needed
  • reduce inventory carrying cost by eliminating stock that’s not moving, freeing up much-needed cash
  • improve customer service by immediately providing the items customers want
  • eliminate rush shipping charges incurred while fulfilling orders for out-of-stock goods
  • automate manual processes, freeing staff for higher-value tasks or supporting expansion without adding labor
  • negotiate better prices from vendors

Best of all, these goals can be achieved without an expensive software investment or a scary and complex implementation experience. How? Proven, affordable solutions based on barcode technology.

In this multipart series, we’ll outline how barcodes work and highlight examples of business owners implementing a barcode-based inventory control system.

The power, yet simplicity, of a barcode

Barcode technology has been used for decades. It is affordable, simple and effective –  just the thing for small businesses.

A barcode is simply a graphical representation of data (numbers and/or letters). The width of the black lines and white spacing is intentionally produced to represent the underlying data.

When “read” or scanned by a barcode scanner, this graphic is quickly and accurately translated without the mistakes associated with manual data entry. The data is immediately displayed in a software application on a PC or handheld device. (For more information, click here for a video overview of how barcodes work.)

Putting a barcode to work for inventory tracking

Barcodes by themselves do not track inventory; however, they are the catalyst that makes tracking inventory much easier and virtually foolproof. Let’s use an analogy to see how they can be used.

A barcode is like a person’s name – let’s use Teddy. Just like in real life, this name can be mispronounced or misspelled. Is that person an Edward or a Ted? Are they male or female? Further, there’s no way of knowing other useful information like their height, birthday or where they live. And if you don’t see that person for six months, can you remember their name or when and where you last met them?

Barcodes eliminate the need to rely on memory and provide the insight to make better business decisions. With a simple scan, you immediately know the item’s “name.” Then, the inventory software can indicate how many you have, where they are located, and any other information like cost, price or supplier.

High-quality inventory control software provides additional functionality. For example, it might provide reports that allow you to determine which inventory items are selling, and which are not. Or, reorder points can be established to trigger an order for specific items once they dwindle to a pre-determined level. With these tools and reports, businesses can dramatically reduce their inventory carrying costs while improving customer service, saving time and more.

Service company saves $40,000 with barcodes

In this first example, let’s see how a business owner invested less than $2,500 to move from Microsoft Excel to an inventory control system. The payoff? Savings of more than $40,000 a year.

A Maryland heating and air conditioning (HVAC) service and repair company employed 18 technicians. These technicians would travel to customers’ locations, diagnose heating and air conditioning problems, and repair the systems. Some replacement parts were stocked on the repair technicians’ trucks, while other parts were maintained in the company’s warehouse.

The company’s owner tried to track its hundreds of stocked items using a spreadsheet Unfortunately, parts were not easily recorded, errors occurred and the excel sheet was always out of date. The process became completely ineffective. As a result, service technicians wasted countless hours driving to a supply depot to purchase parts. Customer repairs were delayed, and technicians could handle fewer jobs per day.

The company installed Wasp Inventory Control software, complete with barcode scanners. When replacement parts were purchased to add to stock, each item’s barcode was scanned. To remove the item from stock when it was needed at a customer site, the items was scanned again. Quickly and easily, barcodes became the enabler for accurately tracking inventory.

Almost immediately, the company began saving 20 hours a week of previously wasted technician time because they were accurately able to know exactly what was in stock. This translated into more than $40,000 in annualized savings. According to the company’s owner, the initial technology investment paid for itself in just three weeks.

What’s more, the business owner has learned a great deal from the software’s reports. He can plan and stock more effectively. Plus, since he has gained insight into which items he uses most frequently, he now plans to negotiate with suppliers for bulk discounts.

During this economic downturn, using technology to improve your business will not only provide the cost savings and efficiencies necessary to survive, it will provide an ideal foundation for profit and prosperity when the economy rebounds.

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Mark Anderson, professional cartoonistAbout the Author: As vice president of marketing for Wasp Barcode Technologies, Grant Wickes sets the strategic direction and oversees the tactical execution of the company’s marketing programs. Wickes’ marketing and sales experience spans more than two decades, the majority of which has been spent growing small technology companies. He loves to share the knowledge and learnings from customer visits and small business events to other entrepreneurial-spirited folks.


18 Reactions
  1. Martin Lindeskog

    Grant Wickes,

    I have worked as a purchaser and cost analyst so these questions are dear to me. My question to you is: How quick is the payback time (ROI) for the investment of a barcode system? I know that in Sweden it has been pretty expensive to install and integrate a barcode system at your warehouse? How is easy is to integrate in your computer system? Will you reduce manually inventory totally after you have implemented the barcode system?

    I think that the most efficient and effective way to reduce the inventory to an optimal level is to give the people who are in charge of the purchasing & logistics department time and resource to work out a system based on historical data and at the same time have an hands-on application / routine so you could catch quick changes in the sales, customer orders and what’s happening on the market. It boils down to communication between the different departments and that you have a overall view of the supply chain.

    I am interested in looking a some of your business cases on barcode.

  2. I consult with small to midsized retailers, businesses for whom inventory makes up as much as 80% to 90% of the asset base at ant given time. For them, effective inventory management is very much a critical determinant of success. Even for retailers, excess inventory results in unsustainable inventory carrying costs. even in the best of times, carrying inventory is expensive, but now the cost of carrying any unproductive inventory can be deadly. For retailers, having all of their stock barcoded and managed through an effective POS system is the first essential step to effectively managing their inventory.

  3. I’ve always been curious about how barcode technology works. I can see that there are benefits to be gained. I’m wondering though, what is the average initial investment amount to implement barcodes?

  4. Barcode technology is quite fascinating. I recently read somewhere that they are developing this technolgy for mobile devices. You take a picture of an item with your mobile device and then you receive all kinds of information about it. It was something along those lines and fascinating, nonetheless.

  5. @Chris — I’ve read articles about Google’s Android being able to do this. Amazon, I believe, had a text message program where you could achieve the same result. Phones around the world already allow payments and so presumably allow for barcodes to be read or managed somehow.

    Thanks Grant for a timely piece. I had read some of the Wikipedia entry on Barcodes a while back. Do you feel that is an accurate and objective source of basic info?


  6. RedHotFranchises

    This is the most reliable way to designate Bar Codes for Packaging Online, better than the traditional way of using quick books to manage the inventory. Not only does it save money it saves lots of time as well!

  7. Grant, I have long appreciated the barcode technology. It feels even better that it still lives up to its name. Also, Yes, inventory is really important. This is what most of our always-busy entrepreneurs often have not look over to.

  8. Hi @MartinLindeskog thanks for the comment you ask a number of good questions one of the key things to service the small business segment well (as a technology vendor) is to have a complete solution (hardware, software and support) from one vendor. That’s one way we try and make it easy and affordable for business owners to implement.

    @TedHurlbut: agreed! The independent or smaller retailer can gain significant cost savings with barcodes and a POS system. We have a retail glass shop (case study link: http://bit.ly/FT0x1) that implemented a POS system determined what stock was moving (ie what stuff customers really wanted), improving inventory management of these items, and increased sales 200% (since they stocked what was needed)

    More later… keep the comments and ideas coming.

    Cheers, Grant (@gwickes)

  9. Anita Campbell

    Hi Grant, thanks for the explanation about using barcodes.

    I used to follow the field of RFID, which can be an inventory tracking alternative to barcodes.

    What is the cost differential between setting up an RFID tagging system, and a barcode system, for your inventory?

    — Anita

  10. Hi @Amanda. Thanks for reading and commenting. What’s great about barcodes for small business is how affordable it is. You can get started for less than $200 for a starter kit that includes a scanner, barcode label software and basic tracking software. Good for a small startup or home based business.
    We have inventory software starts at around $600. If you add a mobile scanner and barcode printer, you can get a complete solution starting at $2,000. The price is a one time license and there is no on-going fees or charges.

    “Higher end” solutions are available from other vendors that still target SMB customers in more vertical or specialized needs with prices ranging from $5K – $15K

  11. I have first appreciated this technology on our project way back my college years! Aside from its really useful capabilities, it is really affordable and perfect for small business owners who are on tight budget.

  12. Hello @Chris: Smart phones are doing some amazing stuff Two startups are creating an ability to read 2D barcodes (these are little postage stamp looking barcodes that are made up of seemingly random dashes and dots in a square).

    Have a look at this recent article in USA Today regarding these companies and the direction they are going. It really has some interesting potential http://bit.ly/ULAEE

    @BiancaAquino Thanks for the comment. Not only are barcodes going strong, there is such under utilization of this technology in small business, the growth potential is enormous.

    Our new customer surveys (folks that have just purchased our solutions) indicate that over 93% of these customers have never used any barcode based automation beforeIt’s amazingeven though barcodes and productivity solutions around barcodes have been available for 30 years, the vast majority of small business have not used this. We just need to get the word out. So thanks for your help!

    Cheers, Grant (@gwickes)

  13. With my experience in Materials Management and Inventory Control, barcoding systems have always proven financially beneficial not to mention much easier to track inventory and control stock-outs. Businesses, big or small, can benefit from a well planned that thoughout barcode system.

  14. Susan G. Vinson

    I would like permission to reprint the article entitled “Uncover Thousands in savings, Hidden in Your Inventory” by Grant Wickes. This article would appear in our quarterly newsletter with a national circulation of about 400.

    CDI is an affiliation of independent wholesale paper, jan/san, and restaurant equipment distributors and manufacturers.

    Thank you for your favorable consideration in this regard.

    Susan G. Vinson, President
    Monroe, Louisiana
    (800) 245-9169