Introduction to Inventory

New franchisees quickly discover that one of their major expenses is inventory. The word, inventory refers to all materials and goods used by a business for daily operations.

Inventory might be finished goods or merchandise purchased from a supplier for resale. Inventory also includes any raw materials used by a business to create products for customers as well as any materials or parts used to provide a service.

The amount of inventory franchisees need varies according to the particular franchise. Inventory requirements should be clearly outlined in the company's operations manual. Franchisers require a certain amount of inventory for various reasons.

Some suppliers take a while to fill orders, so the franchisee must have a specific number of items to continue running the day-to-day operations between deliveries. When franchisers decide to run company-wide promotions, the franchisees need to have enough of certain products to meet consumer demand.

At all times, a franchise owner should have enough inventory on hand to allow consumers to purchase the item or service they need at the time they need it. Business owners who don't have enough inventory risk losing customers to competitors.

Inventory costs also vary widely from franchise to franchise. It depends on your type of business, the amount of inventory required and which suppliers your franchiser requires you to use.

Franchisers select inventory by looking at a product's quality, cost and durability as well as the reputation of the brand. They then determine which brands represent the franchisor's business most effectively.

The franchiser also determines which suppliers you can use by looking at the company's reputation, cost, return policies and available products. The franchiser will give you a list of approved suppliers and you must purchase your inventory from a company on that list.

The company's operation manual should also provide details about inventory control. This allows business owners to keep track of what they have on hand as well as calculate the cost associated with the items.

Inventory control helps franchisees identify errors, shortages, overages and shrinkage. The manual should provide you with instructions about storing inventory and controlling losses. It should also describe what type of insurance coverage your franchiser requires you to carry on the inventory.

Before signing a contract to become a franchisee, get a look at the company's operations manual so you can get a better idea of the inventory policies and the average cost of the items. Look for a franchiser that has firm policies in place, because this will free you up to concentrate on building your own business and serving your own customers.