I went to dinner with some friends from church today. The little greasy spoon cafe where we go is close to the church, has good food and is reasonably priced.
My friend asked for some honey. The server brought the honey. After about 10 minutes, she came back and asked if my friend was done with the honey– another guest wanted it!!! I asked if they only had one bottle of honey. The server said, “Yes, there was only bottle of honey” at the cafe!
Now, as I reflected on this, I was impressed with the inventory control of the cafe. The manager must have recognized that they don’t use much honey and needed only bottle to fulfill most diner needs. In fact, I asked that question and that is what the server said–“We don’t have many people who use honey.”
The key point here is two fold. One, is inventory control. There is no reason to tie up capital in inventory if you are not going to sell it. You only need to have as much inventory as you are going to use. In manufacturing terms, this is called Just in Time (JIT). Now, if the honey runs out before somebody goes to the store, the cafe is out of honey. However, probably not a deal breaker– if you are hungry, you are probably going to eat, even if there is no honey!
The second key point is obligation of excess capital. Capital is the lifeline of any business. The more capital that you have, the easier it is to run the operation. In this case, there was only one bottle of honey–there we no others. Hence, there was no excess capital tied up in inventory.
Look at your business. Do you have excess capital tied up in inventory? If you do, you should strongly consider selling the excess inventory to recover additional operating capital. Excess inventory allows for spoilage, shrinkage and obsolescence. Buy only what you need and can use– that is the best way to operate! The little cafe figured that out with the honey!