Inventory Management Planning for
the New Millennium

SURVIVAL IS NOT AN OVERSTATEMENT of what apparel manufacturers face in the 2000s. Coping with survival has long been a characteristic of the apparel industry. But today, the threat of not surviving is more serious than ever.

American apparel manufacturing has changed dramatically. Financing is more difficult to obtain. Lenders are taking fewer risks. Competition is increasingly aggressive and customers' expectations are higher than ever. Seasonal errors in merchandise purchases and inventory management can cost a company its profits, its customers and its solvency. There are three critical steps that apparel manufacturers must take to insure long-term survival:

Step 1: Make a commitment to operate from a business plan.

Step 2: Establish the necessary systems to control and monitor your business activities, with continuous comparisons to your plan.

Step 3: Don't listen to anyone who wants to talk you out of the previous two steps.

INVENTORY MANAGEMENT THROUGH A BUSINESS PLAN: There is no secret to inventory management. What is required is commitment to work from a plan. Few could say it better than Yogi Berra, "If you don't know where you are going, you'll end up somewhere else." Apparel manufacturers cannot afford to take the same risks they have taken in the past. Credit lines, business relationships and customer demands are too fragile today to gamble with the business 4-5 times a year.

Most manufacturers clearly recognize that each year they have multiple opportunities to go broke. Some almost fail simply because they are not fully committed to inventory management. They don't have a plan.

With the right business plan, manufacturers can increase their inventory turn to over 5 times a year and increase their ratio of annual volume to working capital. They can improve their capital structure and create opportunities for expanding credit.

ELEMENTS OF THE PLAN: An overall business plan will include detailed descriptions of the company's short- and long-term goals, its financial needs, the markets for its product, and its available resources.

One vital part of the plan is a projection of the company's expected financial results on a monthly basis as well as the company's projected results of operations, cash flow and financial position. This projection begins with a realistic assessment of monthly sales based on factors such as prior history, sales force and market conditions. It includes detailed estimates of purchasing and labor needs, associated costs of sales, operating and other expenses and income on a monthly basis. The resulting projected balance sheets and cash needs would then give the company a basis from which to make effective management decisions on a proactive -- not reactive-basis.

By comparing the monthly plan with actual monthly results, management can quickly spot an operating variance. Immediate steps should then be taken in the area causing the variance to either correct the problem or change the plan. In either case, surprise is diminished and stability is increased. Underproducing areas can be identified quickly and steps taken to improve year-end results.

Manufacturers can achieve effective inventory management and improve capital structure. The tools are available. For those who are ready to move forward and commit themselves to a business plan, 2000 should be an exciting and increasingly profitable millennium.

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Philip Vogel & Co. PC 12400 Coit Road, Suite 1000, Dallas, Texas 75251-2005 214-346-5800  Fax: 214-346-5899  firm@philipvogel.com

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