Franchise TutorialsFranchisee

Tutorial 11: Intro to Inventory

It may be the products you sell in your retail store. It may be the produce you use to create meals in your restaurant. Or it may be the parts or materials you use to provide a service in your automotive repair business.

Defined as all the goods and materials held in stock for day-to-day business, inventory is a vital part of any franchise business.

Why is stocking inventory important?

Keeping up with stock levels means you can easily meet the demands of your customer. Customers are able to purchase what they need, when they need it. If you don’t have the inventory to provide products and services, your customer may go to your competition!

How much stock do you need?

Usually defined within the operations manual, the amount of inventory that franchisees are required to carry or stock will vary depending on the requirements set out by the franchisor.

What is the cost of inventory?

The cost of inventory is typically addressed in the inventory purchase agreement or supplier agreement along with product warranties, procedure for placing orders and return policies. (The topic of approved suppliers is covered in more detail in the next tutorial.)

And the cost may vary. Shrinkage, a business term that refers to unplanned and unwanted loss of inventory, can be caused by theft, damage, spoilage and accounting errors and can negatively impact costs.

At the same time, belonging to a franchise system offers distinct advantages. For one, as a franchisee, you’re more likely to purchase inventory at a lower cost due to volume purchasing, and benefit from good return policies and better inventory sources.

In any case, it’s good business practice to make sure that the entire inventory is insured.

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