Doing one thing well often leads to doing other things well. This is true in many areas of business, including inventory management. Have you ever noticed that successful manufacturers and distributors have clean, organized warehouses? And companies in a perpetual "cash crunch" often stock material in filthy, disorganized, buildings?

How does running a "tight ship" lead to cascading profits? Well, imagine your company gross sales dollars as a river. As sales grow, the current of the river increases. There is a waterfall downstream. The water that "cascades" over the waterfall represents your company net profits.

"Rocks" at the top of the waterfall represent your company expenses. These rocks inhibit the flow of dollars over the waterfall and to your bottom line. Many of these rocks represent normal costs of doing business: cost of goods sold, payroll, rent, utilities, etc. Management of less-successful companies takes a fatalistic approach. They believe that all of these rocks (i.e. expenses) are large, permanent objects. There is no way these boulders can be moved or reduced in size. And, nothing can be done about new rocks that fall into the river. They don't realize that if the top of the waterfall is filled with rocks, no water can cascade down into the profit pool.

Progressive companies look at these rocks from a different angle. They know that there will always be some rocks at the top of the waterfall. But with a little effort, they can chip away at some of the rocks and completely remove others. These companies know that as they decrease the mass of rocks at the top of the falls, they increase the amount of water cascading over the top.

So the obvious question is, what rocks (i.e. expenses) can be removed or reduced in size without affecting customer service? Superior customer service must be maintained. It is directly responsible for your sales volume – or, in our illustration, the flow of the river.

Let take a look at a few of these removable rocks:

Lost and Damaged Material: Customers want what they pay for. If material is damaged while it is in your warehouse, it can't be sold, or at best it must be sold at a reduced price. And, while you must pay your vendor for inventory lost in your warehouse, it doesn't generate any sales revenue. As your mother probably told you over and over again while you were growing up, something put away in its proper place tends not to get broken. And, you抣l be able to find it again when you need it.

In a neat, well organized warehouse, little material is lost or damaged. It isn't a big rock, inhibiting the flow of profits to the bottom line. The money the company saves by not having to buy replacement material can be used to expand the company product offering, to increase salaries, or to be put to some other worthwhile use.

Unnecessary Labor: When material is missing in a warehouse, a scavenger hunt usually begins to find the missing material. If you consider the cost of your of labor, it is a very expensive activity. Will the customer pay more just because it took two of your people four hours to find the missing item? No way. Therefore, this unnecessary cost increases the size of the labor "rock."

In a properly maintained warehouse, material is usually in its proper location, and is easily accessible to order pickers. The result: more orders can be picked in less time. This means that a company with an organized warehouse needs fewer warehouse people @#150; and those individuals not only have a pleasant working environment, but they can receive better wages because of their high rate of productivity. A well-run warehouse only increases the size of its "labor rock" if there is an increased flow of sales in the river to justify it.

The Cost of Replacing Misplaced Material: Some companies believe in the old saying, "do it twice, or don't do it at all." Or at least it seems that way. They抣l claim that they抮e too busy to verify that every order going out the door contains the correct quantities of the right items. But what happens when a customer complains that an error in shipping has cost them a lot of time and money? The too-busy company finds someone to drop everything and get a replacement shipment to the customer. And these replacement shipments are expensive. Each one ties up an employee for several hours, placing another large boulder at the top of your profit waterfall. Will a customer pay extra for this exclusive service? Again, no way! They抮e ticked off that they didn't get the right stuff in the first shipment.

A company that is focused on the bottom line knows how much it costs (in both actual dollars and customer good will) and does everything they can to prevent these boulders from being placed in their revenue river. They don't view checking orders as an unnecessary expense. These companies consider completely checking every order a top priority!

Every business wants to maximum its profits. Many companies see improving sales as the only way to attain this goal (that is, to increase the current in the river). But leading companies realize that there is a better way. They know that it is usually easier to control expenses (that is, to remove boulders) than to find new sources of sales to increase the amount of water cascading over the waterfall to the bottom line.