David Duncan, the COO of Paddywax, is one of several entrepreneurs Portfolio.com is following as part of the series The Great Global Business Adventure. All of the entrepreneurs will be blogging about their experiences. This is part of the series of blogs from entrepreneurs.

By the fourth day of the weeklong Atlanta International Gift & Home Furnishing Market Expo at the Gift Mart in downtown Atlanta earlier this month, things were already looking better than they were last year at this time.

This trade show is the first in a series of similar shows to take place in the major cities across the country (Dallas, Los Angeles, San Francisco, Denver, Seattle, Chicago, and New York).

The Atlanta show is one of the largest of its kind in the United States and attracts more than 548,000 attendees from around the world. Gift, home furnishing, and accessories manufactures display their products and take orders from independent retailers, designers, mass merchants, and other “wholesale buyers.”

The January Atlanta gift show is not only great because of the orders being placed, it is also the first time manufacturers hear directly from the independent retailers and other buyers about how the recent holiday shopping season turned out.

Last year at this time the mood was somber. Buyers were scarce and most often did more looking than buying, which set the unfortunate tone for a long year.

Most of the buyers I heard from last January still had excessive amounts of holiday inventory; consumers simply didn’t buy much during the 2008 holiday shopping season. As the credit markets froze, retailers were not able to bring in new merchandise, causing lots of their gift and accessories vendors to sit on imported stock for several months or, in some cases, not ship it at all, instead of the desired turnaround of days to weeks.

I am happy to say that the mood was far better this year at the Atlanta gift show. The retailers who are still around are now buying, and initially our average order size is much greater than it was this time last year. Since most retailers didn’t have the buying power they once did, they were forced to keep their inventory levels down during the holiday season, resulting in adequate sell through. Now they are able to restock the shelves.

As a manufacturer who for the most part uses locally sourced (U.S.) raw materials, as well as manual labor, we are able to quickly scale up both in terms of raw materials inventory and labor when needed. Likewise, we are able to cut back when volume shrinks so that we only produce what we have to.

For the last 14 years I operated under the assumption that producing to order was the best way to run our business; after all, we could keep inventory low and turn orders quickly. Unfortunately, I took this practice to the extreme at times and would start to lose efficiencies in manufacturing and our administrative operations.

I usually found myself purchasing raw materials in the lowest quantities possible, resulting in inadequate leverage over my suppliers and slim profit margins.

As 2009 wound down and we began our strategic planning for 2010, we spent more time looking at historical unit movement on a monthly basis and began the process of producing to forecast and conservatively building inventory rather than waiting and producing to only what’s on order, with the idea being that with increased purchasing of raw materials we can leverage the economies of scale and increase our margins.

While we are using well-thought-out calculations to forecast our production schedules, I can see that there is an art to forecasting our finished-goods inventory needs because it basically boils down to how much we think we will sell.

We are only two weeks into the year, and we have seen orders from only one of the many gift shows taking place over the next 30 days, but based on the buyers’ feedback of their relatively positive holiday sales and initial purchasing, I am optimistic about our shift in inventory strategy, as well as our outlook on first-quarter revenue.