With cost control being the dominant phrase in many boardrooms at present, one area that could provide a quick win in terms of cash to the bottom line is stock optimisation. Holding unnecessary inventory consumes working capital in the following areas:
- Ties up cash in stock value causing possible cash flow issues
- Higher storage costs
- Higher insurance costs
- Greater chance of obsolete stock & damage
- Financing charges
Therefore, taking a current and future view of realistic inventory requirements going forward could pay dividends. The start point is to challenge existing norms and make data driven decisions based on recent sales and forecasting data. For example, using fixed minimum stockholding levels or historic average weekly demands may have been acceptable in the past, but are not necessarily an appropriate method of stock calculation going forward.
In addition, the following areas should also be addressed:
- Are stock classifications correct (A/B/C, etc)?
- Are obsolescence rules still relevant (e.g., no sales in last 24 months)?
- Has all obsolete stock been removed from pick faces and system cleansed?
- Can range of products be rationalised?
- Can supplier MOQs or MOVs be reduced?
- Can supplier lead times be reduced, particularly from overseas suppliers?
- Can product be sourced locally?
- Is consignment stock an option?
Other changes that can be introduced include differentiating payment terms between suppliers and customers, requesting suppliers to hold and ship stocks directly to end customers and introducing robust perpetual inventory (PI) checking processes. Selling off of obsolete stock as “special offers” at reduce rates, or even at cost, can also be effective.
If your business is considering embarking on a stock optimisation programme as a means of releasing working capital and requires help and support in designing an appropriate future stock strategy, give Davies & Robson a call on 01327 349090.
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