How Do You Know You Are Carrying To Much Stock?
Ideally you should carry no stock, but that’s not practical, right?
Let’s state some of the glaringly obvious points – stock is just another form of cash. The problem is that it takes time to turn it into cash you can spend. The large players and big hitters that we all know relentlessly drive down the dwell time of stock in their hands so they can turn it as quickly as they can into money. If you are interested management consulting can clarify this.
The cold hard facts that we have found in our client companies is that right now, today, if you have a warehouse and you have stock then you can immediately do without 15-20% of what you carry. In the worst cases a business carries up to 50% more product than they need.
A quick exercise you can do is run off your stock report and sort by the amount of items per SKU you have sold in the past 12 months. Take a look at the bottom 30% of those, see how many you sold and check how many you have in stock – you’ll amaze yourself. Proactive management consulting companies will ensure you never get into this kind of situation.
If your general response to any of this is “we have to keep this product because…….” Then we can’t help you. If you are open to reducing your stock levels and increasing stock turns then here are a few things you can do right now:
– Buy Frequently & Small – you will probably say that to get the big discounts you have to buy big orders. Our experience is that Suppliers will almost always give you the discount if you sign up to volume over time, so smaller orders, more frequently will have no adverse effects
– Simplify you product line – All business carry lines that do not sell. Cull! Get rid, move them on. Have a process that at least every month cut the bottom 5% of slow movers
– Set up Just-In-Time models – call your suppliers and incentivise them to put in a just in time model.
– Consignment stock – this kind of model is where your supplier puts the stock in your warehouse, they own it until you pick the product. Depending on consumption they count it daily, weekly, etc. and charge you for the usage. This can be a very effective model for some types of business.
By the way, often the biggest culprit to carrying too much stock is you are one of your employees needing to “keep a bit of that, just in case”. In any event management consulting can identify and implement some very useful stock management systems to help reduce your stock levels.