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Pegasus Blog

Taking stock of your business

DATE

April 16, 2014

For many companies, stock is the lifeblood of the business and ensuring the optimum level of stock is as important as cash flow . Stock levels which are too low mean that it may be difficult to satisfy demand, leading to a loss of orders, goodwill and reputation – all of which stand to damage a company. Low stock also means that ordering must be more frequent, opportunities to take advantage of economies of scale through bulk buying are absent, and handling costs are likely to be higher.

The importance of getting stock levels right

On the contrary, high stock levels come with excessive costs and elevated risks. For example there is an increased chance that a stock item will become obsolete and have to be written off as wastage. High stock levels come with high storage costs, and the amount of working capital tied up in stock is inevitably large.

The right balance means having sufficient stock to meet customer needs while minimising the cost of holding stock and avoiding wastage. Sounds easy - but in a market where customer demand fluctuates, how can you get the right level without incurring hefty costs which could otherwise be invested in growing the business? Follow our 4 step process:

Step 1:

In our experience of helping thousands of organisations with these kinds of challenges, the first step is to always ensure that you have real-time visibility of all stock – including raw materials, work-in-progress and finished goods. This visibility facilitates a foundation from which to exercise more proactivity and make improvements.

Step 2:

Understand the dynamics which keep your inventory productive. Stock which sells well should be monitored and capitalised on to boost sales and drive growth. Slow moving inventory should be watched carefully. It may be moving but if it decelerates then it may be at risk of obsolescence. Obsolete stock should be removed to make way for productive stock.

Step 3:

Set limits for your stock so that alerts are triggered at appropriate points. For example levels might be set at maximum stock, minimum stock and re-order levels to ensure that managers are kept updated and have time to action stock issues before they become problems.

Step 4:

Finally, ditch the warehouse closure for a manual stock take. Having a manual count of your stock can be carried out during working hours with real time information updating your stock levels. Plus, having real-time visibility of your stock position means there is no need to close down the factory to manually count items. As well as minimising downtime and maximising profitability, customer service stands to benefit.

For more information on how the right Stock Management solution can help manage inventory in your business, take a look at Opera 3 Stocktake.