Posted on 8th March 2018 at 10:40
“Knowing what you have got, knowing what you need, knowing what you can do without – that’s inventory control.” Frank Wheeler, Revolutionary Road
We see it time and again – companies failing due to cash flow and yet there is a full warehouse of stock. Cashflow is the life-blood of all businesses, particularly start-ups and small enterprises. Controlling your inventory is key to managing your cashflow.
Knowing what you have got:
Inventory control is about become more accurate in your stock tracking and physical stock checks. Even the most basic ERP systems allow the creation of multiple warehouses and locations to clearly identify where stock is located within a business - when rolled out correctly this can be accompanied by a bar code scanning system to issue raw materials to production jobs. Creating locations in your warehouse can be as simple as putting a sticker below a pallet position in your racking and reflecting that location in your ERP system.
Physical stock checks can be onerous – checking every item on one day and then consolidating the changes can be a nightmare. One way of avoiding this is by using a simple ABC stock categorisation technique, enabling you to introduce daily cycle counts of a handful of items. The A category are your most important items and should be checked more frequently than your C category items.
Knowing what you need:
As businesses grow, they can become nervous about meeting commitments that they have given to their customers. Their sales books have grown exponentially, and they are faced with production issues caused by not having the correct supply chains set up behind them to support their growth and expectations. Without having the ability to input sales forecasts and therefore not knowing what they need, a business has to have a good supply chain to ensure that their suppliers can meet demand at short notice. And without an MRP system set up correctly, they really are doomed to be forever chasing missing stock.
Being afraid to let customers down can lead to having too much stock. One of the easiest way to create a forecast of what you need is to look at the last 12 months sales and project it out over the next 12 months - add on the expected % sales increase and you have yourself a rough-cut forecast. There may be a seasonal pattern to your sales or spikes as customers put off purchasing until the start of a quarter. This sort of data analysis can help a business to plan their purchasing.
Knowing what you can do without:
Inventory isn’t free – whilst sitting on the shelf it is not only subject to possible damage but could also become obsolete and no longer of use to you. This may mean that you have to dispose of it through expensive waste streams or at a significant lose through asset management recovery businesses. Either way you are not getting the full value for the products. Holding on to inventory in the hope that it can be used in a few years is not a strategy that any business should follow. By throwing obsolete product into the skip, a business is effectively throwing their money away. To recoup some of the value of obsolete stock, a business can pro-actively work with suppliers to sell back un-used stock or can look to find a customer that can use the business’s obsolete inventory. Either way, there is cash generated from it.
If a business is finding that it is continuously adjusting inventory off then there clearly is an inventory control issue. Inventory is the business’s money – it is listed out on a balance sheet as an asset and should be considered as such. Inventory write-off procedures ought to be put in place, with authorisation levels set so that significant stock adjustments are controlled by Finance Managers or Managing Directors.
Pro-Outsourcing can work with companies to introduce appropriate stock control processes and procedures including KPIs to monitor stock – from stock accuracy (% of items accurately counted) to Days on Hand inventory valuation (a reflection on how long a business holds inventory before they are sold) we can help you get to grips with where there are issues and put in place processes to prevent you from losing your company’s life-blood.
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