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Inventory Management
Managing
inventory is a juggling act. Excessive stocks can place
a heavy burden on the cash resources of a business.
Insufficient stocks can result in lost sales, delays for
customers etc.
The key is
to know how quickly your overall stock is moving or, put
another way, how long each item of stock sit on shelves
before being sold. Obviously, average stock-holding
periods will be influenced by the nature of the
business. For example, a fresh vegetable shop might turn
over its entire stock every few days while a motor
factor would be much slower as it may carry a wide range
of rarely-used spare parts in case somebody needs them.
Nowadays,
many large manufacturers operate on a just-in-time
(JIT) basis whereby all the components to be assembled
on a particular today, arrive at the factory early that
morning, no earlier - no later. This helps to minimize
manufacturing costs as JIT stocks take up little space,
minimize stock-holding and virtually eliminate the risks
of obsolete or damaged stock. Because JIT manufacturers
hold stock for a very short time, they are able to
conserve substantial cash. JIT is a good model to strive
for as it embraces all the principles of prudent stock
management.
The key
issue for a business is to identify the fast and slow
stock movers with the objectives of establishing optimum
stock levels for each category and, thereby, minimize
the cash tied up in stocks. Factors to be considered
when determining optimum stock levels include:
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What are the projected sales of
each product? |
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How widely available are raw
materials, components etc.? |
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How long does it take for
delivery by suppliers? |
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Can you remove slow movers from
your product range without compromising best
sellers? |
Remember that stock sitting
on shelves for long periods of time ties up money which
is not working for you. For better stock control, try
the following:
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Review the effectiveness of
existing purchasing and inventory systems.
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Know the stock turn for all major
items of inventory. |
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Apply tight controls to the
significant few items and simplify controls
for the trivial many. |
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Sell off outdated or slow moving
merchandise - it gets more difficult to sell the
longer you keep it. |
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Consider having part of your
product outsourced to another manufacturer
rather than make it yourself.
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Review your security procedures
to ensure that no stock "is going out the back
door !" |
Higher than necessary stock
levels tie up cash and cost more in insurance,
accommodation costs and interest charges.
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