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5 St eps To Supercharge Your St ock Management Cash Fl ow and Prof it The 5 big issues t o consider f or smart st ock management are 1 2 3 4 5 Having enough stock to deliver to customers needs Managing cost of stock handling Efficiency of stock management Stock management impact on cash flow Stock management impact on profit 1 Having Enough Stock to Deliver to Customers Needs Min max reorder levels will not only help you have enough stock when customers want to buy also help you avoid overstock which costs you precious cash and creates slow moving and obsolete stock Levels can be set in any basic stock management system Procurement Sales working together people buying stock in tend to work from historical information whereas those selling stock work on future requirements If you can get the two working better together this will help you to have the right amount of stock at the right time and avoid holding stock that won t be sold for a while consuming precious cashflow Procurement and sales can work together either by word of mouth or via systems to manage they can t be done in 1 isolation if you want to avoid slow moving and obsolete stock 1 Copyr igh t CFOon Call com au by CAD Par t n er s Pt y Lt d www CFOonCall com au
2 Managing Cost of Stock Management Buying Prices are obviously the start of good cost management Shopping around to seek best pricing and terms is essential as well as regularly checking best pricing of goods to ensure you maintain your best profit margin possible 2 1 St ockt akes count ing met hods Weight is a good method for a high volume of small items By item is appropriate for larger items Visual is useful for smaller items e g you know a 44 gallon drum holds 2 000 items and it s a quarter full so you have 500 items How often depends on the type of stock you re holding monthly tends to be a benchmark however this may not be practical for all businesses You could try a rotating stocktake where you split goods into say A B and C items A items get counted in month one B items get counted in month two C items get counted in month three At the end of each quarter you ve counted everything without too much operational disruption and resources required You then may want to also do a full stocktake at year end 1 2 Copyr igh t CFOon Call com au by CAD Par t n er s Pt y Lt d www CFOonCall com au
2 2 St ock Securit y This is vital to avoid theft and wastage It depends on the value of items as to how you handle security Lesser value items can be kept in an unsecured location i e in an unlocked place within business premises Higher value items can be kept in a more secure environment that is locked with access by only authorized personnel Preferably access should be by more than one person to minimize theft and collusion in fraud You may also want to consider security cameras Shrink wrapping helps to avoid disappearance of goods in transit and in store 3 Efficiency of Stock Management 3 1 St ock l ocat ion Onsite is the way many businesses keep stock as it s easily available for customers and staff to handle This method comes with costs that may eat up much of the profit margin Outsourcing is a way that more businesses are going nowadays It saves a business dealing with something that isn t its core business and economies of scale can make it cheaper than onsite stock holding It s worth doing some analysis to compare costs It could mean big cost savings on premises It s often referred to as fulfillment The key question to be asked is will delivery service level to customers be maintained if outsourced Will it work in with the business model Location is important to avoid delays 1 3 Copyr igh t CFOon Call com au by CAD Par t n er s Pt y Lt d www CFOonCall com au
Consignment stock may be appropriate whereby you hold stock from a supplier and only pay for it when it s sold This has obvious benefits for cashflow as you only pay when the customer pays you for the goods 3 2 Measuring and l abel ing Essential to good stock management Do you separate items by weight number of boxes or items Good labeling ensures you get the right goods into stock and send the right ones out to customers Barcodes speed things up with a computerized system and serial number tracking is required if you have perishable items 3 3 Syst ems f or managing st ock Computerised stock management provides better information because you ve entered data into the system every step of the way i e when good are delivered received into stock put on shelves distributed or used in manufacturing This means you can get a report on each step of the process i e what stock is held what has been distributed to whom and what was used in manufacturing 1 4 Copyr igh t CFOon Call com au by CAD Par t n er s Pt y Lt d www CFOonCall com au
Computerised stock management saves time because you only have to deal with information once and it s much quicker and safer than manual systems Cloud based systems are the best because data is secure and you don t have to do backups Computerised stock management reduces costs due to less time needed to handle data 3 4 Report ing You need to know where stock is for reporting purposes You need to know how much you ve got in order to make decisions about stock holding levels Where should we cut reduce order less You can see from a report how long stock has been held and therefore which items need to be cut or reduced 3 5 Picking packing dist ribut ion shipping Your regularity of orders will dictate how you pick pack and dispatch goods Think about how you can minimize staff time to do this to save time and money It may be that some customers are happy with fortnightly deliveries rather than weekly This could create a 50 saving in shipping costs 1 5 Copyr igh t CFOon Call com au by CAD Par t n er s Pt y Lt d www CFOonCall com au
4 Stock Management and Impact on Cashflow Slow moving obsolete stock try to think of this as dollars piled up on the stockroom floor All of the above information will help you to avoid slow and obsolete stock Try to think of innovative ways to get rid of it Try selling it on eBay Gumtree or directly via social media It may be painful to sell stuff at a discount but it creates funds to buy other quicker moving or in demand items An easy way to measure stock handling efficiency is to measure your stock holding days i e the numbers of days on average you are holding all of your stock The way to calculate this is Exampl e Stock on hand Cost of goods for year Time period 80 000 700 000 x 365 80 000 700 000 365 days 42 days In this example stock is being held on average for 42 days If you could find ways to reduce the number of days stock is held the impact on profit and cash flow could be significant 1 6 Copyr igh t CFOon Call com au by CAD Par t n er s Pt y Lt d www CFOonCall com au
5 Stock Management Impact on Profit Every aspect of stock management has an impact on profit e g Enough stock when customers want to buy so they don t go elsewhere to buy Having enough stock to fulfill future needs but not too much that could become obsolete or slow moving Buying price needs to be right to ensure a good profit margin Stocktakes and security are vital to avoid loss of stock which is a big cost and impact on profit Location of stock can have a big impact on profit do some analysis to compare methods e g onsite outsourced consignment Good labeling to avoid mistakes in dispatch and returns On line systems save time and money Reporting provides information upon which to make good decisions about stock holding and purchasing Pick pack and dispatch most efficiently for cost savings on staff time and freight Cash tied up in slow moving or obsolete stock costs you money e g cash available to buy more profitable items and interest on cash tied up if borrowing It may be a good time to find a good part time or Virtual CFO to review and modernise your stock management for better profitability For advice on any business f inancial issue f eel f ree t o cal l us on Aust 1300 36 24 36 1 NZ 0800 180 400 7 Copyr igh t CFOon Call com au by CAD Par t n er s Pt y Lt d www CFOonCall com au
