Inventory - the stock of products you hold to make sales or use as input into a value added product you manufacture or produce, is the lifeblood of most small business.
Inventory Control (often known as Stock Control) is concerned with minimising the total cost of inventory whilst maintaining the highest levels of customer satisfaction and profitability possible.
This will often require a trade off between making the sale and satisfying the customer, and the costs of holding additional stock.
The investment in Safety Stock to ensure no sale "escapes" increases dramatically, and then becomes potentially "dead" or slow moving stock.
Here are several helpful steps designed to improve Inventory Control:
• Determine which stock items are the real movers.
• Calculate stock-turn rates regularly (Stock Turn = Cost Of Goods Sold/Average Stock Held) for total stock and for fast moving or high value stock.
• Higher Stock Turns = Higher Profits.
• Liquidate "dead" or slow moving stock, even at the expense of Gross Margins. Unsold stock held for long periods is worth next to nothing, regardless of how much it cost you in the first place.
• Know your customers and their likely buying patterns.
• Calculate your Gross Margins by Product Line regularly - at least quarterly.
• Concentrate your stock purchases on stock that turns regularly and has acceptable margins.
• Never buy additional stock just because of a special deal from the supplier. The additional holding costs will soon absorb any purchase cost savings.
• Update stock records regularly, at least quarterly, preferably more frequently.
• Carry out a physical stock take at least once per year, and reconcile with theoretical stock levels.
For more tips, contact Michael Syme, Kooyong Ridge Group on 0423 513 260.
View all articles by Michael Syme
For more tips, contact Michael Syme, Kooyong Ridge Group on 0423 513 260.