Poor stock control can cause serious cash flow issues. Your working capital could be tied up in excess stock while insufficient stock can make it impossible to supply customer demand. You could also face increased storage costs and product wastage. Here's how to manage stock levels
- Identify and list the different items you use and produce: raw materials, other consumables, spare parts and your own products.
- Establish who uses each stock item and who should be responsible for managing it.
- Focus your stock control efforts on critical items which are most important to your business and which must always be available.
- Analyse your usage of each item; note any seasonal variations.
- Identify the lead time for restocking each item and other options such as faster delivery for an additional cost or from a local supplier.
- Set a minimum stock level to cover your requirements over the delivery lead time.
- Assess the costs of holding stock, including financing, insurance and storage, and the risk of losses through deterioration or obsolescence.
- Calculate the most cost-effective order size, based on delivery costs, volume discounts, usage requirements and stockholding costs.
- Plan and organise your storage areas. Take into account environmental requirements (eg temperature and humidity), handling and safety (eg heavy items), accessibility to the most frequently required items, and security.
- Set up systems for receiving and issuing stock; ensure that perishable stock is properly rotated and the oldest stock is issued first.
- Consider whether inventory control software can save you time and money, and reduce wastage.
- Decide how you will check stock to determine reorder requirements (eg by counting, weighing or casual inspection) if you do not have an automated system, and how often this should happen.
- Periodically carry out a complete stock check; check items more frequently where you suspect problems (eg theft or excessive wastage).
- Periodically identify and dispose of excess or obsolete stock - for example, through special offers or simply by scrapping it.