| When times get hard and 2008 has all the hallmarks of | | | | resources and improving liquidity without reducing sales. |
| being a difficult financial year control over cash flow is | | | | Commercially, minimum stock levels are not always |
| critical. The best defence in these days of the credit | | | | prudent. Advantage has to be taken of bargains, |
| crunch is to introduce and monitor cash flow liquidity at | | | | volume discounts and the risks of stock shortages but |
| the earliest stage of which stock levels and inventory | | | | these decisions should always be taken based upon |
| control can be crucial elements. | | | | the financial advantages of over stocking outweighing |
| Larger businesses have accountants producing | | | | the cost of financing that stock. High stock values |
| financial information who also review and monitor all | | | | affect cash flow. |
| major financial influences within the business. Smaller | | | | Sales policy can also have a strong influence on stock |
| businesses often do not have these finance details | | | | levels and should be managed with a view not just to |
| and financial controls and put themselves at risk since | | | | achieving maximum sales but also to minimise the |
| as the credit crunch tightens the businesses that are | | | | business financial investment in working capital. Sales |
| most at risk are those which fail to manage their | | | | can achieve this by directing policy towards a higher |
| liquidity until it is too late. | | | | turnover of goods, selling goods bought at bargain |
| Major significant areas where businesses produce or | | | | prices faster and clearing slow moving items. |
| purchase goods for resale are the stock levels. | | | | Sales policy can be directed to move goods faster |
| Examine each area and typr of stores categories | | | | when such items have been obtained at lower prices |
| such as work in progress and raw materials to ensure | | | | but often in higher volumes to take advantage of the |
| both minimum stock levels are always present but | | | | cheaper price but only by also selling such items |
| excess stock levels are reduced at all stages. | | | | quickly can cash flow and liquidity be protected. |
| All stock has to be financed and funded from either | | | | Every business has slow moving items and products |
| the working capital of the business or external funding. | | | | that become obsolete. Such items are using valuable |
| High stock levels and the extent to which those stock | | | | cash resources required in a credit crunch and turning |
| levels are funded externally is a consideration while if | | | | such stock into cash benefits the business and |
| the stock is funded internally and has no financing cost | | | | provides additional funding for more profitable items. |
| to the business then hogh stock levels are fine if they | | | | Delivery policy affects stock levels and might be |
| have resulted from high buying discounts. When the | | | | reviewed. Delivering faster and perhaps outsourcing |
| value of stock has to be financed then it is important | | | | the delivery function can get the goods to the clients |
| the stock levels are managed to use up the minimum | | | | faster. That reduces the stock levels and should result |
| financial resources. | | | | in cash being received faster as the customers can be |
| Stock management is not just about reducing the | | | | invoiced earlier improving cash flow. |
| volume but is about always having just enough for the | | | | Retail businesses often have limited policies of stock |
| level of sales without stock shortages. Businesses | | | | quantities other than filling the shelves while retaining a |
| employing accountants set a stock policy while this | | | | back room full of goods which are not available for |
| duty is left to the business owner in small businesses. | | | | sale until displayed. Every stock item in the back room |
| The first step would be to carry out a stock audit | | | | is costing money while sitting there. When stock is |
| through a physical stocktaking and produce financial | | | | purchased at low prices or can be sold before the |
| statistics of the sales volume for each item in the | | | | next shipment then the cost is of course justified. |
| stores. Where appropriate the accounting system | | | | Every different type of business has its own inventory |
| adopted should produce easily accessible stock figures | | | | requirements with many different factors being |
| so the situation can be constantly monitored. | | | | applicable. The important message is not what should |
| A monitoring system even if rudimentary is important | | | | be done about this item or that item but the fact that |
| and can provide early warning of abnormal losses | | | | there is an overall stock policy appropriate to the type |
| through wastage and even theft. Valuable stock | | | | of business to enable the business to function at |
| especially with a potential resale value should be kept | | | | maximum volume with minimum financial investment in |
| separately, protected and access restricted. | | | | stock. |
| Armed with the stock levels and turnover figures | | | | Reviewing stock and inventory policy can reduce the |
| policies can then be developed to manage the stock | | | | cash flow and working capital requirements of |
| investment by initially eliminating or reducing purchase | | | | business. Better cash flow and liquidity improves buying |
| orders for those items over stocked and increasing | | | | policy by being less restrictive enabling advantage to |
| the stock levels of those items under stocked to | | | | be taken of market conditions and offers as they arise |
| maintain maximum sales volume by eliminating | | | | to increase overall profitability. |
| shortages. | | | | A lack of inventory control can result in a fire sale |
| In addition other factors affecting stock levels include | | | | operation should cash flow and liquidity be so strained |
| purchase order quantities and delivery schedules and | | | | that the financial cash resources of the business run |
| reliability of the supply chain. By ordering less more | | | | out. Good stock control can avoid such drastic |
| frequently and arranging better delivery schedules | | | | measures. |
| stock quantities can be reduced saving valuable cash | | | | |