Or let’s stock what we sell or is the warehouse big enough.
Why do we stock items that never seem to move from inventory?
Why do we have more stock than space in the warehouse?
Why does this happen?
Having the right stock to sell at the right time is a key requirement for most make to stock businesses – after all having stock that doesn’t move quickly means that money is tied up in inventory and means that cash flow within the business can be restricted.
- Having incorrect or out of date stock levels set on stock items so that manufacturing produce goods over and above what is required or you purchase goods from suppliers when they are not actually required
- Poor or incorrect lead times on purchased items
- Lack of communication between warehouse management and manufacturing/procurement over what can be stocked
- Sales providing incorrect forecasts of what they consider ‘good’ selling products
So having identified the causes, how can you address them?
Lead times on purchased stock items
Analyse purchase receipts from suppliers to see what actual receipt dates and times for delivery were compared with due dates. If suppliers are delivering on a regular basis before your required dates, it may time to review the lead times on stocked items. Having the following information to hand will lead to more informed purchasing.
- Which suppliers deliver before our required dates?
- Which suppliers deliver late?
- Do we have lead times on purchased items?
- How often are lead times reviewed?
Stock levels on inventory items
Review inventory usage over a period and analyse sales trends to see if your stock level settings are correct.
- Review slow moving stock. Minimum stock levels may have been set for a particular item based upon historical sales and maybe that item no longer sells.
- Review the process for setting stock levels. Stock levels may be reviewed periodically but situations change and the frequency may need to be reviewed.
- Manage stock rotation. If stock is used on a last in, first out basis, then new stock may be being stored when it isn’t really necessary.
- Manage inventory usage. Certain stock items may have a run on them over a period and the stock level was set to accommodate this but the stock levels are now incorrect.
- Review warehouse space. A common cause of complaint for warehouse managers is space required for stock is taken up with storage for other items.
Sales forecasts/ manufacturing forecasts
Review sales and manufacturing production schedules regularly with the required people in the business. Sales could be over forecasting, leading to over production or purchase of stock items. It could be that manufacturing set a minimum batch quantity and they make stock no matter what. The effect of this is that stock items are manufactured no matter what can be physically stocked.
Report and review
Be able to tell via dashboards current stock levels vs minimum/maximum stock levels, stock values, minimum order quantities and minimum batch quantities, which will help to identify areas where there are potential areas of concern for inventory control. Run regular reports on stock valuation and inventory usage to enable the business to see what is happening.
Having an integrated ERP solution which allows you to control the above will help to improve stock control and efficiency and improve profits through better procurement and stock management.
Posted by Steve Watson, Senior Consultant, Epicor