How to manage your stock properly

Buy stock when it suits you, not the supplier

Many businesses buy when the sales representative calls in or if they are offered a discount. You should buy stock when it suits you and your needs, not those of your supplier. Discounts can be a big trap. Ask yourself why they are discounting. Do they know something you don’t? Is there a new product coming up that will supersede the sale item? You need to measure the cost of having that stock sitting around against the discount being offered. If it’s going to cause cashflow problems, perhaps it’s not worth it.
Invest in a stock management system

Stocktaking is a necessary evil. You need to check stock levels regularly, not only for tax purposes, but to know your profit levels.

There are literally thousands of stock management systems available which can reduce the need for manual stocktaking. These systems report on stock searching, stock receiving, bar-coding, special pricing, sales orders, picking and packing, dispatch register, order fulfillment, product specifications, stock usage and reordering requirements.

Obsolete stock can be a real hiding place for cash. It can be heartbreaking to have to sell items at a loss, but if they are going to sit there forever, you may as well turn them into working capital to spend on better selling items.

If you have good records you are also more likely to know just how much you are purchasing from suppliers. This puts you in a better bargaining position when it’s time to renegotiate.
Watch top performers

Finally, keep an eye on industry benchmarks. Good benchmarks should include stock days for the low, average and top performers in your industry. You will find the stock days of top performers are fewer than those of the others.

In a nutshell, shortening the length of time stock sits in your store room will free up working capital to spend on other things like advertising, salaries and expansion.

Has your business reaped the rewards of better stock management? What worked for you?