Make your stock management profitable
September 2023 - Stock management is an essential, but often unappreciated, part of business management. But intelligent management of your warehouse can give you a commercial advantage.
Storing and managing stock is expensive. In Belgium, the cost of stock for an average SME is estimated at 15 to 20 per cent of the financial value of the stock. In many cases, however, stock is essential. There are three reasons for this:
1. Fast delivery improves your service.
2. Buying in bulk reduces the price.
3. Environmental factors of all kinds have an impact on stock management strategy:
a. the production process: complex goods that are produced in several stages go into the warehouse to await the next stage in the process.
b. Cyclical stock: seasonal products, such as ice cream, are produced in advance and stored.
c. Speculative stock: this is additional stock that is stored with a view to making a profit (for example, in the event of a promotional action by a supplier).
How much stock should you keep?
The number of items you should stock in order to have a profitable inventory obviously depends on a great many factors, but the following rule of thumb should be borne in mind:
- For items with a low profit margin, a small amount of stock is advisable.
- For items with a high profit margin, a larger stock can be stored.
How much do stocks cost?
To determine the cost of stocks, we take the following elements into account:
- Price: the cost of capital associated with stock management (e.g. interest on bank loans) and business risk.
- Space: the cost of renting the warehouse, but also depreciation of the warehouse furniture, maintenance and energy costs, staff costs, etc.
- The risk factor: costs arising from the risk inherent in stock management. For example, goods in stock may age, go out of fashion or spoil, causing their selling price to fall. The total cost of stocks amounts to +/- 20 per cent.
Defining your stock management strategy: a question of balance
Effective stock management is about finding the right balance between service and cost. Companies need to assess what lead time is an achievable (and competitive) delivery time for their products and what percentage of their orders they want to deliver on time and in full (On Time, In Full or OTIF). It may be that for critical items, an OTIF percentage of 97 is desirable, but for products on the fringes of the range, a lower percentage is acceptable.
Automated stock management: efficient and error-free
- Automation reduces human error
Inventories carried out using a barcode scanner, for example, involve significantly fewer counting errors than manual inventories. Another advantage of automated counting is that stock can be examined several times a year.
year. Periodic counting gives a much better picture of stock variations, so the storekeeper can react much more quickly.
- Correct recording of inventory changes
ERP systems play a crucial role in the correct recording of inventory changes. They ensure that all flows of goods in and out of stock are covered and correctly processed. Barcodes or RFID systems offer a major advantage in this respect.
- Stock optimisation and forecasting
The inventory management software looks for trends in stock variations and, on this basis, proposes optimisations. The software then calculates accurate forecasts and anticipates changes in incoming and outgoing items. So there are no surprises (or empty shelves). What's more, stock optimisation has a positive impact on stock costs.
