The stockholding conundrum
I’d be concerned about anyone who was in business and hadn’t grasped the implications of holding too much stock. Profitable enterprises can be brought to their knees by poorly managed cash flow. You could be sitting pretty with a full order book, but a full stockroom of parts could prevent you frompaying key suppliers, your utility bills, the man from the revenue, or your employees.
Carrying excessstock makes very little sense. It may make you feel affluent, but it needs insuring. It occupies floor space, and rent is rarely cheap. If it’s slow moving, it gathers dust, gets damaged or gets lost. It’s also prone to the insidious process of obsolescence. While it’s on your shelves, waiting for the occasional customer, its worth is dwindling. The market has moved on, tastes have changed, and new alternatives are in demand.
There’s another downside. You have to manage your inventory. It needs counting valuing, handling. It needs to be recorded, locatable, accessible and stored in appropriate conditions. But still, despite all the drawbacks, businesses find themselves falling into the excess stock trap time and time again.
The comfort of holding stock
It’s human to want to feel in control, and high levels of stock confer that feeling. They give you confidence that you can respond to an unexpected order without delay. They underpin the service agreements you may have in place with key customers. It’s comforting to stroll through a stockroom and know that everything you may need is in place. If a substantial order with a quick turnaround lands on your desk, you’ll have the resources you need to accept the businesses without the risk of failing to deliver.
Just like a full fridge at home, that bursting stockroom spells security and confidence and that’s why businesses keep on finding that their stock levels are climbing. We know we shouldn’t, but it happens over and again. So, what do we do about this conundrum?
High stock, low stock or efficiency?
I’d like to make a suggestion. Instead of focusing on high or low levels of inventory, focus on efficiency in your operation. It may be that an across the board low-stock policy adversely affects your customer service. If a business is seasonal for example, then it’s natural that stock levels may, by necessity, fluctuate throughout the year. If the market you operate in is unpredictable – where demand can soar or drop off a cliff in an instant – then look at the responsiveness in your supply chain. Look at the balance between how essential it is that you can supply Item A on next day delivery and the speed with which you can replenish your stock.
Let me use an example from the construction sector where adherence to timescales can be critical to a project’s success. A single missing component – an item with a value of just a few Euros – could result in substantial delays. The implications can be massive if plans have to be altered, leading to workers laid off, penalty clauses and all manner of strained client relationships. If stock reduction has been at the root of the problem, it seems obvious that no one has thought through the possible consequences.
That would be a greatpity because it is possible to have both carefully controlled stock levels and efficiency in a business. I know this because it’s a situation that Allied Profiles facilitates every day. We’re working with major systems houses to deliver the laminated ancillary products their customers – window and door fabricators, and suppliers of roofline products – need. We combine swift service with the benefit of small batch sizes, allowing the fabricators to deliver responsive customer service alongside extensive choice and minimal stock levels.
Low stock levels make sense, but like everything else,they need due consideration. If your supply chain is efficient and effective, cut the stock. If it isn’t and you’re holding the stockas a safety net, perhaps it’s the supply chain rather than the stock levels that needs examining.