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Ann Cumming

How excess stock kills your cash flow

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For businesses with inventory, keeping the right items on hand in the warehouse is usually job number one. Having the right stock at the right time is the only way to keep fill rates up, ensure customer satisfaction, and avoid painful stock-outs.

But in the process of creating a warehouse that can consistently fill orders, many businesses make a crucial mistake that kills their cash flow: they pile on excess stock.

Safety stock is key

A smarter, more optimized warehouse is built on a smart safety stock policy. There is a level, which often changes based on seasonality or other trends, that is the right amount of buffer stock to keep on hand. Anything beyond that level is excess stock.

A startling number of businesses use an inventory spreadsheet or their ERP to manage their stock levels. For businesses with essentially zero complexities in their business, these tools are just fine. But for businesses with more complicated and dynamic supply chains, these tools just won't work. And the key to understanding exactly how these tools fail can be found in the balance between safety stock and excess stock.

The old tools don't work

With an inventory spreadsheet, there's no way to identify excess stock that's currently in your warehouse. There's no way to implement a dynamic safety stock policy that establishes the correct levels for every item. There's no way to know if surplus orders are being made. There's no visibility.

In other words: using the wrong tools for inventory levels will lead to a more expensive and less profitable warehouse. Every item you have that's in excess is the real-world representation of your working capital trapped on a warehouse shelf, gathering dust. If you can minimize that excess, you can boost your profit margin on every sale you make. It's really that simple.

Using the right tool for inventory planning

Avoiding excess stock starts with the data you already have in your ERP. With the right tool in place to leverage that data and advanced supply chain algorithms, you can improve your ordering to make smarter decisions every single day.

Furthermore, the right tool will help you identify where you have excess stock so you can form a plan to reduce your costs. Some items could go to other subsidiary warehouses that need the stock. Some excess items might be perfect for a sale or promotion. Other items may have surplus orders on the way that you could cancel or delay to prevent additional excess.

The point here is that the right tool puts you in the driver's seat and gives you the visibility you need into your warehouse. Many businesses relying on a spreadsheet or some basic ERP functionality to manage stock levels do so because these tools are already on hand. What they don't realize is how many problems these tools cause and how these problems impact cash flow. What might seem like a financially prudent choice actually leads to higher costs (including numerous hidden costs that can be hard to quantify).

Drive more profit from your inventory

Don't let excess stock trap your working capital. You can action your excess and create smarter purchase orders with the right tool. NETSTOCK delivers the demand planning functionality you need to reduce excess and drive more profit from your inventory -- and it connects automatically with your ERP in the cloud.

With the NETSTOCK dashboard, you'll finally be in control of your inventory, not the other way around.

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