For warehouse managers, outages are a red line that shouldn’t be crossed. There is simply no excuse for stock-outs, and your customers are more likely to purchase from your competitors than to wait around for you to come up with a fix.
In an effort to avoid stock-outs, many manufacturing and distribution businesses opt for a blunt and costly solution: excess stock. The thinking is simple, and it’s not entirely wrong: if you have extra stock in your warehouse, you won’t be caught with an outage. While that’s usually true, it doesn’t take into account how much that excess stock damages your businesses and your profit margin.
The inventory experts at Sage Inventory Advisor, the premier inventory replenishment app from publisher NETSTOCK, have put together some interesting educational pieces on the problems of excess stock. The first key to understanding this problem is to get clarity and visibility into the excess you’re carrying.
Ask yourself how much capital is your business storing in excess. Think about all the extra costs that come along with that excess, too. Here’s a four-point checklist to understand your excess stock problem:
- First count how much capital is tied up in items that are stuck in your warehouse
- Then add the cost of the warehouse space required to house excess inventory
- Then add the insurance and spillage costs that are guaranteed
- Finally, add the amount of time that workers have to deal with all that extra stuff
When you add it all up, you’ll see how dramatically excess affects your business. The takeaway? Excess inventory kills your cash flow.
Your inventory is a key asset, and misusing that asset does nothing to help your business develop. Storing your capital in extra stock, which you keep just to avoid stock-outs, is preventing growth in your business.
The good news? There is a better way.
If you’re a Sage 100 user and you’re ready to move past the problems of stock-outs and excess, we recommend that you contact your Account Manager to take a look at Sage Inventory Advisor. It connects directly to your ERP to help you with managing stock levels, identifying problems before they become serious, and improving your forecasts. Also, check out our webcast, “How to Automate and Optimize Inventory“.