Stock management to save money

It's common for a stock take to be done only once or twice a year. All hands to the pumps, start counting and take a long time to do it.

Once you've finished, you'll realise you don't have half the stuff you thought you did, you've got no blue jumpers (when you sold three this morning) and you haven't sold the three thousand Showaddywaddy LPs you bought in 1984.

OK so I exaggerate. But stock management is rarely done to perfection.

Why stock management is important

Sitting on a large inventory of stock ties up cash. Every item on your shelves is money that could be in the bank. So a poor stock management strategy equates to a poor cash flow strategy, and we all know that poor cash flow management can lead to the destruction of an otherwise successful business.

Good stock management saves you money in a few critical ways:

Avoid spoilage - if you're selling products that have a shelf life there's a real chance it will go bad if you don't sell it in time.

Avoid dead stock - dead stock can't be sold. It died. It ceased to be. It is ex-stock! Dead stock is stock that's gone out of season, out of style or otherwise become irrelevant. (Like Del-Boy's Showaddywaddy LPs.

Saves money on storage costs - Warehousing is a variable cost. It can fluctuate depending on how much stock you have, so when you store too much product then storage costs can increase.

Stock management improves cash flow

Those Showaddywaddy LPs I keep going on about are something that you paid with for cash, and something that you are going to sell for cash. But whilst they are sitting in your warehouse they are definitely not cash. Unless you've got a very understanding landlord (or a big fan) your landlord is not going to accept your quarterly rent payment with 500 of them.

So any cash flow management strategy needs to factor in your stock management strategy.

Better stock management leads to better cash flow management.

Money spent on stock is money not spent on growth. Manage your stock and money wisely.

Set 'par' levels

Par levels are the minimum amount of product that you want to have on hand at all times. You can use ShopWired's stock alert app to automatically alert you when a product falls below the par level.

Par levels will vary from product to product, according to how quicky they sell and how long it takes to get the product back in stock from your supplier or manufacturing department.

Setting a par level for each of your products will systemise the process of ordering. Not only will it make decision making easier, it allows your staff to make decisions without input from your - they have clear rules to follow.

First in first out

Oldest stock should get sold first. In the same way that a pub restocks it's display fridges by putting the items with the longest expiry date at the back of the fridge, your warehouse should have the oldest items at the front.

This is vital if you're selling perishable products but also a good technique to practice for non-perishable products. If the same boxes are always sitting at the back of the shelf they're more likely to get worn out.

Manufacturers often change packaging design anyway and which of your customer's want to receive a box that's been at the back of your warehouse for the past 3 years.

Manage your relationships

Having a good relationship with your suppliers goes a long way. Minimum order quantities are often negotitable so don't be afraid to ask for a lower minimum so you don't have to carry as much inventory.

A good relationship is also about communication. Let your supplier know when you're expecting an increase in sales so they can adjust production. And it works two ways, make sure your supplier knows that you need to know when a product is running behind schedule so you can make alternative arrangements.

Contingency planning

What happens when:

• your sales spike unexpectedly
• you run into a cashflow shortfall and can't pay for a product you desperately need
• a miscalculation in stock means you don't have as much of a product as you thought you did
• a slow moving product takes up all your storage space
• your manufacturer discontinues your product without warning

Stock management is not planning for 'ifs', it's planning for 'whens'. Work out what risks your business has and plan for them. How will you react? What will you do?

Don't start working out the answers to stock management problems when they arise, work them out before they arise.

Prioritise

Some products are a breeze to manage. The truck comes, delivers them, and they fly off the shelves quicker than you can say Shawoddywoddy (sorry I had to get one more mention in before the end of the post!).

But other products aren't as easy to manage. Some products are very high value, but sell less frequently.

Items that are high value and that sell less frequently should be managed more intensively than low value high sales-frequency products.

Forecast

Forecasts aren't intended to be accurate predictions of demand. Nobody knows what's going to happen in the future. Are we going to have a good summer in the UK? Who knows. So you can't always plan for the future, but try to predict demand and manage your stock accordingly.

Here are a few things you can look at to try to predict demand:

• what are the trends in your market
• what were last year's sales during the same period
• what is this year's growth rate
• what guaranteed sales do you have from die-hard customers, contracts and subscriptions
• what does the overall economy look like? what's it predicted to be like this year and next?
• what are you and your suppliers' upcoming promotions
• what is your predicted ad spend

Consider drop shipping or outsourcing

Instead of storing your own stock, consider whether some of the products you sell can be dropshipped from your supplier. Or consider outstourcing your entire stock and warehouseing to a specialist company. They'll take care of a lot of the headaches for you.

Many suppliers offer dropshipping services that you might not be aware of. And if you're a good customer, they might be willing to accommodate your needs. Don't be afraid to ask.