Chapter 2 – Financial Control – Rule your money
This is part of the ‘How to’ coaching series. An ongoing series of activities to make your business successful. Follow it step by step and see positive results as you develop a robust business model, set on a solid foundation.
Activity 35 – Inventories are monitored to ensure turnover with minimal financial outlay
Stock control, maybe not everyone’s favourite subject. You may see it as a necessary evil, but this is where money can be saved or lost.
Introduce a process, system into your business to monitor the turnover of your stock levels.
It is just as important to ensure you are not carrying too little stock as carrying too much.
One horror story that saw the demise of a large aircraft manufacturer comes to mind, from many years ago. The company produced military aircraft. A senior buyer thought it was a good idea to purchase the ejector seats as production began on a batch of aircraft. The initial financial savings appeared considerable.
Suffice to say, that was a bit simplistic. The ejector seat contains explosive devices to blow the seat out of the cockpit should the pilot decide it’s time to leave. These explosives are ‘lifed’. That means they can only be considered operational for a specific period of time. Also, there is an ongoing program of refurbishment and maintenance on the seats. As the aircraft would not be ready to have the ejector seats fitted for some time, the seats would require 3 or so services prior to use; and then they would be almost ready for replacement. All this without even making it into the aircraft, let alone flying.
This, and a few more significant purchasing errors brought the business down. It closed the business and made a large number of people redundant.
I’ve seen this in an SMe too. A ‘lifed’ product was purchased in a quantity that would last for 5 years, at the current supply rate. Only problem was that it went out of life in 2 years. To compound that issue, the supplier decided to sell directly to the public, at a rate cheaper than the SMe had purchased the product for in the first place. I suggested that client cut their losses and sell them at a reduced price that would see them off the shelves quickly. They decided to wait! In just over 2 years they threw away the lot! A loss of over £180000. Ouch!
The HowTo bit:
Build a stock management process and system, preferably automated. Introduce min/max and/or JIT (just in time) levels of supply. Ensure you monitor any ‘lifed’ items and also anything that might be ‘fashion’ driven. This way you will have invested the minimum of your operational cash into the business and have stock as and when it’s required.
If you would like to find out more details and would like some help introducing the process, Contact Us…