When we crunch the data we’ve collected, it shows that the typical value is a minimum of 17% of stock on hand.
We have unearthed many bits of valuable data from working with our clients and one piece that to us is a bit mad, is the level of stock held, that is non-moving, slow moving, or should be written off.
The bottom line is that it is the equivalent of cold hard cash sitting on a pallet in your warehouse. Picture that, a BIG pile of €50 notes all over your warehouse that you can’t make money from.
As an exercise, here are 5 things that you should have one of your employees (probably finance) do, so you can see if you have a problem or not:
- Pull a list of all the SKU’s you have from your system at the last stock take
- Get the number on hand and the value of each unit
- Run a report of the quantity of each SKU that you sold in the previous 12 months
- Simple calculation, divide the “number on hand” by “the number sold in the previous 12 months” for each SKU – this simple calculation gives you the Stock Turns
- Graph the results, here’s what that should look like
The above example is from one of our clients, their industry average is 8 – 12 turns per year. You can see that from a SKU perspective 56% are 4 turns or lower per year. At the individual item (unit) level, 58% are below 4 turns.
In simple terms if you hold €1m in stock, that equates to €170k, if you hold €500k the value is €85k. The head wreck and frustration is that it’s the equivalent of cash and you are funding it from sales and margin.
Think of it another way, if that €170k was Gross Profit then a sales rep would have to deliver €425k in sales to cover it.
You’ll hear any amount of excuses in a business to justify why “we need to keep the stock”, “We can’t sell it, if we don’t have it”. Very rarely do we find any solid justification, usually it’s because nobody thinks, “it’s their job”.
So in conclusion, that’s cold hard cash sitting on pallets in your warehouse.
The big question is, “Who else in your organisation is worrying about it?”, probably no one, but someone other than YOU should be.
Now could be the time to contact us at 059-91-00440 and we’ll go take care of it. Or Fill In The Form And We Can Schedule A Phone Call.