If you are a supplier of goods, the minimum level you hold of a product before you have to re-order it (minimum stock level) is an important piece of information for your business.
The consequence of setting this too low is obvious; you suddenly get an influx of orders for one of your products and you don’t have the stock to fulfil your customers requests. Never a good situation to be in as none of us like to let our customers down.
However, when we were consulting with one of our customers recently, we came across a situation where they had the OPPOSITE situation, their minimum stock levels were set too high!
The consequences of having these levels set too high aren’t very obvious when there are only a few products setup that way. However, when a lot have minimum stock levels that are over the top, it causes you to have an over-inflated stock valuation. When you think about it, in order to get this stock available, you actually have had to purchase it, then pay your suppliers, all in which time your customers are not buying it from you, thus having a negative effect on your cash flow.
When we carry out training or meet customers for the first time to discuss their requirements, we will also carry out a quick business review before we start. It was in this process that we discovered these stock levels.
The moral to this story – balance on minimum stock levels is the key. Set too low and you can’t fulfil your customer order, set too high and you may struggle to keep the cash flow going.
Just from one conversation and one recommendation made, it potentially saved a lot of money for the client’s business. If you would like one of our Sage Accredited Specialists to attend your premises to see how we can add value to your business just contact us.
Arrange a quick face to face chat to see if we can improve the way your business works?