From time to time, in life, you may find yourself doing things that only you understand. You can’t really explain it to other people. This can happen when you decide to increase stock in your business even if you’re not going to make sales anytime soon.
You may predict that soon enough demand for your work or products will rise so, being smart, you get ready ahead of time. It could also be because the input you use in business is in high supply so the price is low, why not stock up? You may simply wish to use the extra money you have in the moment to buy in bulk and get discounts. These are just some of the decisions in keeping stock.
But it’s not always peachy. In fact life is a struggle (others say it’s about attaining happiness, hey this is not a philosophy blog). When you hold stock or inventory you incur costs that go with. There is the money in your face that you pay to maintain everything in store. For example, you’ll have to pay for transport every time you make the purchase. You also deal with the opportunity cost of using your working capital to buy stock instead of other things. Maybe you could have emailed us and advertised your stuff here *wink* to generate more awareness or make more sales. Anyway, it’s important to consider opportunity cost in every decision you make.
A way to reduce part of the cost of holding inventory is to negotiate better with your suppliers. If they offer you better prices or give you worthwhile additional services then the additional cost of keeping stock will not eat into your profit as much.
A second way is to know exactly how much stock you should acquire every time. We’ll show you the math behind that. For now, there are 5 other clever ways to reduce your cost of holding stock that you should know:
Get rid of old stuff
Every entrepreneur dreads dead stock. How do you feel when you have kept stock for so long and now simply can’t sell it to anybody? To prevent that from happening it’s advised you sell old stuff first. For example, if you sell Vegetables you can maintain quality and reduce wastage by selling old stock since the new stuff has a few days (or hours) before going bad. When it’s difficult to sell old stock you can offer discounts to clear it and get your hands on money.
Live by the day
If you are a planner, you may consider this crazy talk. What sort of person lives life without a plan B for their plan B? All that is being said is that when planning to hold stock, keep your timeframes short. You will reduce the risk of overstocking that many highly optimistic entrepreneurs end up enduring. It’s also just easier to manage less of things – even your president can’t do other things AND also fight corruption. He’s only one man, haha.
Sometimes the problems you experience are totally your fault. If you’re a manufacturer or a processor, you may pile up inventory by not finishing work fast. This will not minimize your cost of holding stock. Being effective and efficient plays a part in reducing business expenses. Now, working fast may not necessarily mean that you will make a sale either but it’s better to have your products ready for the market. Your mind will focus on sales rather than sales + production.
Use space better
An understated improvement that is slowly happening in Kenya is in warehousing. We need international standard warehouses to reduce supply chain costs. One attribute of these standards is literally raising the roof so goods are stacked vertically and take up less ground space. It’s the same kind of thinking you should have for your store. You may not afford to put up a new roof (there is cheap roofing) but you can improve security, clean the place and reduce clutter plus other such straightforward things.
Of course you have delegate duties like lifting arrivals to from the truck or pick up or motorbike to the storage area – unless you want to fix your nails again, I have no idea how that works. But delegating doesn’t mean that you reduce yourself to only a line of work, with regards to stock, while overly relying on updates from your employees. You have to audit, you have to know the inventory turnover, you have to explain forecasts to everyone. The reason is that all the bits of information in your business helps you arrive at better decisions even for other functions besides inventory.0