Use Metrics to Motivate Excess Stock Reduction

Regularly comparing your excess stock value to the stock reduction goal will ensure you are shrinking excess stock and avoiding new excesses

The financial custodians of your business are complaining that the investment in inventory is too high. Cash flow is tight, there isn’t significant ROI, warehouse space is limited – whatever the reason, you are tasked to bring the investment in inventory down.

It is quite easy to do. Simply order less and gradually the investment will reduce. Unfortunately, this may also risk losing sales, as ordering less of the items that are moving could cause stock-outs. We have already addressed the stock-out crisis and want to avoid that as much as possible.

So where to start?

Simple! Firstly, identify which items have excess stock. By definition, any item carrying more stock than that item’s maximum level would be identified as an excess stock item. Note that obsolete items would have a maximum stock level of zero. The amount of excess stock would be computed as the difference between the maximum stock level and the available stock. The associated excess stock value of all items identified as excess can be compared to a realistic stock reduction goal.

Now you have a powerful metric! No matter how painful it is, make it visible.

Regularly compare your excess stock value to the stock reduction goal to ensure that:

  • You are continually focussing on shrinking excess stock
  • Avoiding creating “new” excesses.

Prioritise! Which excess stock items to action?

With a few simple inputs, NETSTOCK can quickly present this information to you and the app makes it easy to monitor your progress.

Notice that five items are presented ranked by their excess value. These would be the worst offenders and if you could action their excess stock, it would make the largest impact on your business. Start working through items and consider what options you have to minimise the problem – depending on the item and circumstances, you may be able to redistribute it, return it, re-engineer it, or promote it. Although, in some cases, you might have to scrap it. And if there are any purchase orders for excess stock items, they should be investigated and either cancelled or delayed.

The hidden costs of excess

The point is that excess stock ties up investment – which could be better-used purchasing items that are stocking-out – and it adds to inefficiencies in your warehouse. Try to quantify the cost of unnecessary storage space and insurance, not to mention procedures like having to do stock counts of obsolete items. This might reveal that the “scrap it” option is not so bad!

MYOB integration – How does it work?

Import from MYOB

NETSTOCK connect to MYOB Exo and MYOB Advanced, whether on-premise or in cloud

Preview your data

Once connected and your data imported, NETSTOCK will highlight where you have too much or too little inventory

Start optimising

Start benefiting from optional levels, key inventory expectations and ideal purchase orders

Taking the next step

If any of the above sounds familiar to you, feel free to contact the Kilimanjaro Team who can help you overcome your challenges with stock management. Call us on 1300 857 464 today to chat with one of our MYOB specialists and we can discuss your unique business requirements.

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