4 tips to avoid excess stock and improve your cash flow situation

“I often get the question from entrepreneurs how they can save on their stock.” This is how Meine Brueker, Optiply Customer Success Manager, begins his story. He is in daily conversation with entrepreneurs and/or purchasers about their stock situation. What Meine experiences a lot: “Companies often have excess stock without even realising it.”

How does excess stock affect your cash flow situation?

Meine explains: “Especially for smaller companies, excess stock is often an invisible problem. If you do not notice a downward trend in your stock, the stock level can quickly rise to a level that exceeds customer demand.” The big problem with excess stock is that it negatively affects cash flow and can put pressure on the spending capability of – especially smaller – companies. Meine clarifies: “If your company has products that move slowly, you have to get rid of them. With Optiply we often make an overview for how many ‘years’ a customer has in stock. The outcome sometimes scares entrepreneurs, because it is possible that they have stock for the next two years.”

How do you avoid excess stock?

Meine has a lot of conversations with Optiply users about their stock levels. “I send my customers an analysis that states what the stock level is. For example, if that has increased significantly, I flag that and this leads to a conversation with the customer about how we can approach reducing their stock.” Meine states that his solutions focus on the purchasing side of the business: “We do not advise a customer on sales strategies. Every situation is different, of course, but in principle we always have four tips for our customers to help them to avoid building up excess stock, and to save money on purchasing and holding stock.”

1. Shorten your purchasing cycle

Purchase more often, but in smaller volumes, so that over time you reduce your stock level. By shortening your purchasing cycle, you are more flexible with changes in the supply chain.

2. Lower a stock category in value

Categorise your stock with an ABC-analysis. The A category contains products with a high impact on your revenue and the B and C categories contain slower moving products. Buy less of C products, so that the stock of this category decreases in value.

3. Work with smaller stock levels

Aim for minimum stock levels. Or, if the demand for the type of product allows it, phase out a product and make sure it is only available via backorder.

4. Adjust stock holding costs within Optiply

Within the Optiply App you can choose to adjust the stock holding costs, for example if your rent per square metre increases. If you set these costs higher, the algorithm will provide you with purchasing advice to achieve a lower stock volume in order to balance out the increase in holding costs.

Automation vs. Excess Stock

“To be honest, I also see that customers continue to order, despite our much lower purchasing advice”, says Meine. “Sometimes this is due to a mandatory minimum purchase from a supplier. Or because companies want to guarantee a fast delivery to the customer for every product.” In many cases, the sector and supply chain in which the company operates determines whether there is room for movement. “Is direct delivery the standard or can you stretch the customer delivery time?” It is one of the considerations if you want to work with a smaller stock level.

The role of automation can not be underestimated for Meine. “Many companies that do not use automation do not realise how many months or even years of future sales the products in stock cover and can not make an accurate analysis. However, a smart system such as Optiply shows both the purchasing and the sales side where you need to take action. This allows companies to reduce the excess stock within the warehouse, to save on stock holding costs and – ultimately – to improve the cash flow situation.”