Hidden Stock Issues

The question of stock control often, and necessarily begins with the preceding question of, “How much stock do we have at the moment”.

Issues of return on investment, “stock turns” and safety margins for critical items of production or supply should be understood by any company that holds stock.

The one time this is rationalised for many might be the annual and legally required stock take for accounting purposes. The once a year opportunity to get things just right – or is it.

Having arranged many stock takes across several companies ranging from SME’s with less than 10 employees up to international giants, this accepted process of correcting the levels once a year seems well established – and in almost all cases – for stock control purposes, often ineffective.

Stock Issues, what is the problem then?

In short – it is the exception that distorts the rule. These exceptions come in many forms. In some cases sub-assemblies of items are given a blanket value and separate identity code that does not drill down into the component parts. Maybe just about fine if you have a smooth manufacturing process and little work in progress (WIP).

Not so good if you have several thousand square feet of shop floor area permanently covered with what amounts to 30% of your overall inbound stock value tied in to WIP.

While valuing each sub assembly or part finished item does fulfill the legal need for accounting purposes. Not having those items correctly drilled down through the bill of material (BOM) they contain for stock control purposes can lead to some pretty large errors of magnitude.

There are also discrete areas within many businesses where blanket values are put on part finished or finished items for expediency. Returns, obsolete stock (with salvageable high value components), goods in transit, stock in test areas.
A test would be to consider if there are areas within your company where hidden stock mounts up. While I know contingency is often made to value these items for strict legal accounting purposes, is it possible that the stock control itself is an Achilles heel? If so what is the solution?

Author: Miss Inventory

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