Methods and concepts for Value Based Management (VBM)
Steps Ahead ... Stock Reduction Management
In our experience a lot of companies manage their stock positions rather on an "intuitive basis".
As a result most companies do not have an optimal stock value based related to the development of the turnover over time.
This is to be considered quite bad news as stock has to be:
- financed
- handled
- generates costs (warehousing, handling, insurance, etc.)(10-20% of stock value)
- actual because in some cases provisions have to be taken for old stock.
Beside this an important constraint for finding the optimal stock position is the delivery policy of the company
and the delivery reliability and performance.
Our goal is not only to reduce stock value but also to improve the stock composition to achieve a better delivery performance.
So what we do is in-depth analyses of:
- stock position and stock composition over time
- actual purchases and deliveries over time related to the development in stock positions
- production filosophy (on order, on stock, etc.)
- fast movers versus slow movers
- ABC Pareto Analyses (80/20) on contribution margin and contribution to turnover
- stock turnover analyses in days or weeks.
Then we define clear stock reduction goals and a stock reduction plan to achieve this.
As a thumb rule we experienced that a stock reduction target of 30-50% is possible in most companies.