Taking stock

The most important thing when it comes to inventory in the context of working-capital management is simply to know what’s selling and what’s not, as excessive stocks can be a drain on the cash resource of your business, while insufficient stocks can result in lost sales.

Obviously, average stock-holding periods will be influenced by the nature of your business. A shop selling perishable goods might turn over its stock every few days, for example, while a car dealer – particularly in the current climate – would be much slower because of the higher prices involved.

In fact, a car dealer is a prime example of the type of business where stock management is key to good cash flow. In January, it was reported that new vehicle sales in Ireland had plummeted by 64pc in the past year. Andrew Feighery, principal at accounting practice at CGC Associates, notes that most car dealers have cut right back on their inventories since the recession hit. “You’ll notice very few cars in the forecourts. It doesn’t make financial sense to have cars sitting there when they depreciate in value by the day.”

Feighery recommends implementing what he calls “an ABC system” to manage your stock in the most efficient way. “Those items that are quick-moving are categorised as ‘A’; the ‘B’ items are moderate sellers; and ‘C’ stock are slow sellers. If you don’t categorise in this way, you’re just ordering goods for the sake of it.”

Stocktaking is essential, and Feighery advises doing it on a six-monthly basis. “The statutory norm is to stocktake on a yearly basis. Most companies do a stocktake at year end as routine and draw no real value out of it. However, if it’s used as a management tool, whereby you carry out an ABC analysis at the same time, there is real value to be gleaned.”

Another management tool coming into play now is technology to improve inventory management and cash flow. For example, the voice system developed by Heavey RF automates all aspects of warehouse management including electronic orders, which are automatically converted to speech and directed to the warehouse staff via a wireless network.

“A lot of warehouses are inefficient because they’re run on paper; the information people are using to make decisions is flawed because it’s not real time,” says Ciaran Lavelle, sales manager at Heavey RF.

“With the voice-recognition system you receive information that’s accurate up to a couple of seconds and this accuracy allows you to eliminate lost sales. Big customers such as Superquinn, Londis and Spar are accelerating the use of voice recognition in all warehouses to save them money.”

In retail one of the main things to bear in mind with stock management is to know your market and be conscious of what people actually want. “You may be offered a great deal on jeans, for example, but if the style is out of date, they’ll be sitting there a long time. With banks and overdrafts so aggressive now, it’s become even more important to manage stock activity. The turnover of an item and its lead time on the shelf is probably more important now than profitability,” says Feighery.

Taking the car-dealer example again, he says that in the current climate it’s not sensible to buy in a Ferrari on which you could potentially make €40,000, but which will sit there for six to nine months. The more prudent approach is to make €1,000 each on Nissan Micras and get your money back quickly. “It’s good to have a Ferrari in your shop when you can afford it, but volume of turnover is much more important now.”

Tips for better stock control

• Review the effectiveness of existing purchasing and inventory systems
• Know how long delivery of components from suppliers takes
• Apply tight controls to the significant few items and simple controls for the trivial many
• Sell off outdated or slow-moving merchandise – it gets harder to sell the longer you keep it
• Consider having part of your product outsourced to another manufacturer
• Review security procedures to make sure no stock is ‘going out the back door’
• Ensure the stock is properly protected and at the right temperature.

Case study

Movianto

Meeting the demands of a customer base that includes 1,100 pharmacies and 200 hospitals in Ireland means wholesaler, agent and distributor Movianto must control stock in the tightest way possible to optimise working-capital management.

The product range stocked in Movianto’s 66,000 sq ft warehouse space includes over-the-counter medicines, ethical pharmaceuticals, cosmetic and skincare products, photographic goods and veterinary products. Around 8,000 pallet positions of stock are held on any given day.

With branches in Dublin and Belfast, Movianto services over 80 manufacturers, including eight of the top 10 global players. A division of Cahill May Roberts, it provides customised services including warehousing, order and dispatch processing and related services such as financial organisation, distribution of product samples and a complete order tracking of all transactions.

“Due to the nature of the products and their use it’s imperative that stock is controlled and turned around in date sequence,” says Keith McCauley, head of information technology at Movianto. “Products are classified into categories. This is done so each product can be procured in line with its sales history.”

The stock value is considerable, so in Movianto’s business margins for error are practically non-existent and the warehouse systems must be accurate, up-to-date and reliable. With this in mind, Movianto decided to introduce a voice-enabled system developed by Heavey RF.

The software was developed around the various applications employed by Movianto, including: goods inwards, put-away, replenishment, order-picking, order-checking and dispatch, as well as stocktaking.

Some 40 voice terminals and headsets were installed at three Movianto warehouse sites in Chapelizod and Rathcoole in Dublin and Castlerea in Northern Ireland. All aspects of warehouse management are now automated, including electronic orders, which are automatically converted to speech and directed to the staff via a wireless network.

“Prior to introducing a voice-enabled system, we first identified that our existing paper-based system was inefficient, time-consuming and lacking the control that our business demands,” says McCauley. “We felt that voice would offer all the features of a conventional