For suppliers and manufacturing companies alike the
efficient management of stock is a vital element of their business.
In many cases business failures can be traced back to the inability
of a company to turn its stock back into cash within an acceptable time frame.
It is worth noting the costs associated with carrying stock:
Holding stock ties up working capital with otherwise could
be used for other purposes therefore it has an opportunity cost.
All stock being held incurs storage costs such as rent and
other utilities. Insurance especially for high value goods also is an expensive
add-on.
If goods are being funded via a Bank overdraft or loan this
may well inhibit the company’s ability to finance other activities as Banks are
reluctant to extend terms.
There is always the danger that stock can become obsolescent
or in the case of perishable products deteriorate and become a write off.
The only way to ensure that a company keeps track of this
area of exposure is by constant monitoring of stock levels and focussing on
unusual or irregular patterns in the movement of stock.
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