Tracking and managing your stock levels
David Hewitt:
Welcome to Westcourts Master class series. We’re tracking and managing stock levels today, Adam, aren’t we?
Adam Stannett:
Yes we are, Dave.
David Hewitt:
Why is that important for a small business?
Adam Stannett:
Small business, generally speaking, depending on what business you’re in, inventory can be your second biggest cost behind labor. That’s going to lock up a lot of your cash.
David Hewitt:
Cash is king at the end of the day. If you’re managing a cafe or you’re managing a hospitality group, there can be a lot of stock and you need to know what that balance is every day, don’t you? That’s a cost, it’s expensive and you have outlets.
Adam Stannett:
You have other things you need to pay. It locks up and cash flow quite a bit. You really need to be making sure you’re only holding enough. The whole principle of just-in-time inventory, so you get the inventory when you need it and you’re not holding too much. It’s not sitting on your shelf waiting to expire, and also it’s not taking up shelf space for more profitable and quickly turned over products. The last thing you want to do is have half you warehouse full of something that you sell one of a month, and then you got basically no space for something that you’re selling 10 a month of.
David Hewitt:
That is correct. You don’t want to have, as we talked about just-in-time, you don’t want to have less than you need, because if you have repeating customers that need that product and you don’t have it, then they might go elsewhere. You could lose important clients. If you have too much stock, you’re carrying 10 widgets, when you only need two, then you’re locking up cash and that could be used to invest in other parts of the business, new machinery, or pay for other bills, basically. We want to make sure that we’re checking stock regularly. Having a program that integrates and gives you good dashboard reporting, gives you peace of mind at the end of the day, making sure that these are our stock levels, this is the percentage that we want to have of these at these certain items. That way we’re not doing a stock take every six months and being like, “We’ve got 50 bags of coffee in the back, that’d be haven’t used properly because we haven’t been tracking ourselves.”
Adam Stannett:
That just leads to either having to throw it out, not getting any recovery on it, or selling it in at heavily discounted prices. Nobody really wants that.
David Hewitt:
That’s why it’s good when the items come in, making sure they track, making sure you’re recording properly and having the first items that go in are the first ones that come out, so you don’t keep pushing stuff-
Adam Stannett:
Into the back?
David Hewitt:
Into the shelves and then pull out the ones at the front. The ones at the back go off.
Adam Stannett:
Go off and that’s when you have your shrinkage with your waste. That’s another key point for inventory management, making sure you’re not chucking stuff out. That is literally chucking money on the floor. You don’t want to be doing that one, either. Another good key point for inventory management and reporting is you can actually identify the product mix properly. You can actually see which items are profitable and you can actually start pushing and driving sales through those channels, so then you actually make it a more profitable business, because you actually know what people want.
David Hewitt:
Yes. It’s kind of similar to the 80-20 rule. 80% of profit is coming from 20% of your stock. Making sure that that is identified at the end of the day. That can be categorized into inventory that’s highly profitable, just profitable or making money. Your high cost, medium cost, low cost, making sure that you’re tracking certain stock left of certain items.
Adam Stannett:
And just getting that mix right, so you do remain profitable.
David Hewitt:
Instead of having expensive, small, medium, all in together, just making sure that it’s soloed out.
Adam Stannett:
Occasionally, you will need something you’re going to make a loss on, because they buy that item that you might make a loss on, but then they’ll go and buy five other items in the highly profitable category. Sometimes it is just to get people through the door and that’s okay. Obviously, you don’t want to just be selling those items.
David Hewitt:
Yeah, definitely. We find a lot of clients don’t take the time to invest in this area. This is a huge area that can make a good 5%-10% difference to the bottom line at the end of the day keeping on top of that. I know it can be difficult. I know it’s time consuming. No one wants to undertake regular stock takes and everyone leads a busy life. You finish work at five and then you have to do a two hour stock take and the kids are screaming at you. It’s not fun, but having that software, having those items, which should make that a lot quicker, a lot faster. You do the investment at the start, get the right mix in place, then there will be rewards in the long term.
Adam Stannett:
Yeah, definitely. Depending on what point of sale system you use, Square has that functionality to set up. You can actually do stock takes through there if you want to, so you can pull out your tablet, your iPad, whatever you’re running Square through, and you can just do a stock take at the end of the night. When you get something coming, you just punch the inventory in and it will start tracking it for you as well. If you’re already using that, you don’t have to get another add-on. If you’re using Xero, they have tracked inventory. It’s a bit more cumbersome, but the functionality is there if you don’t want to go and tack on an extra add-on.
David Hewitt:
Excellent. Thanks, Adam.
Adam Stannett:
Thanks, Dave. Thanks guys.
David Hewitt:
Cheers.
