Continuing this series on winning strategies for business success our focus her is the effective management of inventory and work in progress.
The cost of holding raw materials, work in progress and finished product ready for sale is extremely high. Documented studies by many larger companies have demonstrated for example that annual stock holding costs can be between 25% and 40% of the value of that stock. In other words between $25,000 and $40,000 per year for every $100,000 worth of inventory held on site.
Now you may well be thinking that the cost is so high as to be difficult to believe. When we look at the various elements however the reality will be apparent:
The costs include:
- Heating and lighting of your premises.
– Storage space, equipment and mechanical stock handling.
– Damage and theft.
– Interest charges on any finance required.
– All occupancy costs, rent, rates and other premises service and utility charges.
To control this huge cost requires that management focus on making the production cycle from raw material into finished product for sale as short as possible. One way this can be achieved is the putting in place of just in time inventory management. Once considered the sole preserve of larger companies it is stressed that this is not so. If you own a small to medium manufacturing business introducing this one technique alone will save your business thousands of dollars a year and make a very significant contribution to your bottom line.