The 6 rules to manage inventories and optimize WCR

WCR or working capital requirement is a critical indicator for any business that is subject to delays between making and receiving payments.

Trade and distribution activities are particularly concerned and should be more closely monitored. Management of customer and supplier debt is essential to the optimization of WCR but stock management is also a high impact parameter. Stock should be monitored in real time to prevent the tying up of goods and raw materials that could threaten cash flow.

You need to be particularly careful during periods of growth, when WCR can increase rapidly. The setting-up of stock control and management tools will enable you to keep track of changes in WCR. Here are measures that we recommend putting in place immediately.

6 stock management measures essential for WCR optimization

Avoid over-stocking and under-stocking: Overstocking increases capital requirements, ties up capital and causes cash flow problems, while under-stocking results in lost earnings and customer dissatisfaction. Neither of these situations is desirable for your business’s profitability.

Reduce restocking times to accelerate stock rotation: if you have a distribution business for example, be sure to send goods out to your customers as quickly as possible. You might even consider partial deliveries to avoid keeping items in stock for too long.

Reduce dormant stock: identify unsold stock and adopt destocking solutions or promotions to dispose of it as quickly as possible and thereby avoid unnecessary storage costs.

Reduce production times if you are a producer or manufacturer. The faster production the shorter the period between making and receiving payments, and hence the lower your outstanding debt.

Optimize purchasing: always try to find the best balance between the costs of the acquisition of orders and the costs of holding stock. By calculating the economic order quantity or EOQ, you minimize the total annual cost of your stock.

Try to move towards a just-in-time system: for example, adopt the reorder point method which enables you to set a minimum stock and trigger restocking as soon as the stock falls below this level.

Whatever the size of your business, if you need to hold stocks then it is essential to monitor them accurately and regularly in order to optimize their management.

Online software is now available that is easy to set up and intuitive to use, which can simplify and professionalize your stock management at a relatively low cost. Solutions such as erplain can help you to manage your WCR, optimize cash flow and improve profitability. The ball is in your court!

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