When Your Stock Becomes A Liability

When Your Stock Becomes A Liability.

Over the years, I have seen Entrepreneurs who are seemingly inventory rich and cash poor. Obviously from the Accounting point of view, Inventory is an asset but the challenges of too much inventory could make it become a liability!

With the appreciable technological advancement being experience globally, most markets are becoming more active in the e-world. So, for instance, a Publishing company sitting on large volumes of hardcopies may be sitting on a gun power! Because of the introduction of e-books and e- libraries and an increasing numbers of “Smart users/Customers”.

Furthermore, with the advent of Tower fans that have remote controls and could be synchronised with the User’s smart phone, it will be unwise to stock your warehouse with the traditional oscillating fans collecting dust, knowing fully well that one of the factors that causes a change in demand, is changes in taste and fashion.

In fact, sometimes in my working experience, because of the large volumes of stocks we had, we moved from one small warehouse to a bigger one and we were later confronted with a decision to move on to a much bigger warehouse or build a giant and purposeful warehouse at an enormous cost. All of these, because of the increasing volume of our stocks and the need to satisfy our customers’ demand but the top management was unwilling because of its cost implications.

At that point, it was disturbing to observe that sometimes holding cost of slow moving inventories could be higher than their prevailing market price and thus become a liability to the Enterprise!

Therefore, for the following reasons inventory could become a liability:

1.       When it reduces the liquidity of the enterprise. The more you stock up your inventory, the less liquid is the enterprise. The cash of the enterprise are trapped in stock and the company begins to have challenges in meeting its daily financial obligations.

2.       When it consumes either or both the physical and administrative resources of the enterprise. As the volume of stock increases, the top management may be compelled to secure a bigger warehouse and engage more security personnel to prevent frauds, pilferages or outright theft and this would have a direct consequent on the firm’s physical and administrative resources.

3.       When its value decreases as long as it stays in the warehouse. There are some items of stock whose value diminishes as they continue to sit in the warehouse, particularly the perishable items of stock. More so, inflation and other economic indices could also cause an unanticipated decrease in the value of stock idly sitting on the shelves in the warehouse.

For more on Inventory management call: 07088862700 & 09020002930.

BAR-CODES: MORE THAN THICK BLACK LINES

Osinachi, "did you know that it was with a total disbelieve that I left the new mega shopping mall down the road ? The Mall's manger declined to accept my well packaged chin-chin on the ground that they do not have bar codes and consequently cannot be accepted into their store. Please! tell me what business has a blind man with the moon? For God-sake, in what way are they going to support the SMEs?"

Smith, "I've severally warned you on why you need to do things differently and in compliance with modern trends. Regardless of the size of your business, it is imperative to do things in the most acceptable way!"

According to Wikipedia, a bar-code is an optical, machine-readable representation of data; the data usually describes something about the object that carries the bar-code.

The bar-code helps to identify a product and its price as well as other useful information when placed under a scanner. In-fact, the encoded information can only be read with the use of a scanner.

In the opening scenario,it is most likely that the mall operates a point-of-sales management, where the items in the Shopper's cart are scanned to identify their respective prices, in an attempt to generate an invoice/receipt by the sales attendant. Thus, it is practically impossible for the sales attendants to know all the prices of the hundreds of items in the mall. Therefore, bar-coding the items/products is absolutely necessary!

Other importance of bar coding are; 

1. It helps to track inventory- For example, it assists in placing a re-order. Most consumer goods are fast moving items and there is the need to replenish the stock as soon as possible to avoid stock-out.The bar code system helps to automatically identify low-level stocks and request for a reorder. 

2. Reduces alterations-when there is a price increase or decrease, this could be done without any form of alteration on the product or shelf.

3.It equally saves time and reduces error- bar code is of tremendous assistance when it comes to stock-taking. For instance, instead of engaging 10 inventory staff for stock-taking in a medium sized mall , with the aid of bar codes this could be reduced to 2 or 3 inventory staff.
Also, with bar codes the level of human error is reduced to the barest minimum.The bar codes are likely to have captured the opening stock and diminish same at every sale. Thus, have a greater tendency of accuracy.

4.It helps regulatory authorities- Sometimes, the regulatory authorities makes it mandatory for bar codes to be printed on products, particularly consumables and drugs as in the case of NAFDAC in Nigeria. This helps consumers to check some necessary details about the product and to combat counterfeits.


For more on Inventory Management & Consultancy,
Please call; 07088862700 or 09020002930

e-mail; definititudeconcept@gmail.com

STAGNANT INVENTORY: AN ITEM FOR SALES PROMOTION

Mr. Wazobia a seemingly successful Publisher, was recently seen complaining bitterly to his friend, "I have over ten thousand copies of a certain book title in my warehouse for almost half a decade and no single copy had been sold in the last three (3) years. The books are occupying a reasonable portion of my Warehouse and I'm ultimately worried about loosing my entire investment on this particular book".

Millions of people globally are in such predicament created by either over-stocking or stagnant inventory. Excess or stagnant Inventory is always a tricky thing to handle and if it is not well managed,the consequences can drastically affect the perpetual existence of the business.There is always that urge to wait and see it the items will sell to justify the initial investment.But chances are that is not going to happen. Each day that old inventory sits on the shelves, you are loosing money.

Whether you are selling these items for a profit, at cost or even at a loss, it is now time to clear that stagnant Inventory ! Embark on Sales Promotion.