Too much cash is sitting in stock
See whether working capital is absorbed by excess or poorly planned stock.
01 · What is usually happening?
The business buys more than it uses because it is afraid of running out, and because larger lots are cheaper per unit. The shelves look reassuring and the bank balance does not.
Interest on borrowing quietly cancels the saving from the bulk rate.
The question people usually ask“Where is our cash?”
The more useful question“How much is in stock, and how much of that do we truly need?”
02 · Common causes
- 01Safety stock is set high everywhere, not by importance
- 02Bulk discounts are taken without checking use
- 03Fear after a past shortage
- 04No view of cash locked in each item
- 05Slow items are not reviewed
- 06Purchase is measured on price, not on cash tied up
03 · What to check now0 of 6 checked
04 · What good looks like
- 01Stock value and days of cover are known each month.
- 02Safety stock is higher for critical items and lower for others.
- 03Bulk discounts are checked against the cost of cash.
- 04The top items by value are reviewed.
- 05Purchase is measured on cover and cash as well as price.
05 · Where this connects
This rarely stays in one department
What it can lead to: Cash that could pay suppliers or fund growth sits on shelves.
Start from a problem
Work flows left to right, top to bottomKEYMost important for manufacturing
These support every part of the business
Problem
Too much cash is sitting in stock
Usually connected to
How it spreads
- Inventory
What it can lead to: Cash that could pay suppliers or fund growth sits on shelves.
lamplamp could show cash held in stock by item and by group.
Related guidesWhy ERP stock and physical stock stop matching
08 · lamp
lamp could keep this moving
lamp is not available yet. These are things it is being built to do.
- lamp could show cash held in stock by item and by group.
- lamp could compare a bulk discount with the cost of holding.
- lamp could point out items bought well above their use.
- lamp could report days of cover monthly.
Does your business handle this differently?Tell us what we have missed: a cause, a check, or a better way of handling it.
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