Manage Your Stock Like Cash
If you own a flooring business, you have stock that you need to manage as closely as you manage the cash in your bank account.
You might not be a traditional “stockist” in the sense of carrying carpet and vinyl to sell, but you will be a stockist when it comes to ancillary products, such as underlays, adhesives, bars, and the like. You will also carry products for jobs that are in progress. A good stock management process is essential to ensure your stock is not a source of profit leakage and to provide you with an up-to-date picture of your WIP, a potential sinkhole for your cash flow.
Regardless of whether you are a stockist or not, I have noticed that we don’t seem to value our stock as much as we do our cash. For example, we might be very comfortable having an installer remove a trim bar from our warehouse. If we were to see it happen, we would likely not even ask a question. However, if we saw that same installer take $20.00 out of our till, all sorts of alarms would go off in our heads.
Our stock is one of the most significant areas of loss in our businesses. We either don’t see it because we lack robust stock control processes, or we see it when we do a stock take, and we end up writing off stock that we don’t have.
Where does our stock go? In a perfect world, it would only be used for jobs that we have sold. In the real world, it is being used on all sorts of projects, some of them not ours. Sometimes we are the victims of theft. If we don’t have good stock management, then it will be easy for people to steal from us.
While dishonesty might be a factor, much of our shrinkage stems from an area that some people may view as somewhat grey. When your waged installers or contractors work on their own account using your underlay, smoothedge, bars, or adhesives, they will have various ways of rationalising what amounts to theft. Very likely, we turn a blind eye to it, but in doing so, we are incurring an expense that we can’t quantify.
Another contributing factor to shrinkage is the additional product required on a job. Perhaps the salesperson didn’t allow enough, or the installer made a mistake that required replacement product. These things happen, but they shouldn’t be invisible to us as business owners.
Allow me to suggest some rules to manage these situations:
1. Consumables should be under lock and key, and our warehouse should be subject to camera surveillance.
2. Nothing goes out of our warehouse without a picking ticket linking the product to a job.
3. Give our waged installers and contractors only the amount of product they need for the jobs they are doing today.
4. If something goes wrong on a job resulting in additional product being required, a further picking ticket is required to allow the product out of our warehouse.
This might seem draconian, but let’s think about it again as if our stock were actual cash:
1. Would we leave cash lying around our office with no reasonable security measures?
2. Would we allow people to take cash without some sort of documentation?
3. If we had reason to give out cash, would we give out more than was required?
4. If someone makes a mistake, do we allow them to access our cash at will to fix the mistake?
Why do we look at stock differently from cash?
We diligently reconcile our bank account. Why don’t we do the same for our stock?
Managing stock takes more effort than managing money in the bank, but that’s not a good reason not to take care of it. As business owners, we need to take the time to ensure that our stock is as secure as we can reasonably make it. Following the four rules stated above is a good start, but there is one more step: stocktaking.
Stocktaking is a painful exercise, but only because our warehouse management processes are poor and we conduct stocktakes irregularly.
If we take sensible steps to tighten up on our processes and then use a state-of-the-art stocktake system that doesn’t rely on screeds of paper and hours of work, then the dread we have of stock taking will be a thing of the past. With the right system, we can initiate rolling stock takes, meaning that over the course of a relatively short period, say three months, all our stock will be counted, effectively giving us four stock takes over the course of a year. This provides us with a much more accurate picture of our stock, allowing us to identify issues and errors when they are relatively fresh and more easily resolved.
If you are thinking of a stock take as a paper-based system that can take days just for the count and then further days and weeks to reconcile, you haven’t seen the Boost Stock Take app from RFMS. Boost Stock Take is a paperless system that enables staff to easily count existing stock, add found stock on the fly, and have the entire process centrally managed from a site that displays everything as it happens in real-time.
RFMS is a fully integrated management system designed to make flooring businesses more efficient and more profitable. We would be happy to demonstrate how RFMS can benefit your business.
Chris Ogden is a consultant and Managing Director of RFMS Australasia (rfmsANZ.com), a supplier of IT solutions specific to the flooring industry. Chris has an extensive background in all aspects of the flooring industry, and he can be contacted at cogden@rfmsanz.com.