Optimizing Working Capital By Managing Inventories

·  establish the proper stock control levels so as to  ensure that excessive stocks are never carried (and working capital thereby sacrificed) but that they never fall below the level at which they can be replenished before they run out.

Failing to maintain proper stock level will mean that working capital is tied up in the business.

Keeping levels to the minimum required for efficient operations will keep costs down. Stock control involves in many aspects like the controlling of buying, handling, storing, issuing, and recording stock.

Some of the major factors to consider when establishing the control levels are:

• working capital available and the cost of capital;
• average consumption or production requirements;
• reordering periods-the time between raising an order and receiving delivery of goods;
• storage space available;
• market conditions;
• economic order quantity (including discounts available for quantity);
• likely life of stock bearing in mind the possibility of loss through deterioration or obsolescence; and
• the cost of placing orders including generating and checking the necessary paperwork as well as physical checking and handling procedures.

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