Stock holding and inflation
If your business processes materials or assembles goods for sale it will need to keep a stock of items to ensure that future sales can be met.
Ideally, stock levels should be kept to a minimum such that hard won cash reserves are not tied up unnecessarily. You will need to manage stocks to cover current production needs and consider supply issues – how long will it take to replace stock.
Innovation can throw a spanner in the best laid stock management plans. You may be left with redundant stock.
When prices are falling – in deflationary times – you will not want to hold excess stocks that could be replaced by lower cost items.
Alternatively, when prices are rising – in inflationary times – the opposite applies. You might benefit from investing in increasing stocks if prices for materials are rising, subject to redundancy issues. For example, if lower cost alternatives enter the market, you may be left with redundant stock or suffer reductions in your profit margins.
Maintaining stock levels is a constant play-off between working capital and profitability. Unfortunately, external factors – currently, inflation and supply delays – are playing havoc with stock management.
If your business is required to hold significant levels of stock and you are unsure how best to maximise the effective use of resources, please call. We can help you consider your options.
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