Recently I’ve noticed my garage getting more and more full.
Upon closer analysis, it seems everything has a reason of some kind for being there.
There are tools which need to be there, car related stuff e.g. oil, screen wash, etc, and an ever increasing mound of junk heading for charity/schools/the dump, or to be used for some mystical future purpose that most likely will never come to fruition.
The reality is I need to be more ruthless clearing out the old crap.
It seems like the situation in my garage has something in common with the warehouses of some toy companies.
Of late we have been asked to help a number of clients to add new, reliable factories to their supplier base. Yet in a couple of cases, when we have done this the client has been reticent to actually place orders.
When we looked at reasons for this, in several cases it was due to full warehouses, over budget storage costs or too much money already tied up in inventory. Let’s be clear on one hugely critical truth – excess inventory literally kills toy companies, because it clogs up warehouse space, racks up storage costs and ties up cash.
Moreover clearing it under pressure at the last minute destroys margin/profit.
A number of times we have performed due diligence for clients looking to buy struggling toy companies, and in many cases those toy companies have inventory issues which have directly contributed to their demise.
If you look at the companies with the most robust risk management procedures i.e. the major corporate companies, they have ratios and measurable metrics for everything.
When it comes to inventory, these companies have stock holding targets for each month of the year, allowing for peak trading spikes, but creating rigid operating parameters for inventory.
In practical terms, and as a very rough rule of thumb, if your year-end stock holding is below ten per cent of your annual sales you are doing well, 15 per cent is par for most non corporate companies, and anything over 20 per cent is a problem which should be addressed. These objective measurements are in place to overcome all the lightweight reasons we have for keeping the ‘junk in the garage’ that loiters for spurious reasons.
There is no place for sentiment or dithering, clearing stock is critical to ensure the health and onward prosperity of your company.
So take a good look, does your ‘garage’ need emptying of junk ahead of the next selling cycle?