For company that sells goods, stocks can be profitable but sometimes inflict a financial lost. Don’t you think it is annoying when you want to buy something from a department store but they run out of stocks? You probably have to cancel your dinner menu and looking for something that is available and ready stock.
Don’t you think it is also annoying to know that the instant noodle you bought is expired?
I learned about “Zero Stock” system during my previous job as a marketing manager for furniture export company (Rakabu Furniture). They faced a problem on how to manage the stock they had on the warehouse and how to sell them. From the list I knew that most of them were out of fashion and not preferable by buyers. Even there were a buyer who want to buy, but the price is too low. Normally for 1×40′ container, the price is about USD 9000-12000, but “stock container” sold on USD 3000. Can you imagine how much is the financial lost?
After studying the goods flow on the company, I knew that their biggest problem was on controlling order for sub-contractor (supplier). Here is the example: If buyer orders 40 Bed Sides, the Production Manager ordered more than 40 pcs. They said that the overbalance is for backup if the 40 pcs is rejected by buyer. As time goes by, this overbalance items are pile up in the warehouse and causing stocks and also stock problems.
Stock problems on furniture warehouse are:
- Wood Worm
- Surface Scratch
If the company can sell those items, they have to repair and maybe change the finishing colour as buyer request and of course sell in low price. Double punch !!!
Since furniture export company sells wood-made products, so it is NOT GOOD to store stocks. Wood can change tremendously under minor change of temperature. Wood moisture content (MC) is affected by weather. The more MC in the wood, make it easily get mildewed. Once the MC is raising, it can not be lowered only by draining it under the sun light. The wood that is already manufactured as a furniture products must be dried in the Kiln-Dry chamber. All of us know that when assembled furniture goes to Kiln-Dry the shape will change due to the shrinkage of the wood. Then the company has to repair it and of course more bill should be paid.
Controlling order to sub-contractor is the best way to avoid this stock problem. No overbalance. Order raw material as buyer orders’ quantity. Order 10 if buyer only want 10. The next question will be: How about if some of those items are rejected by buyer? The answers will be: Does the company have a Quality Control? Does the company allow buyer’s QC to do inspection? Does the company follow buyer’s required specification and requirements?
If yes, then what the company should afraid of?
To implement “Zero Stock” system, company needs to have a good Information System to handle customer orders, sub-contractor order, product inventory and anything related to the production. It is not cheap to invest in this area. If the company has IT infrastructure yet, it will need to build from the scratch. Not only on hardware and software investment, the brainwave of the human resources also need to be upgraded and this is not simple. Changing employees behaviour needs time.
Here is the step by step on implementing “Zero Stock” system:
- If the company has stock before, get rid of it. Sell with discount. Try to sell it on local market or buying agent if none of buyers want it. From my experience, there are a lot of buyers who prefer to buy “stock container” because the price is cheap. But sometimes they only want certain type of furniture that is sell-able in their market.
Once there is no stock on the warehouse, everything is back to normal just like when the company started the business.
- If the company has pending Proforma Invoice and already ordered to the sub-contractor, make sure that the quantity is the same as buyer’s order. If there is an overbalance, check the production on the sub-contractor. Ask them to stop produce the order if the “real” quantity is reached. If all orders are finished, take this as a risk that should not be repeated next time.
- If there are pending Proforma which are ordered yet, just produce like buyer’s order. No overbalance.
- Start implementing an Information System manually or electronically. By papers or software. The differences only between “manual” and “automatic”, “low” and “high” investment, and “hard” and “easy”. 😀
- Make sure that all people in the production department understand this policy and no one can override it.
- Make sure that QC checker are doing their job well. Ask buyer to send QC person if necessary to avoid item being rejected by buyer.
- Make sure that all goods ordered can be loaded to the container to avoid back order that can causes stock.
- Evaluate.. evaluate.. evaluate. Evaluating products, production process and cost of good sold helps marketing and the manager to plan a production and marketing strategy. Having a good Information System can help manager to get accurate data and make strategic decision.
The company I work for now, is starting to implement “zero stock” system and my responsibility is to provide Information Management System. During my past job as a freelance web developer, I found that most of furniture company in Solo did not have this. They know that they need this Information System, but did not want to invest in this area. Information Technology infrastructure is not a cost, but investment.
Want to create a Warehouse Information System? Click here for detail.