Time to free those funds tied up in your stocks and inventories by doing “just in time” production.
Q: I like stocking up on materials and supplies I need for shoe manufacturing operations. It gives me a feeling of confidence that I will always be ready for any unexpected order. And I take pride in working fast and not keeping any of my customers waiting. I also like the volume discounts I get from my suppliers.
Lately, however, I could not keep up with the stock levels I used to maintain. The cash inflow is no longer enough for that, ever since I began serving institutional clients who pay in post-dated checks. And here comes my friend telling me about the benefits of “just in time” production. What should I do?
— MIREN, Liliw, Laguna
A: There are advantages and disadvantages to stocking up. See whether one outweighs the other.
The advantages are obvious: prompt production and deliveries; bulk discounts; hedge against price inflation.
On the other hand, stocks tie up funds that may otherwise be more productively employed. This is precisely what you are experiencing right now. Moreover, more stocks imply high storage costs. If you rent warehouse space, calculate how much less space you will need to pay for if you reduced your stock levels. Also stocks take up space that can otherwise be used for production.
An ILO-PhilExport Manual urges SMEs like you to keep in mind that cutting down on stocks — whether in raw materials, consumables and other production supplies — gives entrepreneurs the following benefits:
* Reduces unproductive assets
* Lessens your working capital requirements
* Decreases your short-term obligations
* Reduces interest on borrowed funds
* Allows unproductive funds to be invested in more profitable activities
* Reduces overhead expenses
* Minimizes losses arising from pilferage, spoilage, and deterioration.
Yes, it is high time you freed those funds tied up in stocks and inventories. Listen to your friend: You will be better off doing “just in time” production.
Source:Philstar
Q: I like stocking up on materials and supplies I need for shoe manufacturing operations. It gives me a feeling of confidence that I will always be ready for any unexpected order. And I take pride in working fast and not keeping any of my customers waiting. I also like the volume discounts I get from my suppliers.
Lately, however, I could not keep up with the stock levels I used to maintain. The cash inflow is no longer enough for that, ever since I began serving institutional clients who pay in post-dated checks. And here comes my friend telling me about the benefits of “just in time” production. What should I do?
— MIREN, Liliw, Laguna
A: There are advantages and disadvantages to stocking up. See whether one outweighs the other.
The advantages are obvious: prompt production and deliveries; bulk discounts; hedge against price inflation.
On the other hand, stocks tie up funds that may otherwise be more productively employed. This is precisely what you are experiencing right now. Moreover, more stocks imply high storage costs. If you rent warehouse space, calculate how much less space you will need to pay for if you reduced your stock levels. Also stocks take up space that can otherwise be used for production.
An ILO-PhilExport Manual urges SMEs like you to keep in mind that cutting down on stocks — whether in raw materials, consumables and other production supplies — gives entrepreneurs the following benefits:
* Reduces unproductive assets
* Lessens your working capital requirements
* Decreases your short-term obligations
* Reduces interest on borrowed funds
* Allows unproductive funds to be invested in more profitable activities
* Reduces overhead expenses
* Minimizes losses arising from pilferage, spoilage, and deterioration.
Yes, it is high time you freed those funds tied up in stocks and inventories. Listen to your friend: You will be better off doing “just in time” production.
Source:Philstar
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