UK manufacturers in line for £102k cash windfall through tighter stock control
UK manufacturers are dangerously overstocked and could enjoy an average cash windfall of £102,000 as they recover from last year’s overstocking crisis according to new research released today.
The Cashflow and Overstock report, by inventory management software provider Unleashed, analysed 381,000 products, ingredients and components stocked by over 1,800 firms across the UK, North America, Australia & New Zealand.
Jarrod Adam, head of product at Unleashed, said: “Firms last year were forced to stockpile in response to supply chain shocks. But that’s had serious cashflow impacts. Now the challenge for many is freeing up cashflow as economic conditions tighten – and the good news is the money is there, when you look closely at the numbers.”
The £102,000 figure from the report represents an average ‘overstock position’ for all UK manufacturers – the difference in value between optimum stock levels for each product, versus the actual value of stock held*.
The breakdown of figures for each industry were as follows:
|Sector||Average capital held in overstock (GBP)|
|Sport, Entertainment, Recreation||£152,870|
|Electrical and Electronic Components||£136,041|
|Furniture, Fixtures, Home Furnishing||£122,786|
|Health, Medical Supplies and Equipment||£116,934|
|IT Products and Services||£107,434|
|Industrial Machinery, Raw Material and Equipment||£102,415|
|Clothing, Footwear, Accessories||£86,223|
|Beverages (alcoholic and non-alcoholic)||£47,515|
“It’s a genuinely eye-opening number,” says Adam. “What we’re seeing here, really, is the cost of caution: a value in pounds that shows where firms are, against where they could be – while still doing business at the same levels.”
The figures will be good news for many UK businesses, especially those looking to improve the health of balance sheets ahead of the new financial year. However, industry experts are cautioning that the savings won’t apply to all.
Commenting on the figures, Phil Oakley, MD of systems integration specialists Outserve, said: “I think it will vary, from business to business, and those with quicker stock turnover will realise the cash quicker. So they could make small changes to their purchasing cycle where they’re only a month or two ahead of themselves, giving themselves a bit of a breather to get their stock at the right limits rather than over-stocking. Having that right limit just allows them to slow down their purchasing. So, within a month or two they could see that cash staying in their bank account rather than going out.
“If you’re on a longer cycle and you’ve got more in stock, then it’s going to take a bit longer for you to benefit. But there may be other benefits that you can look at, like selling some of the items that you’re overstocking, even if it’s not quite the margin you’d like, it’s getting cash back into the business. It’s freeing up warehouse space.
“Different businesses will have to see where they can adapt and where the benefits are. But I really do think for so many businesses there is ‘cash on the table’ that they could either keep in the bank or put to use.”
Circle One, UK surf brand and Unleashed customer, agrees with the findings, with its business director, James Trevelyan, forced to order blind amongst last year’s supply chain chaos.
“In terms of the overstocks, by the end of last year we were probably four times over what we’d expect our inventory to be at that point.
“This time around we were forced to order early. The factories in China were saying five or six months before, you need to order now, otherwise you’re not gonna get your slot. Now usually we’d have all the data on the table. I would get quite granular and then add on a bit more to the forecast of uplifting sales etc. It’s not really an agile lead time. You can’t go back and change this quantity so we had to draw a line in the sand in September.
“It does mean we are not getting twitchy about a late shipment or that we are going to miss the pre Easter period. We don’t have that worry, but a lot of our cash is tied up in that stock. However, we were fortunate in that Covid dealt our sector a good hand and that enabled us to boost our cash reserves, and use that cash to invest in more stock.”
Ultimately, Unleashed’s Jarrod Adam believes the findings will make a real difference for product businesses pressured by inflation and supply chain shocks. Everyone who needs to hold inventory has had a tough few years, he says – and most of it’s been out of their hands.
“It’s all about finding ways to control the controllables,” says Adam. “That can mean anything from improving internal efficiencies, to using a more granular, data-based approach to rebuying.”
The latter point is something he’s committed to deliver to his customers, by turning their business data into practical tools.
“We know that unlocking cashflow is a priority for our customers ahead of this new financial year” says Adam.
“As a software company, it’s on us to help them do that.”
For more information and for the full research, please visit: https://www.unleashedsoftware.com/blog/cash-flow-overstock-report