When stock become a liability South African company New era solutions is helping its clients to reduce stock. Working with their partners Epicor Software Corporation, New Era offers warehouse management systems to control the movement and storage of materials in a warehouse and process goods coming into the warehouse and leaving it. Warehouse management software, part of an ERP system, allows a company to manage its inventory and minimised so called ‘dead stock’. A manufacturing company buys raw materials and turns them into finished products. Each of these (materials and products) is stock includes the materials coming in, product at all stages of being finished, and the final products ready to be shipped. Stock is a major company asset and is usually the main source of company’s revenue. However, there are times when stock can become a liability: stock can generate revenue but it is also a cost. It costs money to keep it, as the warehouse needs security guards, electricity, there may be rent to pay, or payments on a building loan. IT online explains how stock can be liability. ‘As a distributor, the process of making money on goods does not begin when enter your warehouse; it only generates income when it leaves. While stock is waiting to be sold, it cost money to store it. The longer it stays in a warehouse, the less likely it is that it will be sold’. Eventually stock that sits long enough can be considered to be ‘dead’. At that point it becomes a liability. There are various ways of getting rid of dead stock. A company could sell it off cheaply, donate it to charity, try and return it to their supplier, bundle it with a new product to try to sell old and new together, or simply dump it. There are other gimmicks that could be used like ‘a free gift with every purchase’. According to New Era, the best way to deal with to deal with dead stock is to avoid it altogether. One cause of dead stock is in mishandling customer orders. Let’s say a customer wants a customized product – it could be as simple as wanting it to be blue when it’s usually red. Then the company buys in blue raw materials, manufacturers and ships the finished product to the customer, but they bought in too much material. Now they have blue stuff lying around in the warehouse, unable to use it to create a product, as only one customer wanted blue. The best way to avoid this is to use ERP software with warehouse management capabilities to accurately forecast exactly the materials that will be needed. ‘Best in class companies perform better as they are able to make more informed decisions based on accurate data’, says Stuart Scanlon, sales and marketing director at New Era. Recent research into small businesses only wants to implement ERP if they think it will integrate easily with existing systems with a quick implementation time. This isn’t usually what you get with ERP, which tend to bring with them great upheaval and change. Mr Scanlon says, ‘implementing a new ERP system is one of the most disruptive exercises a businesses can undertake and often emotions cloud what should be a logical decision’. 

3.1.1 List some of the costs associated with running a warehouse. (5) 

3.1.2 How does a warehouse management software help reduce dead stock? (5) 

3.1.3 How could a company decide at what point stock becomes dead stock? (5) 

3.1.4 Discuss how can companies deal with the disruption that implementing an ERP creates? (10)