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The Working Capital System · four modules that build on each other
01Working Capital Designyour inventory strategy02Integration Accelerator™the ERP connection03Order Steering™ordering rules for your purchasing04Managed Operationsongoing operations
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Stock types: how to calculate your excess stock.

The key points

  • Your inventory consists of three layers: cycle stock, safety stock and excess stock.
  • Only the excess stock is dispensable: dead capital with no contribution to supply capability.
  • As a rough rule: excess stock = actual stock value minus monthly consumption × target coverage.
  • In our project experience, grown assortments often hold 20 to 30% of the stock value in excess stock.

Which stock types are there?

On average half the order quantity. Arises from the rhythm of ordering and consuming. Works.

The deliberately held buffer against fluctuations. Works when it's dimensioned correctly.

Everything above that. Arisen from old forecasts, fear-driven orders and phase-out articles. Doesn't work.

How do you calculate your excess stock?

Per article, the excess stock is the difference between actual stock and target stock (safety stock plus half the order quantity). At assortment level, a rough estimate over the coverage is enough to start:

The target coverage depends on industry and lead times. For most trading and manufacturing companies we see, it lies between 1.5 and 3 months.

A rough estimate at assortment level. It gets article-precise only with classification and safety stocks per article, see the ABC/XYZ analysis.

Reducing excess stock doesn't mean an order freeze. A blanket freeze hits the fast movers first and ruins supply capability. It's reduced article by article: actively sell off phase-out articles, lower the order quantities of the slow movers, leave the fast movers untouched.

Keep reading

Inventory & Purchasing

ABC/XYZ analysis: a steerable assortment in 4 steps.

Inventory & Purchasing

Never out of stock again: automatic demand forecasts in EazyStock.

Inventory & Purchasing

From slow movers to fast movers: why you shouldn't procure every article the same way.

Inventory & Purchasing

Inventory forecasting: forecasting with fluctuating demand.

Inventory & Purchasing

Inventory optimisation in 3 steps: forecast, optimisation, procurement.

Inventory & Purchasing

Inventory planning: the second step in inventory management.

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