Cash Belongs in the Bank, Not in the Warehouse
I have a customer who cannot understand why our warehouse is so small. Our reluctance to hold months of raw material cover is similarly met with bemusement. But it is simple:
Cash belongs in the bank, not in the warehouse.
If we make the warehouse bigger there will be a danger that someone will put more stock/cash in it.
I remember a conversation with my colleague Karen Andrews, a Severn Delta stalwart, back in Jan 2004 during the whirlwind described in "You Can't Grow Your Way Out of a Hole 2.0":
"You are getting really good at just in time manufacturing" I complained "but can I have a little more just in time purchasing to go with it."
It was one of those moments when you see the light bulb go on. Sure enough stock came tumbling down in short order.
We don't always get this right and to be honest stocks are clmbing again at the moment but it is in my sights and will get dealt with.
It seems simple and natural but maybe its another instance of having to go there to come back. Repeat after me:
Stock is the enemy. Stock is the enemy. Stock is the enemy.
2 comments:
Clive, just have to tell a story from one of my first LBO's - in the 80s - of a can factory up north.
It used to have six times the number of employees in the good old manual days so we had some "space" left over, about 100'000 sqft no less! So vast that when some roof started leaking or a truck went through the floor we just moved the stock and let it rain.
In addition the firm had it's own procurement manager who did nothing but... buy raw materials.
We bought the thing at a rather low P/E (pre LBO days, it was called bootstrapping then), moved in and told the purchaser that all procurements was to be decided in a Monday morning meeting.
Every Monday we said "no" (without thinking), and in three months we had paid back all financing and purchase equity with no effect on production :)
Thanks for that Sig. Reminded me of an occasion in the old plant where we cohabited with our former parent for two and a half years. New holes opened in the roof every time it rained, but the roof was so old and unstable no external patching up was possible. No so bad on the Cote d'Azur but in Somerset... a local proverb says "if you can see the hills it is going to rain. If you can't it is already raining".
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