Every fifth item in stock could be unnecessary at a Swedish average company. This is shown in a new report from Optilon. For Sweden's 100 largest companies this has an impact of SEK 93 billion / EUR 8.7 billion - that could be invested in more growth promoting activities. The most unnecessary industry vertical is tech and life sciences, and the least unnecessary is industrial and natural resources.
Effective inventory management can have a major impact on a company’s profitability. A new report shows that the impact can be greater than previously anticipated. The Report of Unnecessities, which has studied Sweden’s 100 largest companies, shows that 22 percent of the inventory is redundant for a Swedish average company. This means that they have more goods in stock than they need. A product less in the warehouse does not only mean less tied up capital, but also less warehouse space, reduced distribution, and administration costs and obsolescence (when a product becomes outdated). By eliminating the unnecessary inventory with efficient inventory management, an average company among Sweden’s 100 largest companies could have acquired about SEK 1.2 billion.
“This shows what a blind spot inventory management is for Swedish companies today. It’s not just about having fewer goods in stock. By always having the right mix of goods, missed sales are greatly reduced, while taking up less storage space and reducing the risk of an item being outdated. It provides an efficiency recoil for the companies. They reduce costs while increasing revenue and freeing up capital.”
That a fifth of the inventory is unnecessary for Sweden’s 100 largest companies equals to an area, which is as large as 586 soccer fields or 151 IKEA warehouses – which is more than 50% of all IKEA Group’s stores. The report shows that with a more efficient inventory management, these companies could together have freed up SEK 93 billion / EUR 8.7 billion. A sum that could have been invested in areas that increase competitiveness and growth. This could be used to pay off loans, invest in R&D or hire more people. The sum equals to about 154,000 job opportunities, which is more than what Apple has employees.
“Effective inventory management is one of the single biggest actions a company can take to maximize its competitiveness. It simply ensures that resources are being used smartly.”
Most unnecessary stock is tied up in the tech and life science industry vertical. Companies in this industry could, with more efficient inventory management, be able to reduce their inventory by 33 percent, and the number of days a product is on the shelf with 21 days on average. From 63 to 42 days. The most effective industry vertical today is industry and natural resources, where more effective inventory management could free up working capital by 15 percent.