Why does the manufacturer always tell you that there is no stock?

By justchinait
 / 
January 9, 2021
 / 

When you ask Chinese suppliers if they have any in stock, they often reply, “no in stock, if necessary, you can make an order. ”. So why is it that manufacturers generally don’t stock up? We’re going to give you the answer.

China’s foreign trade factories are make-to-order, will not be prepared for large quantities of inventory.

Toyota calls inventory “the worst of all evils, ” says Toyota founder Kiichiro Toyoda. “inventory is the worst of all evils; zero inventory, no capital and no warehouse occupation are ideal for inventory management. ”.

Inventory risk

1. Capital occupation: The higher the inventory, the higher the capital cost. Inventory is money. It is capital that does not generate interest. A large amount of inventory may bring down an enterprise. When the company’s funds are tight, the inventory can only be dealt with at a low price or even at a loss.

2. Inventory will increase costs

① Cost of capital occupied by inventory

② Inventory management cost

③ Fixed storage costs (including costs for leasing, personnel, guaranteeing storage conditions, etc.)

④ Variable inventory costs (mainly refer to the costs associated with material handling)

3. Management Problems: Because of the existence of inventory, so that many problems exposed in a timely manner, which often lead to many management problems, for example, cover up the frequent quality problems, when the yield anomalies, a natural way is to increase the volume of production and work-in-process, covering up a series of problems in the production process.

4. Customer needs: foreign customers tend to customize the product, the product requirements are inconsistent, so the factory can not stock.

5. The price of raw materials fluctuates greatly. If the price of raw materials in the market drops after factory A prepare a large amount of inventory. Then other factories will lower the unit price of the product, and the price reduction of the A factory will cause its own profits or even a loss, and the products will not be sold unless the price is reduced.

6. For products with poor sales, the company naturally does not dare to stock up more. What if there is a backlog of stocks and cannot be sold?

But for some products, the factory will have a modest amount of inventory.

1. Seasonal consumer goods. For seasonal consumer goods, the factory will be ready before the arrival of the peak season adequate supply. Mainly for some e-commerce customers to provide convenience.

2. Products with good sales throughout the year. The factory has long-term and stable customers and does not worry that the products will become sluggish inventory. However, factories usually only keep a small amount of inventory. In case the customer’s sales of this product decline, there is also the risk of sluggish inventory.

If a customer asks the supplier to prepare inventory for it, the supplier usually signs a contract with the customer, and the customer promises to consume all the inventory. If it is not used up, the customer will purchase it all back.

In short, stock preparation is too risky for the factory, and most of the factory orders are customized orders, so most factories choose not to stock up.

A case of a Chinese factory:

Boss Qian found that although the company’s sales scale has increased, after calculations, the company’s profits have not increased substantially along with the increase in orders. So which link ate up the profits of the company?

Had it not been for this comprehensive inventory of the company, Boss Qian would not have known that there were so many expired goods, materials, and packaging materials in the company’s warehouse. Finally, these expired materials can only be scrapped. It was all bought with money, but it didn’t make the most of it.

This is because Boss Qian didn’t pay enough attention to the inventory of goods and raw materials, and did not deal with it early when the goods were overstocked or sold poorly. It seemed that he saved a small amount of money, but actually lost a lot of money. Because these backlogs not only occupy the company’s liquidity, but also because of the backlog, occupying the warehouse position increases the management burden of the company, which is really not cost-effective.

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