Cost of caution: Manufacturers’ ‘eye-opening’ stock levels

Beverage manufacturers had one of the lowest average stock positions, according to data analysis by Unleashed. Photo / 123rf

Manufacturers in New Zealand are holding an average of $215,097 worth of excess stock on hand in the wake of pandemic supply chain problems, with building and construction companies holding nearly double that.

Building and construction manufacturers held an average cash stock position of $392,797 above ideal levels, according to inventory management software company Unleashed.

It analysed more than 66,000 products across almost 400 New Zealand manufacturers, comparing their actual stock positions with the ideal amount.

“It’s a genuinely eye-opening number,” Unleashed head of product Jarrod Adam said.

“What we are seeing here, really, is the cost of caution: a dollar value that shows where firms are, against where they could be - while still doing business at the same levels.”

The energy and chemicals industry was the second-highest-stocked with an average $280,860 position, while beverage and food manufacturers held less excess, with about $119,000 and $72,300 respectively.

Josh Ambler, senior manager at accounting firm BDO, explained that varying industries had different inventory controls.

“Unlocking cash from surplus inventory is way simpler if you have a short cashflow cycle - meaning there’s a regular churn of goods in and out of a business,” Ambler said.

“For businesses with a slow cashflow cycle, ordering will take place at set times, or in higher volume to secure a good price.

“These companies may instead need to consider how they can move off excess stock before it comes obsolete.”