Optimising stock management and pricing in your business
For many food and agri-businesses, managing stock levels and product pricing can feel overwhelming, particularly during times of fluctuating supplier prices and tight margins. While some companies might think annual stocktakes are sufficient, the reality is effective stock management and pricing is an ongoing process that directly impacts profitability, cash flow, and overall efficiency.
Andrew Brolly, Fractional CFO in ifac’s food and agribusiness consulting team outlines how you can enhance your approach:
Accurate stock counts matter
Maintaining accurate stock counts is essential - not just to confirm inventory but also to reveal underlying issues such as damage, theft, mis-invoicing, or waste. Regular and systematic stocktaking can also identify slow-moving or obsolete products/ inputs, enabling you to make informed decisions on stock levels, thus reducing costs and improving cash flow.
For instance, a dairy business consistently running low on packaging materials for some SKUs may realise, upon regular inventory checks, that supply levels aren't aligned with production schedules. By identifying and rectifying these discrepancies early, the business avoids costly downtime and lost sales opportunities.
Respond quickly to supplier price changes
A proactive approach to managing supplier price increases can safeguard your profit margins. Rather than reactively adjusting your prices, appoint a dedicated team member responsible for consistently monitoring supplier costs. This ensures quick adjustments in product pricing or supplier negotiations, preserving your desired margins.
Consider a bakery experiencing frequent flour price increases. By closely monitoring ingredient costs, they can swiftly renegotiate contracts or explore alternative suppliers, ensuring their profitability remains stable without compromising product quality.
Comprehensive product costing
Accurately costing your products is fundamental. Each product should be reviewed regularly, accounting for ingredient or material costs, direct labour, packaging, and overheads like utilities and rent. Utilising comprehensive costing tools - such as the ifac Excel-based product costing calculator - can greatly simplify this process. Ensuring your product pricing accurately reflects your actual costs is crucial for sustained profitability.
A vegetable grower who is undertaking some packing or processing, previously unaware of the full cost implications of labour and packaging, might find they're undercharging for their produce. Adjusting their pricing model to reflect actual costs ensures healthier margins and greater business sustainability.
Ensure invoice accuracy
For businesses in the food and agriculture sectors, accurate invoicing is crucial, particularly when dealing with daily, variable, or short-notice orders. Centralising order management and invoicing processes helps eliminate errors, reduces disputes, improves cash flow, and ensures profitability is accurately reflected in your financial statements.
For example, a meat processing business fulfilling varied daily orders can significantly reduce administrative errors by consolidating its ordering system, ensuring customers receive accurate invoices every time, enhancing both client satisfaction and cash flow.
Dynamic pricing strategy
Rather than relying solely on one method, such as cost-plus pricing, your pricing strategy should be dynamic and responsive, considering market value, competitor positioning, and the value perceived by customers. Evaluate:
Market positioning: Is your product premium, niche, or commodity-based?
Competitor analysis: Where does your product sit in terms of quality, price, and appeal compared to competitors?
Gross margin targets: Are current margins sufficient for your desired returns after covering all costs?
A premium artisan cheese producer, understanding their market position clearly, can confidently price above mass-market competitors, emphasising superior quality, sustainable practices, and product origin as key differentiators.
Conclusion
Effective stock management and pricing practices require regular attention, detailed costing, and proactive strategies to respond to market dynamics. By integrating these steps into your business routine, you’ll find improved profit margins, reduced waste, and stronger long-term sustainability for your food and agri-business.
