Though it can be relative straightforward to look at your fixed costs (though not always easy to reduce them) it is often more difficult to get a clear view of your variable costs.
First of all, it is important to exactly know your existing stock levels before a decision can be made about the overall levels of stock you keep and whether you could look at reducing stock levels. An efficient stock control system is at the heart of financial control in a company. If the company doesn’t have an efficient stock control system and regular inventory review it may well be that out of date, damaged, unusable products are still on the inventory and yet should have been written off and thrown away. Just-in-time systems or lean manufacturing systems are often proposed as a way of managing stock by keeping only a relatively small amount of stock and ordering new stock just before it is needed. This system is not now particularly in favour as it adds considerable stress within the company, not to say the negative impact it has on suppliers. However, a decision should be taken as to how much time ahead the stock should be kept, which can then inform decisions about stock purchasing. It is not efficient to have two years worth of one component and only three weeks worth of another as it is clear which element will be a bottleneck. On the other hand keeping stock too far ahead may mean it becomes obsolete before it is used- designs may change and legislation may force changes.