01 — Programme Outcome Map & Business Diagnostic
Programme: Inventory Management
1. What you will learn
In this lesson you will learn to turn a general wish for better stock control into three measurable ninety-day outcomes, to test with arithmetic whether a cash release target is actually reachable, and to run a diagnostic across the eight capabilities a stock system needs.
2. The idea explained
The wish that brings most owners to inventory management is a version of one sentence: there is too much money on the shelves and still the customer asks for something we do not have. That sentence contains two different outcomes, and they pull in opposite directions.
Releasing cash means holding less stock. Improving availability means holding more of the right stock. The only way both can improve together is by moving stock from items that do not sell to items that do, which is exactly what the ABC classification and the dead stock list exist to enable. So a good outcome map names both, with numbers, and accepts that the total stock value may not fall as much as hoped.
The arithmetic test is essential and frequently skipped. If you want to release a certain amount of cash, you must name where it comes from, source by source, and add the sources up. There are only three real sources in a small business: dead stock converted back to cash, usually at a loss; cycle stock reduced by ordering smaller quantities more often, which has an ongoing cost; and range reduction, meaning you stop carrying items altogether.
Each source has a limit and a price, and naming them stops you from setting a target that no combination of actions can reach.
The diagnostic runs across eight capabilities: count accuracy, SKU discipline and classification, reorder discipline, supplier lead time knowledge, goods receipt control, dead stock handling, measurement and review, and physical layout and storage. Rate each from one to five on evidence. Any capability at two or below is a constraint, and effort elsewhere will not relieve it.
Be honest about outcomes. Good stock control reliably releases some cash and reduces waste. It does not promise a particular figure, and a range that has accumulated over years will not be corrected in one quarter.
Apply it
3. How to apply it in your own business
Write two outcomes that pull against each other, one on cash and one on availability, so that neither can be improved by quietly damaging the other.
Then name the sources of the cash release with a figure against each, and add them. If the sum falls short of your target, reduce the target rather than inventing a source.
Run the eight-capability diagnostic and give the first month to the lowest two.
Worked example
4. Worked example
Anil wants to release one lakh fifty thousand rupees of cash from stock over ninety days while holding his service level at ninety-two per cent or better.
He names his sources. The first is dead stock: two hundred and sixty items worth one lakh forty-seven thousand rupees at cost. Realistically he expects to recover about half of that by discounting, returning what suppliers will take back, and bundling the rest, which is about seventy-three thousand five hundred rupees. He notes clearly that this is a recovery of cash and simultaneously a loss of about seventy-three thousand five hundred rupees against what he paid, because that money was spent long ago and only part of it is coming back.
The second source is range reduction in the C group. His eight hundred and seventy C items generate five lakh four thousand rupees of annual cost of goods while holding two lakh ten thousand rupees of stock, which is turns of five lakh four thousand divided by two lakh ten thousand, or about two point four times a year, against six times for the business as a whole. Cutting the slowest three hundred of those items, as they sell out rather than by discounting, he estimates will release about seventy thousand rupees over the quarter.
Adding the two gives seventy-three thousand five hundred plus seventy thousand, which is one lakh forty-three thousand five hundred rupees. That is short of his target of one lakh fifty thousand.
He has a choice: invent a third source, or move the target. He moves the target to one lakh forty thousand rupees, which his named sources can actually deliver, and writes the reasoning beside it. This is the entire value of the exercise. A target of one lakh fifty thousand with no named sources would have produced three months of vague effort and a disappointing review; a target of one lakh forty thousand with two named sources produces two specific work streams.
His third outcome is protective: service level must not fall below ninety-two per cent, measured by the counter tally, because the fastest way to release cash is to stop buying anything, and this outcome forbids that.
5. Common mistakes and how to fix them
The first mistake is setting a cash target with no named sources. Fix it by listing dead stock, cycle stock and range reduction with a figure against each, and reducing the target to what they sum to.
The second is treating dead stock recovery as a gain. Fix it by recording both the cash recovered and the loss against cost, so the lesson about how it accumulated is not lost.
The third is writing only a cash outcome. Fix it by pairing it with a protective service level outcome, since cash is trivially released by ceasing to buy.
The fourth is working on the capability you find interesting. Fix it by letting the diagnostic choose the first month.
Key takeaways
6. Board summary
The two outcomes owners want, less cash on the shelf and better availability, pull against each other and both must be written down. A cash release target must name its sources: dead stock recovered at a loss, cycle stock reduced at an ongoing cost, or range reduced. If the named sources fall short of the target, reduce the target rather than inventing a source. Always pair a cash outcome with a protective service level outcome, because cash is trivially released by ceasing to buy. Score eight capabilities on evidence and give the first month to the two lowest.
Check your understanding
7. Practice and self-check
Question one: Why do cash release and availability pull against each other? Answer: because releasing cash means holding less stock while availability means holding more of the right stock.
Question two: What are the three real sources of a cash release? Answer: dead stock converted back to cash, cycle stock reduced by ordering smaller quantities more often, and range reduction.
Question three: Dead stock of two lakh at cost recovered at forty per cent yields what? Answer: eighty thousand rupees of cash and a loss of one lakh twenty thousand against cost.
Question four: C items generate six lakh of cost of goods on two lakh forty thousand of stock. What are their turns? Answer: two and a half times a year.
Question five: Anil's two named sources come to one lakh forty-three thousand five hundred rupees. Why did he set the target at one lakh forty thousand? Answer: because a target must sit within what the named sources can actually deliver, with a little room, rather than above it.
Question six: What should you do when named sources fall short of the target? Answer: reduce the target and write the reasoning, rather than inventing a source.
Question seven: Why is a protective service level outcome necessary? Answer: because stock value can always be reduced by buying nothing, which would destroy the business while appearing to succeed.
Question eight: What does good stock control honestly promise? Answer: some released cash and less waste, with no particular figure, and no correction of years of accumulation within one quarter.