Answer these questions before you read on
Commit to an answer before you open each one. Together they show where the problem is.
1How many days of sales is sitting in your stock today?
If you don't know, you can't tell whether it's too much.
2Which 20% of items hold 80% of the stock value?
Those are the only items worth managing closely.
3What's the oldest item in your godown, and what is it really worth?
Dead stock is valued at cost in the books and at scrap in the market.
4Do your books, your stock statement and a physical count give the same number?
Our clients often find they don't.
5Why did you buy your last big lot?
If the answer is 'the price was good', check how long it will take to sell.
Every rupee of excess stock is a rupee your bank limit is paying interest on.
Measure stock in days, not rupees
Stock days = stock value ÷ cost of goods sold per day. Measure it by item and category. Compare with lead times: if an item arrives in 15 days, holding 90 days of it is 75 days of cash you didn't need to spend.
Find where the excess is
- Rank items by stock value (ABC): A items are 70–80% of value.
- For each A item, compare stock days with lead time and demand.
- List items with no movement in 90, 180 and 365 days.
- Check what's committed to orders versus free stock.
Want a CFO to work through your numbers?
Bring your figures to a free consultation with a senior CFO. No cost, no obligation.
Check that the records are right
- Count A items physically every month.
- Reconcile books, stock statement and physical count.
- Value at cost, or lower if the stock is worth less.
- Write down damaged and obsolete items.
Accurate stock also protects your bank limit:
Six businesses, six versions of the same problem
The same problem looks different in every industry. Pick the business closest to yours:
These are composite businesses with illustrative figures, built to show how the method works. They are not CFOSurge client results.
Distributor, ₹45 crore turnover
The numbers (₹ lakh, illustrative)
| Stock (₹ lakh) | 520 |
| Slow SKUs (₹ lakh) | 110 |
| Cash to free (₹ lakh) | 110 |
The diagnosis
A fifth of stock value is in slow SKUs.
The full solution, in order
- Return or liquidate slow SKUs.
- Reorder by demand.
- Review weekly.
Don't do this
- Ordering to principal targets.
Numbers to watch every month
- Stock days by principal
Component maker, ₹38 crore turnover
The numbers (₹ lakh, illustrative)
| Steel stock (days) | 120 |
| Lead time (days) | 15 |
| Excess days | 105 |
The diagnosis
105 days of steel is speculation, funded by the CC.
The full solution, in order
- Stage purchases monthly.
- Agree price contracts with suppliers.
- Align to schedules.
Don't do this
- Buying on price views.
Numbers to watch every month
- Raw material days
Garment exporter, ₹60 crore turnover
The numbers (₹ lakh, illustrative)
| Leftover and cancelled stock (₹ lakh) | 80 |
| Cash to free (₹ lakh) | 80 |
The diagnosis
Cancelled orders left stock no one is selling.
The full solution, in order
- Sell surplus to domestic buyers.
- Claim cancellation costs from buyers.
- Buy fabric to confirmed orders.
Don't do this
- Holding surplus hoping for a reorder.
Numbers to watch every month
- Surplus stock age
Chemicals maker, ₹80 crore turnover
The numbers (₹ lakh, illustrative)
| Near retest or expired (₹ lakh) | 65 |
| Rejected batches (₹ lakh) | 30 |
| Stock to correct (₹ lakh) | 95 |
The diagnosis
Overstated stock risks a stock-audit cut.
The full solution, in order
- Write down expired material.
- Rework or sell rejected batches.
- FEFO dispatch.
Don't do this
- Keeping expired stock on the statement.
Numbers to watch every month
- Stock by expiry
Contractor, ₹25 crore turnover
The numbers (₹ lakh, illustrative)
| Material at closed sites (₹ lakh) | 40 |
| Cash to free (₹ lakh) | 40 |
The diagnosis
Leftover material never comes back to the books.
The full solution, in order
- Recover and redeploy material.
- Track site stock monthly.
- Buy to project schedule.
Don't do this
- Writing off site stock.
Numbers to watch every month
- Site stock by project
IT services firm, ₹12 crore revenue
The numbers (₹ lakh, illustrative)
| Unused licences and hardware (₹ lakh) | 18 |
| Cash to free (₹ lakh) | 18 |
The diagnosis
The services version of excess stock.
The full solution, in order
- Cancel unused licences.
- Redeploy hardware.
- Buy on demand.
Don't do this
- Annual licences for peak headcount.
Numbers to watch every month
- Licence utilisation
Hover over a business for a preview (tap on a phone), then click to open the full case.
What to do this month
- Stop reordering slow items.
- Clear dead stock: sell, return, rework or scrap. It's cash today.
- Set reorder levels from demand and lead time for A items.
- Stage big purchases into deliveries.
- Ask suppliers for consignment or shorter lead times.
Keep stock lean every month
- Stock days by category in the MIS.
- Monthly count of A items.
- A list of slow and dead items reviewed monthly.
- Purchase approvals checked against stock days.
Mistakes to avoid
- Buying a year's stock for a small discount.
- Keeping dead stock on the books at cost.
- Reordering by habit.
- Different stock numbers for the books and the bank.
- Ignoring customer-specific stock that's no longer needed.
Official sources and guidance
Rules, rates and thresholds change. Check the current position at these official sources before acting.
- Reserve Bank of IndiaBanking, export realisation and MSME lending
ReferenceKey terms in plain English
4 terms
- Stock days
- Stock value divided by cost of goods sold per day.
- ABC analysis
- Ranking items by value so the few that matter most get the closest control.
- FEFO
- First expiry, first out.
- Reorder level
- The stock level at which you reorder, set from demand and lead time.
Questions owners also ask
How much stock should a business hold?
Enough to cover lead time plus a safety margin for demand swings, by item. Anything beyond that is cash you don't need to have spent.
What should I do with dead stock?
Sell, return, rework or scrap it, even at a loss. It's cash today, and it stops the stock statement being overstated.
Does stock affect my bank limit?
Yes. Paid-for stock supports drawing power, but inaccurate or obsolete stock can lead to cuts after a stock audit.
Want a CFO to work through this with you?
If you'd like your stock analysed and cash freed, A CFOSurge CFO can go through it with you using your actual numbers.
- Plans from ₹50,000 a month, fixed after a free assessment
- Free consultation with a senior CFO
- No cost, no obligation
- Pay nothing if you don't see value in the first 2 weeks