Improve Cash Flow by Analyzing Your Inventory

Best-in-class companies are focused on analyzing their current inventory positions and looking for opportunities to reduce inventory and improve cash flow. Rising interest rates and fears of an impending economic slowdown are prioritizing this effort.

Supply Chain Optimization leaders are adjusting to a “new normal” looking to reduce inventories after increasing inventory positions during Covid to prevent product shortages, cover the risks of supply chain disruptions, and stay ahead of anticipated future demand.

Most companies rely on their ERP system to determine future sales and proper inventory levels. Unfortunately ERP systems typically have elementary demand and inventory planning capabilities, use simplistic algorithms and processes, and don’t provide insights around excess inventory.

Reviewing the current inventory strategy and identifying poor inventory management processes by performing a “health check” can stop unnecessary cash outflow and ensure better inventory positions.

How can you tell if an inventory health check is right for your business?

You may benefit from an inventory health check if your business is experiencing issues with any of the following:

• Cash flow
• On-time deliveries
• Backorders
• Slow and non-moving inventory
• Tight warehouse space causing inefficiencies

Benefits of an Inventory Health Check

An inventory health check pairs data from an ERP system with sophisticated algorithms to optimize inventory levels in support of a desired service level. It looks at several years of sales data to analyze historical demand, seasonal variations, trends, and current inventory by SKU. It provides an inventory profile of what SKUs have excess (or insufficient) inventory to achieve optimum levels. When SKUs have insufficient inventory, the system takes that information and advises the team how much inventory to have on hand and when to reorder. It can also help identify underperforming SKUs.

Over time, putting in place a strategic inventory management plan and associated business processes will improve cash flow without sacrificing customer satisfaction or business profitability.