My friend, Mike Glover, has told me many times, “Cash is cash and everything else is something else.”

That may seem like an odd quote for an inventory management blog, but if you are like most inventory intensive companies, much of your cash is tied up in inventory.  The good news is that with a disciplined approach to inventory control and an analytic review of your sales and stocking level you should be able to put some of it in the bank.

Before you begin, make sure you have an accounting system that allows you adequate control of inventory, provides accurate sales, cost of goods and inventory valuation data and can reliably recommend reorder quantities.  If not, buying more effective software may be worth the money.  Even in the current economy, many companies are investing in software to improve productivity and financial performance.

DCV’s readers haven’t been sitting idly by as the nation slips further into recession-they’re taking action in response to a rapidly deteriorating economy.

These actions have included putting projects on hold and laying off workers, while at the same time investing in equipment and software that will boost productivity in their distribution operations.

- James A Cooke, Special Report, “Ready for the Storm,” DCVelocity, Jan 2009

There are several ways to turn inventory into cash.

Turning Inventory into Cash
  • Review the stocking level for each product and reset the minimum stocking level and/ or reorder point to reflect the service level you want to achieve.
  • For products that may be sourced from multiple suppliers, evaluate the lead time, purchase price and shipping costs for the best mix to reduce investment without adverse profit effect.
  • For slow moving items consider asking the supplier to drop-ship directly to your customer thereby eliminating local inventory.
  • Evaluate putting rarely sold items on a special order basis.
  • For fast moving items the supplier may be willing to ship product on consignment.

If you have a significant inventory value on your balance sheet even a small percentage reduction can put a large amount of cash in your bank account.  It will take creativity and, above all else, discipline in your inventory control procedures … but that’s a topic for another day.

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