Learn how to unlock cash in your inventory by increasing visibility across your supply chain. Reduce surplus stock, improve profitability and operational efficiency by optimizing inventory management processes. Find out how!
Are you tired of seeing your company’s cash tied up in inventory that just won’t move? While you understand the importance of balancing supply and demand, sometimes it can feel like a never-ending battle.
Recent bank failures like the collapse of Silicon Valley Bank, First Republic Bank and Signature Bank have highlighted the importance of having operating cash to keep businesses afloat. Inventory optimization and unlocking hidden cash can provide the capital needed to keep your business running smoothly in difficult economic times.
Why is inventory optimization important?
Inventory optimization is essential for businesses looking to remain competitive and keep up with demand and supply. Optimizing your inventory means investing the right amount of capital into the right products that take present and future demand into account, and minimize the risk of excess stock or stock-outs.
By reducing excess stock and freeing up cash, businesses can improve their cash flow and invest in other areas of their business.
- Increase profitability and improve customer satisfaction: When businesses optimize their inventory, they can manage their inventory levels more effectively and reduce inventory carrying costs. This, in turn, can increase profitability.
- Minimize stock-outs: Stock-outs can be costly, leading to lost sales, frustrated customers, and decreased brand loyalty. Inventory optimization can help businesses prevent stock-outs by ensuring they have the right level of inventory at all times.
- Enhance supply chain efficiency: Inventory optimization can help businesses better manage their supply chain, reducing the risk of stock-outs, minimizing lead times, and improving supplier relationships.
How to unlock cash in your inventory
Optimizing inventory will also help to improve a business’s financial performance. With access to more working capital, businesses can expand product lines, or invest more into the high-performing profitable products helping businesses to achieve their goals and drive sustainable growth.
The combination of rapid cost increases and risk of reduced consumer consumption from a global recession, create conditions that require greater attention to inventory management and demand planning, says Paul Allerhand, CFO of Netstock.
Here are three effective strategies for unlocking cash in your inventory:
1. ABC Classification
ABC Classification is a method of categorizing inventory based on its value and importance. By categorizing inventory into A, B, and C groups, businesses can more effectively manage their inventory and focus their attention on the items that generate the most revenue. A-items are the most important, while C-items are the least important. By focusing on the A-items, businesses can optimize their inventory and reduce the cost of carrying inventory. This, in turn, can free up cash that can be used in other areas of the business.
We can filter by Item Class (category), Item Classification, location, or even by the assigned Buyer so they can track their responsibilities and progress. The inventory benchmarks have been excellent for quickly evaluating trends to make actionable decisions, says Matt Kovarick, Purchasing Manager of Ryan’s Pet Supplies.
2. Selling obsolete, discontinued, damaged, or spoiled items
Another way to unlock hidden cash in your inventory is to sell “dead stock” items that are no longer selling. These items may be obsolete, discontinued, damaged, or spoiled. By liquidating these items, businesses can recoup some cash and free up space in their warehouses. There are various ways for selling dead stock, such as online marketplaces, liquidation sales, promotions, discounts and bulk auctions.
With the Netstock dashboard, I can quickly see stock-outs and potential stock-outs, which allows me to have a focused conversation with my sales team to determine what’s coming up and what else I need to consider when placing orders, explains Justin Comish, COO of Best Vinyl.
3. Re-evaluate supply chain financing and relationships
Supplier relationships can impact the inventory levels and cash flow of a business. By re-evaluating supplier relationships, businesses can negotiate better terms, reduce lead times, and improve delivery times. This can help businesses better manage their inventory levels, reduce stock-outs, and improve their cash flow.
Supply chain financing involves using the strength of your relationships with your suppliers to secure financing. This can involve negotiating longer payment terms with your suppliers, which can help free up cash flow in the short term. Alternatively, you can work with a third-party financing provider specializing in supply chain financing, which can provide funding based on your purchase orders or invoices.
Supplier lead times were always a guess and based on a supplier’s full line as opposed to individual items. It took tedious amounts of time to work out our orders each month, and I would need to go back and check every row to make sure that the calculated number made sense based on the three or 6-months sales trend, says Martin Reeves, Operations Manager of Keir Surgical.
The benefits of unlocking cash
Redistributing the cash that is unlocked from inventory can help you invest in other areas of your business, such as marketing or product development.
Ultimately, you’re able to make better operational decisions to boost business performance. Having a clear understanding of your inventory levels and turnover rates, you can make more informed decisions about purchasing, pricing, and product development. This can help you stay competitive in your industry and improve your bottom line.
When we started with Netstock in January 2022, we had $3,8 million in surplus orders. Eleven months later, I reduced that to under $1 million on 19 items. Additionally, our customer fill rate was 89.4%; we currently provide a 95% fill rate. We have been delighted, not only with the capabilities of the product but with the Netstock team as a whole, says Murray Tairney, Purchase Manager of Davey Textiles.
How can you improve inventory visibility?
Improving inventory visibility is crucial for unlocking hidden cash in your inventory. By having a complete view of inventory at all times, businesses can make informed decisions about procurement, production, and fulfillment, which can help reduce costs, improve efficiency, and deliver better customer service.
Invest in technology that allows you to work off a dashboard where you can quickly see what’s happening with your inventory. This allows you to make informed decisions about which items to order and when to order them.
Implement demand forecasting. Forecasting customer demand can help you anticipate inventory needs and plan for future demand. By using historical sales data and other market trends, you can predict which items are likely to sell and adjust inventory levels accordingly. This can help reduce stock-outs and overstocking, improve inventory turnover, and increase visibility into your inventory levels.
Keeping all inventory data in a centralized location, such as a cloud-based inventory management system, can improve visibility. This ensures everyone in the business has access to the same up-to-date information, reducing errors caused by outdated or incomplete information and enable real-time decision-making.
Improving department collaboration and sharing data and insights with sales and finance can help you better understand the financial impact of inventory decisions.
With Netstock’s Predictive Planning Suite™, businesses can achieve better inventory visibility, collaborate more effectively with suppliers and their finance department, and implement strategies that unlock hidden cash. By choosing Netstock, businesses can optimize their inventory and improve their financial performance, giving them a competitive edge in their industry.
Rarely does a solution come along that has this much appeal to solve so many issues at once. If you want to save valuable time, make your customers happier, and reduce your inventory footprint, you need to invest in Netstock, says James Politeski, President of DCL Supply.
Want to learn how to optimize your inventory further? Check out our new inventory optimization guide.
