BEXL

How to Free up Cash from your Inventory

Stock is the physical manifestation of the working capital cycle. The frequency of your stock turnover is the litmus test for how healthy your business is in terms of cash flow management as well as profitability. Unfortunately, there is no silver bullet and inventory management is something that needs to be under constant consideration to meet the needs of the business effectively. It can be useful to follow the journey of materials through the process to identify room for improvement. The following is a list of some questions to ask and ideas to consider as you conduct your review.

Raw Materials

As a business becomes established, purchasing can fall into patterns that need regular review to ensure you the best use is being made of company resources. The first port of call is to avoid adding to the problem through order too much.

Do you regularly review your safety stock levels? Are these set accurately and do you have a system to tweak them in line with the ebbs and flows in business?

Look at your order quantities. Are you really ordering the most efficient lot sizes given delivery times, your requirements and market conditions?

In times of raw material shortages, remember the value of some of your commodity stock may have risen beyond what you paid and it is often easier to get vendors to take returns or sell to industry agencies in this climate.

Work-in-Progress (WIP)

The price paid for inefficient workflow is an excess of work-in-progress inventory. The goal is to minimise work in progress and duration of time materials spend in this category. From a commercial point of view, material issued to production orders is not available for other, possibly more urgent or lucrative orders.

Work-in-progress problems can be more difficult to identify when you survey a production hall of staff all working away. The solutions can be even less clear and it may be a good idea to seek external assistance in the form of a Lean Project where waste and inefficiencies are sought out and rectified with the involvement of all staff. These projects will take time and perseverance but are often supported by government agency funding.

Finished Goods

Start with the low-hanging fruit! Are there any call-off orders that can be shipped? If so, ship them. Are there some that customers are attempting to push delivery dates out on? If so, here’s an opportunity to call them and work something out.

Are you making finished too far ahead? Of course, this is a delicate balancing act but it is easy for excess production capacity to become filled with orders that are not needed right away, which could compound a problem. If there’s an issue with excess capacity, address that separately.

Waste and By-Products

The first question is, of course, can you reduce or even eliminate any waste created? Are there outputs of your process that are being treated as waste that may be of value elsewhere? Even if this is something which you have explored in the past, it is well worth another look. Governments everywhere are ever-more focused on sustainability and are assisting producers to find innovative ways to deal with waste and process by-products.

Consumables

Clean-down materials, packaging, PPE and maintenance spares are all necessary to hold in stock to keep the wheels turning. How often are their levels monitored? Are they all really necessary? A regular review of requirements and safety stock levels of at least the higher value and turnover items will ensure that those items held in stock are supporting the business as intended.

Building in a process of regular reviews of your inventory management policies and practices to your day-to-day and management activities is the best way.

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