7 Strategies to Find Cash Through Inventory Management
By Jon Orr, Managing Director, Optimas Financial & Accounting Solutions
Improve your inventory key performance indicators and increase cash flow by reducing the average days tied up in inventory and increasing your inventory turnover:
1. Remember the 80-20 rule. What products make up 80% of the value of the inventory? Calculate the relevant financial ratios for each item or category that comprise this 80%. Focus on improving the ratios for these items.
2. Find obsolete items. Review your inventory balances for products that no longer move. Sell these obsolete items directly to your customers at a discount, or liquidate them through third-party vendors.
3. Identify excess inventory. These will be items with higher than average days in inventory. Offer discounts or specials (e.g., buy one get one 50% off) to reduce the excess inventory.
4. Receive your inventory quicker. Reduce the lead time it takes for your vendors to process your orders. The shorter the lead time, the less safety stock you need on hand.
5. Play with inventory levels. Review your order triggers and minimum safety stock levels. Order more often and reduce supply on hand.
6. Negotiate with vendors. Don’t hesitate to approach your vendors about getting lower prices, especially for those items you buy in bulk.
7. Keep measuring. Continue to tweak your existing inventory forecast. Measure and report against the forecast and improve your forecasting methods as you gain experience.
If you would like more information on how Optimas can help you with your accounting and finance needs, please contact us at 630-780-1042 or email us at firstname.lastname@example.org.
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