Inventory Management

Optimizing Working Capital Series - Part 3

By Rick Beyer

Finding a target balance of inventory levels to maintain takes time to master, often coupled with investment in equipment, software, training and consulting. As companies continue their focus optimizing production and cost schedules, there are quick wins companies should consider which translate to tangible results in managing their inventory effectively from a working capital perspective:

REASSESS YOUR SUPPLY CHAIN

With recent economic events, management should be reassessing their supply chain networks and pinpoint where material risks lie within the network. Drill down to the main component levels within your top products and understand the locations, volume, delivery assurance, transport times and specific contract terms covering catastrophic events.

IDENTIFY THE TITLE HOLDERS

Assess whether there are ways to shift title to customers by revising contract terms, imposing drop shipping, bill-and-hold processes, or warehouse segmenting. These considerations help shift the economic burden from your balance sheet and reduce holding costs.

EVALUATE YOUR EXISTING POLICIES

Are the burdens of same or one-day delivery appropriately pass along to the customer? Does maximizing production times result in continuous excess inventory? Can products with short shelf lives be returned months after being sold? Individually evaluating each policy is an excellent exercise to quantifies the cost/ benefit from each.

UNDERSTAND THE PROMOTIONAL WATERFALL

Are the burdens of same or one-day delivery appropriately pass along to the customer? Does maximizing production times result in continuous excess inventory? Can products with short shelf lives be returned months after being sold? Individually evaluating each policy is an excellent exercise to quantifies the cost/ benefit from each.

PROACTIVELY DIGITIZE

Ensure your existing processes allow for effective automation by understanding and documenting the inputs, outputs and flow of data within your inventory management system. Electronic record-keeping, digital cycle count processes, and scanning systems are becoming easier to implement for lower market companies that maintain up-to-date inventory records and process documentation.