Need to CONSERVE CASH in these Trying Times?- Try Using the Right Organ!
Concerned about your balance sheet?
Wondering how to make payroll and keep your suppliers paid in the coming months?
Wondering how to come out of this pandemic stronger than ever, and poised to take advantage when the economy rebounds?
Start by using the right organ to determine your inventory targets!
We have found that, too frequently, people use the wrong organ to determine inventory targets. They use their gut instead of their brain. Instead of taking into account each item’s unique demand patterns, planners determine inventory by some ‘rule of thumb’ supply-based approach for a product category, then apply that ‘gut feeling’ with a peanut-butter spread across all products in that category.
High volumes and good margins can cover a lot of supply chain sins. Maybe that approach was good last year, but this is a new reality. It simply won’t cut it. Not anymore.
As a business owner, are you now looking for ways to conserve cash and boost your balance sheet? Trying to ‘hunker down’ and conserve cash to be able to come out healthy on the other side? Start by looking at your raw material and finished goods inventory. It’s a great place to start looking if you are serious about making a difference.
“How can that be? Isn’t our inventory an asset, and isn’t it here to help us, not hurt us?”
Let’s think about that for a minute. If you really needed all that inventory, why is it still on the shelf? If you needed the raw materials for production, you would have used them…but there they sit. If your customers wanted your finished goods, you would have shipped them by now…and you would have cash in the bank from it, (or at least a receivable against it.) Right? But there it sits…The “stuff” you are sitting on isn’t really an asset to you- it is a liability!
Your inventory may be an asset on the balance sheet, but from an operational perspective, it’s a liability.
Yes, we need inventory to cover for uncertainties in supply and demand. It serves as a buffer to mitigate uncertainty. But it is not meant to cover for the 100-year flood.
To free up cash for your ongoing operations, you’ll need to ‘right-size’ your inventory levels- both your raw materials and your finished goods.
One solution is our “Fix the Mix” model, which determines the right inventory level, based upon each item’s unique demand patterns and supply parameters. Your volume will dictate how quickly you can right size your inventory and buttress your balance sheet.
Consider this: Our model works for raw materials, as well as for finished goods. Many of our clients have enjoyed a painless 15%-30% reduction in working capital requirements, with no negative impact on their supply chain. Production wasn’t negatively impacted, nor were customer orders delayed or filled at less than 100%. And we use data to prove this.