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Inventory Management For Improved Cash Flow

You probably already know that your inventory - whether it's the products you distribute or the raw ingredients you use to make your goods - is your biggest investment, but did you know that how you manage it can mean the difference between having positive or negative cash flow. If money is tight, your inventory should be one of the areas you look into. It can tie up huge amounts of cash and occupy costly warehouse space, especially if you don’t know how to manage it effectively.

So, what's the best way to manage your stock so you can protect your cash flow? There are several ways and we’ve put together some of the most effective.

ONE: KEEP TRACK OF YOUR INVENTORY

Monitor the products you are stocking and closely watch what you are doing when replenishing your inventory. You may be investing too much in too many products that don’t sell, or ordering too much of one ingredient leading you to suffer from cash shortfalls; or you may be marketing a particular product too much but can't keep up with demand, resulting in lost orders.

TWO: DON’T STOCK TOO MUCH

This is common for wholesalers and suppliers who are just starting out. Obviously, you don’t have the inventory yet so it's not unusual to want to stock up on lots of products but doing this before understanding exactly what your customers want can put you in the red. 

Business owner Arsineh Ghazarian, suggests:

"Purchase and stock lower quantities of inventory in the beginning. You may not receive the same price breaks, but it gives you the opportunity to learn about your customers' purchasing behaviour before you commit to a larger order."

It's also important that you stop stocking products that don’t sell. Having products that you can't shift is a waste of money. When these products stay on your shelves for too long they become outdated, unsellable and take up valuable space, essentially making you less profitable.  

THREE: PREDICT YOUR ORDERS

Estimating your orders is a great way to prevent overstocking. Forecasting how many orders you’ll receive in a month and stocking just enough, is essential so you won’t waste money or resources. This may be difficult in your first year since you don’t yet know which are going to be your best months. But as time goes on, you’ll be able to have a clear view of when your busiest time is and what your customers want.

FOUR: REVIEW YOUR INVENTORY FROM TIME TO TIME

Needless to say, no wholesaler wants to run out of their best-selling products. This is why it is vital that you review your inventory regularly. When you review your inventory, not only will you determine the products you still need to produce or the ingredients you need to order, you will also easily identify the goods that aren’t helping you generate any money. In other words, your slow-moving inventory.

A regular inventory review will also help you see issues that could impact your cash flow. For example, whether you are overstocking raw ingredients and over-producing a certain product, or if you have outdated or excess stock.

FIVE: USE AN INVENTORY SYSTEM

Reviewing your inventory regularly and keeping track of it all is no easy task. Doing it manually requires you to spend an enormous amount of time and effort, which is impractical especially when you need to focus on other parts of your business. Our suggestion is to move away from the time-consuming and traditional manual stock-take and get yourself a dedicated system to effectively manage your inventory and give your cash flow a healthy boost.

Inventory systems are great for monitoring your stock levels and sorting out all of your products. Most of them can even give you a real-time view of your supply count, track activities across multiple warehouse locations, and provide good inventory forecasting so you can avoid being out of stock or overstocked.

Not sure which system to adapt for your business? Check out our previous post which gives you all the top inventory management systems around.

Cash flow is what helps your business survive day to day. Whilst there are several ways to keep it on track, good inventory management is definitely the most effective.

What are our top tips? Keep track of your stock, don’t over-produce products that don’t sell, always forecast how many orders you’ll receive, review your inventory regularly, and of course, invest in a reliable inventory system.

The trick here is to simply maximise the performance of your inventory and make sure it isn’t tying up your money. The better you can manage your stock, the better cash flow position you'll have and the more profitable you'll be.

Want to read more business advice like this? Head on over to our blog.

Avlya Jacob

Avlya Jacob is a content writer at Ordermentum. When not working, she enjoys writing online novels and spending time with her husband.

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