Inventory Management

Inventory forms part of your working capital and for businesses like yours, which may be involved in the manufacturing or provision of goods, management of cash flow associated with your stock is essential.

Reduce stock of unprofitable or out of fashion items

Review your stock items to ensure you're not carrying items which have low margins or do not sell or will become obsolete quickly.

The 80/20 rule

When you apply this rule it means that 80% of your sales come from 20% of your stock. Therefore monitor the 20% carefully to ensure that there is enough stock on hand to avoid stock-outs during peak times.

Monitor work in progress

Ensure that any work in progress is managed efficiently.

Stock take sales

A great traffic generator into your store or shop is having a stock take sale regularly to sell obsolete or excess stock.

Return your stock

Don't be afraid to return obsolete or excess stock to your supplier as there's no point in attracting unnecessary warehouse or storage costs which in turn can put strain on your cash flow.

Organisations of today have embraced the just in time (JIT) system to manage their inventory flow with great success. The Ford Motor Company invented JIT and it has been so popular that Japanese companies have also implemented it, namely Toyota.

The principle is to reduce the amount of in-process stock and improve return on investment (ROI) by ordering just enough raw materials to maintain production for a given time. This eliminates wastage through the reduction in overhead and storage costs.

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This then frees up cash flow which would ordinarily be tied up in the manufacturing operations. With today's economic conditions the way they are it's imperative that you understand the best ways to manage your free cash flow.

Have a look at some of the essential Tips to manage your cashflow to help you understand and better prepare for the cash flow challenges that lie ahead. Get ahead of the pack by taking my Cash Flow lesson because you won't be disappointed.

The JIT system relies on an efficient and effective supply chain. If the supply chain is interrupted then the manufacturing process can be held up. Consider the manufacture of a motor vehicle, if certain engine components were delayed because of an industrial strike, then there would be a delay in the completion of that motor vehicle.

The balance here is to ensure you don't order too much stock resulting in your warehouse and distribution costs increasing, or not ordering enough resulting in a possible stock-out. Therefore the aim is to purchase the right amount of stock at the right time. Return from Inventory to Home Page