Reducing Inventory Means Just That

Reducing inventory means just that may sound like a silly statement, but you’d be surprised how much sillier responses may be.

A Little Background

A number of years ago I took on a new client that I later discovered was in serious financial trouble and the owner I was helping was unaware of it. While looking for ways to try to improve his cash management the observation was made the company had around an eight month supply of inventory, most of which could be replenished in less than a month. Needless to say, this left a lot of cash tied up in an asset that was not very liquid. Here’s where I heard something I couldn’t believe. During the discussions of how to go about reducing the inventory, one sales person made the comment, “I don’t mind reducing our inventory as long as we don’t have any less.” Hmmm, is it just me or doesn’t that statement seem a little weird? Yet, I am telling you the truth. This really happened and shows just how warped the thinking can be in business. I put this statement in red as this kind of thinking should be a red alert that people are not on the same page.

In some earlier posts (3 Low Cost Sources of Cash – Part 1 and Small Inventory – Big Benefits) I looked at how proper inventory management can be a ready source of cash, sometimes even sufficient to provide adequate internal funding so that loans might be totally unnecessary. If you take the time to read these you will get a picture of the technical aspects of how properly reducing inventory can be a boon to your cash flow.

It’s a Team Effort

The sales person above is indicative of the roadblocks that may be encountered when reducing inventory is attempted. Unless a company can get critical people on board it is a very difficult process. From top management on down to employees in warehousing, accounting, sales and other areas, everybody needs to be working together to help control inventory to acceptable levels. This may take some time and require management to do some selling of the idea to employees who don’t like change, but it is well worth the effort.

If you want to know more, contact AimCFO – Contact

As always, your comments are welcomed.

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