How to Wring Out Cash by Reducing Inventory
Written by Ashwin Satyanarayana for Gaebler Ventures
Most often, inventories are where cash flows get stagnated. Managing inventories carefully will help maintain a better cash flow. Here is how you can manage inventories better and get your suppliers involved in the process.
For most businesses Inventory is "sitting cash"; you gain almost no value from it until it is actually sold and the said cash in exchange is collected.
For most businesses, inventory remains the sore point of concern since things don't move out as fast as anticipated while the credit time looms close on the horizon. It is important to reduce your inventory to free up some cash and there are only two ways of doing it -- reduce your 'inventory float' or sell it off.
Here's how you can wring out extra cash by reducing Inventory:
Reduce Inventory by ramping up sales: Although this one is obvious, it isn't easy for businesses to implement smoothly. When your business sees excess inventory, you will almost invariably try to push the inventory out by resorting to quick sale methods like heavy discounts, season sales, or pushing as many customers to buy your products out. These are desperate measures. Instead, you could work your way through branding; implementing effective, over-arching marketing strategies and other such long-term methods to move out and reduce your average inventory. This helps ease out your cash flow situation to a great extent.
Eliminate Idle Inventories: If you could bring about process improvements like Kaizen, Six Sigma and other line control measures, you could easily help reduce your "idle" inventories. You may also look to implement a backward system of operation which is kicked into gear only after a purchase is made (much like Dell does). By utilizing many process improvements you can easily to control your inventory and help squeeze out more cash.
Consider Outsourcing: One of the most effective ways to reduce expenses, save cash, and reduce inventories is to consider outsourcing - have other companies do the manufacturing, process control, inventory management, shipping and handling. It saves you manufacturing costs and space costs while helping you focus completely on Research and Development, marketing, brand and development. A simple act of letting a shipping and handling company like UPS manage your inventory could lead to great cash savings and better control for your business.
Ash has an undergraduate degree in engineering and an MBA from Ohio University. Today he is a corporate trainer, business coach and a freelance writer.
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