Effective inventory management is a direct driver of cash performance, service reliability, and Profit and Loss protection. For CFOs, the objective is clear: maintain customer service levels while minimising the capital locked in stock and reducing the risk of write‑offs. Achieving this requires coordinated forecasting, disciplined procurement, optimised supplier terms, and strong operational controls.
Strengthening forecast accuracy to reduce inventory investment
High‑performing inventory systems start with demand accuracy. For Finance, this translates into lower volatility, tighter cash forecasting, and reduced safety‑stock buffers.
Demand planning
A finance‑aligned planning process should ensure:
- Forecasts reflect trading realities, seasonality, promotions, lifecycle shifts, and confirmed customer events
- Cross‑functional alignment with Sales and Marketing to reduce unpredictability
- Segmentation of SKUs to differentiate service levels, safety stock, and replenishment strategies
Material Requirements Planning (MRP)
MRP effectiveness directly impacts working capital. CFO focus areas include:
- Real‑time inventory accuracy to avoid false replenishment signals, driven by operational controls
- EOQ and safety‑stock settings that align with cash and service priorities
- Stable, validated supplier lead times to prevent system over‑ordering
- Accurate BOMs in manufacturing to avoid hidden inventory inflation
Integrated planning reduces excess stock and improves the predictability of cash cycles.
Procurement and purchasing: The CFO’s most powerful working‑capital levers
Supplier payment terms
Extending supplier terms is one of the most financially impactful inventory levers. CFOs should ensure:
- Terms reflect the company’s buying power and risk profile
- Benchmarking is conducted regularly against industry norms
- The discount‑vs‑credit trade‑off is evaluated from a cash perspective, not simply procurement savings
- Extended terms are secured for large or atypical orders to neutralise cash‑flow pressure
Purchasing discipline
Aligning purchasing timing with supplier terms (for example leveraging first‑of‑month receipts on EoM terms) can effectively add 30+ days of credit without increasing inventory risk, if done in alignment with forecasted demand.
Alternative stock ownership models
Stock‑ownership structures directly reduce balance‑sheet inventory:
- Consignment Stock: Supplier retains ownership until consumption; reduces on‑hand inventory while protecting service levels
- Sale or Return: Minimises obsolescence risk for new or uncertain‑demand items
Both models support lower net working capital but require strong governance to avoid accounting or reconciliation issues.
Finance operations: Controls that protect cash and supplier relationships
Accounts payable excellence
AP is a core component of working‑capital performance. CFO‑critical controls include:
- Strict PO compliance and tolerance limits
- No partial payments, ensuring full control of cash outflows
- Tight GRNI management to prevent hidden liabilities
- Aged‑creditor reporting and fast dispute resolution to maintain supplier trust and negotiation leverage
Reverse factoring, and supply‑chain finance
Reverse factoring allows suppliers early payment at low cost while the business extends its own payment terms. For CFOs, this provides:
- Improved working capital and liquidity
- Enhanced supplier stability without strain on AP
- Greater predictability of cash‑flow timing
Operational and commercial controls to prevent write‑offs
Inventory losses can significantly impact EBITDA. CFOs should ensure strong discipline across:
Operational controls
- FEFO/FIFO stock rotation to minimise ageing and expiry
- Cycle counting based on ABC analysis to protect asset accuracy
- Real‑time reporting on slow‑moving, excess, and at‑risk stock
- Clear governance to eliminate duplicate or superseded SKUs
Commercial strategies
- Customer lead‑time agreements that reduce the need for excessive safety stock
- Strategic inventory ring‑fencing for key accounts
- Promotions and kitting to monetise ageing inventory before it becomes a write‑off
For CFOs, inventory represents both a service enabler and a major consumer of cash. A coordinated approach, combining forecasting discipline, procurement strategy, supplier‑financing optimisation, and tight operational controls, delivers measurable improvements in working capital, service reliability, and financial resilience.
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