How cutting inventory levels could save companies millions

Amidst rising interest rates globally, businesses are under pressure to manage cash flow effectively. There are typically three main operational levers to reduce cash flow requirement/ increase free cash flow generation: addressing accounts receivable/ payable, minimising capital expenditure (CAPEX) and optimising inventory.

While the optimisation of accounts receivable and payable are the most obvious lever, other levers, less financial and more operational, appear to be more challenging to address.

Capital expenditure is generally dealt with by stopping investment altogether, coupled with operational excellence initiatives aimed at producing more without CAPEX.

Inventory management stands out as a critical area, fraught with complexities stemming from uncertain demand, lead times, and product variety. Successful inventory management necessitates collaboration across departments and functions, striking a balance between cost efficiency and customer satisfaction.

These programs can typically reduce inventory by 15-30%, and avoid the costs associated with ownership, warehousing, and depreciation.