Do you have stale or slow moving inventory?
I recently met with a contact who related a story of finding cash in stale and slow-moving inventory. A number of years ago I was involved in a merger of two competitors that resulted in duplicate part numbers, overlapping inventories and an opportunity to help finance the deal through SKU justification.
In that instance we went through a detailed process of matching the two company’s inventory items and properly cross referencing them. This allowed our customer service staff to substitute the products until duplicates could be eliminated.
At the same time, we built an inventory aging model. We looked at the quantities on hand, less pending orders, and compared the resulting available inventory quantity to our last 12 months movement. The results were surprising. We had hundreds of items where the quantity on hand equaled a year or more of historical movement. This was also a business that produced most items within a few days of the order so large quantities were more a result of returns and overruns than intended safety stocks.
These slow moving items were brought to the attention of the customer service teams and sales managers. We were able to substitute products and offer the slow moving units at sale prices because we had identified them. Moving these items resulted in pure cash that did not need to be reinvested in replacement stock. Clearing out the items also provided needed warehouse space.
Every business has some slow moving items; the key is to identify the units and bring them to the attention of those who can move them.
B2B CFO® has over 200 experienced chief financial officers who stand ready to help businesses improve their inventory management processes, plan and forecast safety stocks and improve customer service through efficient inventory techniques.