Inventory Is Cash Hiding in Plain Sight
Inventory management = cash management.
For most manufacturers, inventory is the single largest line item after payroll. PNC Bank estimates that 25% to 35% of a typical manufacturer’s entire operating budget is tied up in stock. Every extra pallet on the floor means cash being placed on hold (until that stock is used or sold). This also impacts insurance premiums (more stock means higher risk to insurers), and consumes warehouse space that could be either reduced or house new revenue-generating SKUs.
The good news: you do not need a multi-year transformation to see results. By focusing on a handful of high-impact levers, finance and operations teams can trim millions in carrying costs within a single quarter.
Th bad news: the best time to take care of this was yesterday.
Five Quick Wins to Optimize Inventory Today
1. Classify and Conquer with ABC Analysis
Not every SKU deserves the same scrutiny. ABC analysis splits items into three bands by annual dollar consumption so that “A” parts (often the top 10 % of items that generate 70% to 80% of value) receive tight controls, while “C” parts get simpler rules. Running the sort takes only a few hours in Excel or Google Sheets, yet it immediately highlights slow-moving stock, reveals where stock-outs truly hurt, and guides cycle-count priorities. Companies that relabel bins and reorder policies around ABC classes routinely cut total on-hand value by 10% to 15% in less than 60 days. This is a great place to start and get a quick win.
2. Right-Size Safety Stock and Reorder Points
Static safety-stock buffers set in good times quickly become oversized. Refresh them using current lead times and demand variability, then add automatic reorder-point alerts in your ERP (you can do this in Excel or Google Sheets using some formulas). PNC notes that simple formulas such as average daily usage × supplier lead time = reorder point prevent both stock-outs and bloated shelves. Add Economic Order Quantity (EOQ) calculations to balance purchase-order fees against carrying cost, and you will see fewer “full-truckload” impulse buys that freeze cash for months.
3. Introduce Just-in-Time (JIT) for High-Velocity Components
JIT does not have to be an all-or-nothing cultural overhaul. Start with a pilot on two or three fast-moving “A” items and work with suppliers to deliver smaller quantities more often. JIT materially reduces holding cost by timing receipts to production demand (it also liberates inventory for other key SKUs). Even a partial rollout that trims seven days of coverage on critical components can unlock six-figure savings in insurance, floor space, and borrowed working capital.
4. Purge the Zombies: Slow and Obsolete (SLOBs)
Dead inventory does not just sit; it leaks value through depreciation, damage, and write-offs (write-offs serve more as a consolation price that as a robust business strategy). Once ABC classes are in place, pull an aging report for “C” items beyond 120 days turnover. Firesale those. Options include discount bundles, secondary markets, or supplier returns. A single focused clearance event removes clutter, simplifies picking paths, and frees racks for parts that turn revenue. Many plants recoup two to three months of working capital almost overnight. Get rid of the “just-in-case” mentality and plan ahead.
5. Tighten Data Accuracy with Cycle Counting and Real-Time Tracking
Every optimization effort collapses if the inventory record is wrong. Switch from annual wall-to-wall counts to weekly cycle counts driven by ABC priority: count “A” items weekly, “B” monthly, and “C” quarterly. Use barcode or RFID scanners tied to your ERP so each pick and put-away updates stock in real time. Plants that move to continuous counting typically boost record accuracy and eliminate the hidden costs of emergency freight, expediting fees, and production stoppages caused by phantom stock.
Conclusion: Turn Shelves into Cash, Fast
Inventory optimization is comprised of a few well-executed strategies. By following the five strategies presented above, you can convert stagnant inventory into fluid cash without jeopardizing service levels. Begin with one lever this week, measure the cash released, and reinvest those funds in growth. Your balance sheet (and your board) will notice.
