Cash Flow Issues or are you Overstocking Inventory?

March 3, 2016

 

Are you experiencing cash flow problems due to customers not paying you as agreed to? This may be true. But maybe your cash flow can be improved not by an AR transaction, but from your inventory management. Maybe the issue is that you have too much of the wrong inventory in stock?

This is exactly what took place with one of our Dynamics GP Distribution clients. They advised that they were having cash flow problems. After some investigation, we found that their real issue what that their inventory was turning too infrequently. They had too much of the wrong inventory in stock. Further discovery identified that their purchasing decisions was not based on accurate information that was available in their Dynamics GP system.

They had over five years of sales history that could be used to help address this issue, provided they had the right tools in place.

 

By introducing demand planning functionality, this tool was instrumental in addressing both of their issues. The module they used analyzed their sales history, on-hand quantities, sales commitments and outstanding purchase orders to provide them with suggested buys. There were over a dozen algorithms applied to each of their inventory items, to determine the best method to predict what should be purchased from their vendors. This application also identified trends in inventory and helped make strategic stocking decisions.

 This solution worked wonders for their company. They were able to cover 30% of their inventory, which computed to over a million dollars for this company, into cash, in less than 120 days. This effort eliminated their cash flow problem.

 One important factor in developing long-term business relationships is reliability.  It’s natural to want to be able to pick, pack, and ship the inventory that your customers order in the right quantities and on time.  However, unnecessarily overstocking the warehouse in order to ensure customer deliveries can present a new set of problems.  Consider these three ways to avoid inventory overload.

 

Maintaining the right inventory, in the right quantities, at the right time can be challenging, especially if you are using manual processes or inadequate technology.  Contact Micro Force-Socius for more information about using the right software solutions to strategically stock your warehouse instead of needlessly overstocking it.

 

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