So much money in your business gets tied up in inventory or ‘work underway’, and the problem with this, is that the cash is locked away until it is sold. Depending on how it’s sold, you might have the cash locked away, untouchable, for quite a while.

So in this week’s tip I want to share with you a number of things I have picked up along the way to help you turn some of those dollars sitting on the shelf into usable cash.

• Benchmark your current inventory metrics against those in your industry. Your accountant should be able to help you with some of this. If not, it doesn’t take much to find some industry data that will give you an idea of how well you’re turning your stock or ‘work underway’ over and into money.
• Review your current inventory systems, processes, and policies. Have you mapped out the steps in your inventory process with time measures in and out to determine whether improvements can be made? Is your inventory system adequate? Do you have one? I was a member of the Logistics Association of Australia some years ago and used it to help my clients make positive changes to their systems, which ultimately translated into improvements in their inventory movements.
• Understand the seasonality in your business. As simple as this sounds, far too few business owners truly appreciate the benefit they can derive by understanding their seasonality in detail. It allows you to improve so many things like forecasting, buying decisions, volumes, holding costs, and whether you need to ramp up your marketing activities to smooth out the peaks and troughs throughout the year.
• Don’t fall for quantity discounts. So often, a supplier will offer you a deal that sounds too good to be true. It probably is. Remember you have to hold the stock, not just pay for it. Sometimes carrying twice the volume for a discounted purchase price can end up costing you more. Beware!
• Develop better relationships with vendors and customers. Again this might sound like common sense. Well, the time to build the relationship is when things are going well. Have a look at how many vendors you deal with. Is there an opportunity to reduce the number to better leverage the ‘exclusivity’ angle? Also your customers will be a great indicator when things change in their buying patterns. Having a few that you can speak with frankly will help you make better decisions on how much inventory you hold at different times and what you hold.
• Is a buying group an option for you? Sometimes, a group of businesses in an industry can get together to purchase items from a supplier or multiple vendors at a better price by pooling their requirements to increase volume and therefore get a better deal. Is this an option for you in your industry? Have you tried before?
• Reducing lead time from order to delivery. Dell were fantastic at this with their ordering and delivery of personal computers and laptops around the world. They invested heavily in relationships and systems that would minimize stock holding and maximize “just in time’ manufacturing to reduce the lead time required to deliver a product to a customer. This in turned saved millions of dollars in holding costs and stock purchases. Where are the opportunities for you?
• Stock promotions. Sometimes you’ll have stock that is nearing obsolescence, or simply have stock that is moving slowly. It’s a good idea to consider some promotional activity to get the word out to your customers. Think about a ‘closed door’ sale for existing customers only, or a direct mail campaign outlining some specials or a product of the month. Why not offer a value bundle where you combine slow moving items with faster moving items? Use older stock as a loss leader to get your customers purchasing more. You could even offer a “Gift With Purchase” or GWP for short using slow moving items when more popular purchases are made. There are lots of things you can do to move your stock and turn it into cash.

Of course, there is a possibility that not all of the strategies I’ve discussed here may be useful to you. There are many factors that will determine what might be your best course of action. Let me know what you think.