Strategic advice

How controlling inventory can help improve cash flow

Implementing smart inventory strategies today can unlock working capital and keep your company competitive in the long term.

The highlights

  • A fresh approach to inventory movement and storage can help you free up cash flow associated with inventory.
  • Just-in-time (JIT) inventory management can help reduce working capital and boost cash flow while minimizing the risk of missed sales.
  • AI forecasting tools can help distributors reduce inventory levels and free up cash.
  • Micro-fulfillment centers (MFCs) can boost cash flow by improving customer service and helping minimize overall inventory requirements.

Inventory can be one of the largest uses of working capital on a balance sheet. When inventory moves predictably and turns quickly, your company has meaningful support for its growth. But when inventory doesn’t move predictably or smoothly, your cash conversion cycle can slow and throttle the cash flow your company uses to preserve and extend growth.

Innovations in controlling your company’s inventory storage and inventory flow can help you free up cash. A great starting point is exploring the following three methods with your relationship manager to help create a customized inventory optimization strategy.

Just-in-time inventory

Unsold inventory restricts cash flow. But decreasing the amount of product stock your company holds in storage isn’t guaranteed to increase cash flow. That’s because spikes in demand or supply chain disruptions can hurt sales volumes if you’re not maintaining product surpluses as a buffer.

A just-in-time (JIT) approach to inventory helps solve that dilemma by aligning replenishment more closely with customer demand.Disclosure 1 In the process, it can reduce working capital and boost cash flow while minimizing the risk of missed sales.

What makes all that possible? A just-in-time approach helps improve supplier reliability, strengthens transportation performance, and improves real-time inventory visibility. Successfully implementing just-in-time inventory management strategies can potentially free up cash flow by:

  • Lowering carrying costs
  • Improving inventory turnove
  • Identifying and removing nonessential buffer stock

But to realize these benefits, you’ll need to invest in the tools and expertise that enable a just-in-time approach. With the help of your Truist relationship manager, you can access insights from logistics, supply chain, and tech specialists. Then, your relationship manager can help you consider financing tailored to your specific goals and needs.

Improving demand forecasting

Equipping your company with better data analytics and cutting-edge AI forecasting tools has been shown to increase the accuracy of forecasts. Distributors can reduce inventory levels by as much as 20% to 30%.Disclosure 2

Even slight accuracy enhancements can lead to a meaningful reduction in the amount of inventory kept unnecessarily. For example, more accurate predictions about a seasonal decline of product demand in the summer could help reduce storage volume for future orders and avoid tying up cash in inventory that would sit unsold for months.

Better forecasting can shorten your cash conversion cycle while maintaining high customer satisfaction. Achieving results takes an upfront investment in tech, tools, and outside expertise that can include:

  • Connecting inventory, sales, and point-of-sale data so demand signals are easier to track
  • Upgrading inventory management, ERP, or analytics platforms to support more accurate forecasting
  • Hiring supply chain, data analytics, or AI consultants to spot forecasting gaps and identify implementation needs

Which initiative should you choose? Start with understanding the evolving financial circumstances of your industry and your company’s stage in the business lifecycle. Your relationship manager can discuss your company’s unique position with you and your leadership team. And your relationship manager can recommend trusted analytics providers and industry experts as you move from planning to action.

Micro-fulfillment centers

Conventional warehousing and storage options can present logistical limitations. When a company relies on one or two large warehouses, products may need to be shipped hundreds or thousands of miles to reach customers. Most of those shipments will be at a disadvantage to meet faraway customers' expectations for fast delivery. If they don’t meet those expectations, cash flow may suffer as a result.

Micro-fulfillment centers (MFCs) are smaller, predominantly automated facilities situated closer to end customers that help reduce shipping costs. MFCs can help reshape your distribution network and reposition your inventory.Disclosure 3 Done effectively, this strategy makes it easier to maintain and improve service levels; it should also help minimize overall inventory requirements companywide.

With smart financing guidance from your relationship manager and careful planning from logistics experts, MFCs can benefit your company by:

  • Positioning inventory closer to demand
  • Shrinking your shipping costs during the final stages of delivery
  • Improving delivery speed
  • Reducing the need for excess stock
  • Cutting back on central warehousing square footage

Understandably, financially and logistically coordinating the acquisitions of land, automation tech, and systems integration services needed to reap those benefits can be a capital-intensive process.

Your relationship manager is ready to work with you. They’ll bring their own know-how and specialized Truist team members. Together, you and this team will work to develop an inventory, shipping, and storage strategy that creates better cash flow.

Need help taking stock of your inventory strategy?

Contact your Truist relationship manager. We’ll work with you to find custom solutions that meet your evolving needs.

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