5 Ways Poor Inventory Management Hurts Cash Flow for Distributors

Inventory is among a distributor’s greatest assets. That said, inventory ties up a lot of cash, so managing it well is critical. To stock a warehouse, a distributor has to spend money, meaning cash tends to go down as inventory goes up and vice versa.

A surplus of inventory doesn’t just mean less cash, however. It can also mean higher carrying costs, less warehouse space for items distributors can turn around quickly, and fewer resources to invest in other aspects of the business.

In a nutshell, you need to “turn over” inventory to generate cash. But it’s not quite that simple. Numerous things can get in the way, including the following.

Unclear demand

If you don’t stay in the know about supply chain disruptions, industry trends and customers’ buying patterns, you may have an uncertain view of future demand. One example of this is buying too much of a product right before demand falls for it. This lack of visibility and adaptability leads to overstocking or understocking.

Obsolete inventory

Inventory that’s just sitting around—whether it’s not in demand by customers or not being sold by sales reps—is doing nothing for you.

Duplicate inventory

Similar to obsolete inventory is duplicate inventory, in which you’re carrying too much of the same product but from different suppliers. Duplicate inventory ties up space in your warehouse, stunting cash flow, as well as the revenue you could be bringing in through other product lines.

Missing inventory

You can’t sell inventory you don’t have. If you don’t have enough of a product to serve customer needs, such as a stockout, you’re missing out on a sales opportunity.

Carrying costs

Carrying costs, which may include insurance, employee costs, warehouse storage fees and more, can make up more than half the cost of an inventory investment. On the other hand, when you reduce carrying costs without risking stockouts, you can achieve greater profitability and cash flow.

To help ensure you can generate cash while minimizing excess stock, you’ll need to better maintain the right inventory levels. Fortunately, technology exists to help distributors like you do just that, allowing you to track inventory levels in real time, reduce carrying costs, and improve cash flow.

How Tech Can Help You Drive More Cash

In a 2022 inventory management benchmarks survey we conducted with Modern Distribution Management (MDM), 71% of respondents reported that their inventory management practices needed work. Many of these respondents also reported on their plans to implement positive changes in the coming year. These changes should have a positive impact on cash flow.

This is a good thing. Effective inventory management can increase cash flow (while the opposite can stifle cash flow).

Among distributors’ plans were additional automation, more robust reporting tools and enhanced warehouse efficiency. Each of these can be implemented fairly quickly and easily with the right technology and processes.

Microsoft Dynamics 365 Finance and Supply Chain Management is a tried-and-true solution proven to help distributors increase cash flow and drive growth.

Forecast Accuracy

Forecast accuracy in the distribution industry refers to the degree of accuracy with which a company can predict future demand for its products or services. Microsoft Dynamics 365 “leverages machine learning and AI-driven insights to improve businesses’ ability to produce accurate forecasts.”

When you can accurately forecast future demand, you ensure you have enough inventory to satisfy customer needs while minimizing excess stock collecting dust in your warehouse.

Visibility Into Inventory Performance

It’s critical for distributors to have the ability to access real-time data and analytics on inventory levels, stock movements, and other related metrics so that they can make informed decisions about inventory management and optimize operations.

The D365 Supply Chain Management solution from Microsoft provides advanced insights into warehouse performance, key performance indicator (KPI) tracking and more. The platform also offers a single view of inventory across all channels so you can ensure “the right products are in the right place at the right time.”

Clearer Line to Suppliers

When you’re overseeing multiple branches, you need direct lines of communication with your suppliers. Without this clear communication, you risk increased lead times and a poorly optimized flow of goods.

With tech that provides real-time access to accurate data and efficient communication with suppliers, you can secure cost savings and improve customer satisfaction.

Better Tracking

Effective forecasting, visibility into inventory performance and communication with suppliers all come down to robust tracking capabilities.

With Microsoft Dynamics 365 Finance and Supply Chain Management, you can monitor and trace the movement of products—from the time your supplier sends them to the time they’re delivered to your customers—to ensure accurate delivery, reduce the risk of lost or damaged goods, and, ultimately, turn your inventory into cash.

Improve Inventory Management and Maximize Cash Flow

From streamlining operations and automating operations to implementing advanced analytics and inventory tracking, technology has the power to optimize business processes and improve financial performance.

At Sikich, we’ve helped dozens of distribution businesses implement Microsoft Dynamics 365 Finance and Supply Chain Management to improve inventory management. To learn how we can help you, set up a free consultation with a member of our team now.

This publication contains general information only and Sikich is not, by means of this publication, rendering accounting, business, financial, investment, legal, tax, or any other professional advice or services. This publication is not a substitute for such professional advice or services, nor should you use it as a basis for any decision, action or omission that may affect you or your business. Before making any decision, taking any action or omitting an action that may affect you or your business, you should consult a qualified professional advisor. In addition, this publication may contain certain content generated by an artificial intelligence (AI) language model. You acknowledge that Sikich shall not be responsible for any loss sustained by you or any person who relies on this publication.

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