Inventory management for cash-conscious businesses

Inventory ties up cash. Every rupee sitting in stock is a rupee not available for other uses. Manage it like the cash it represents.

The Inventory Problem

Too much inventory ties up working capital, creates risk of obsolescence or damage, incurs storage costs, and hides quality issues discovered late.

Too little inventory causes stockouts that lose sales, rush orders that cost more, customer dissatisfaction, and production delays.

ABC Classification

Not all inventory deserves equal attention:

Focus management time on A-items. Consider eliminating low-moving C-items.

Key Metrics to Track

Inventory turnover equals Cost of goods sold divided by Average inventory. Days of inventory equals 365 divided by Inventory turnover. Stock cover equals Current inventory divided by Average daily consumption. Fill rate equals Orders filled from stock divided by Total orders.

Practical Steps

Weekly: Review A-item stock levels vs reorder points, flag items approaching expiry or obsolescence, check for pending receipts.

Monthly: Review slow-moving items (no movement in 90+ days), analyse stockout incidents and root causes, reconcile physical stock with books (sample basis).

Quarterly: Full physical count for A and B items, review and update reorder points, evaluate SKU rationalisation opportunities.

Reducing Inventory Investment

Negotiate shorter lead times with suppliers. Implement min-max reorder points. Phase out slow movers aggressively. Consider consignment arrangements for slow-moving items. Review economic order quantities.

The Right Mindset

Inventory is a necessary evil, not an asset to maximise. The goal is to serve customers while minimising cash tied up.

This information is for educational purposes only and does not constitute professional advice.

If stock is tying up too much cash, the practical fix often combines Tally Customisation, Process Automation, and better reporting through Accounting & Bookkeeping.