How Much Cash is Locked in Your Warehouse?

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Manufacturing, distribution and retail businesses know that their inventory is a key asset on their books. Figuring out how to make that inventory as profitable as possible is key to growing the business. But so many of these businesses rely on outdated tools to manage their inventory, and that’s hurting their profits.

So what’s the problem, exactly? Usually, it’s an inventory spreadsheet that was designed to help inform replenishment -- when to order, how much to order, which items to order, and so on. But the simple fact is that math that goes into calculating safety stock and reorder points is much more complicated than a spreadsheet can handle. Using a spreadsheet to manage your inventory is like using the back of an envelope to do you taxes: it’s just not going to work. 

Two Key Problems

The keys to understanding how poorly this process works can be found in two outcomes: excess stock and stock-outs.

Stock-outs are a death knell to your business. These are orders from customers you can’t fill because you just didn’t have the stock on hand. You can expedite an order in an attempt to keep the customer happy, but that’s an expensive solution that eats into your profit margin. Worse, you risk losing the sale and you even risk losing the customer. This is a terrible scenario for the long-term health of your business.

Excess stock is what most businesses accumulate to make sure they don’t run out of stock. Having extra inventory around means you’re ready for orders, including some unexpected orders. But how much is really piling up? What about insurance, storage, spillage, and obsolescence?

A little bit of extra stock -- what’s commonly known as safety or buffer stock -- is key. But how much is too much? Which items need to be reordered this week? If your main motivation is to defeat stock-outs, you’re almost certainly carrying too much stock. And if your safety stock levels are calculated on a spreadsheet, you’re basically making guesses for replenishment. The resulting costs of that excess stock are staggering.

There's a Better Way

There are tools that can help you figure out how to locate and free up that cash that's stuck in extra stock in your warehouse. Here’s a success story from the inventory experts at NETSTOCK, who they helped one successful business transform their cash flow by eliminating useless excess. The result? An extra million dollars in working capital to reinvest in their business. Watch this three-minute video and ask yourself how much cash you have tied up in your warehouse. What could your business do with that capital instead of watching it gather dust on your shelves?

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