Working capital sits on the shelf long before anyone writes it off. Here is how to size what yours costs, and what better planning is worth in cash.
If you run finance or operations at a distributor, you already know the shape of this. The balance sheet says the business is healthy. The bank account says you are drawing on the line of credit again. Both are true, and the difference between them is sitting on rack 14.
Start With the Scale of It
US merchant wholesalers were holding $958.9 billion of inventory at the end of July 2026, against an inventories-to-sales ratio of 1.20, which works out to roughly five weeks of sales sitting on shelves across the industry (). Some of that is inventory doing its job. Availability is what your customers buy from you. The question is not what you carry. It is how much of it has not moved, and whether anyone is watching that number between physical counts.
What the Carry Actually Costs
Slow stock is not idle. It is financed. The bank prime loan rate stood at 7.00% on September 18, 2026 (), so every dollar of inventory that has not turned in a year is a dollar you are paying to hold, before you count the space it occupies, the handling it absorbs, and the markdown it eventually takes. None of that shows up as a line item anyone owns. It shows up as a current ratio that looks fine and a cash conversion cycle that keeps stretching, and finance usually gets the full picture at the annual write-down.
Why the Reorder Points Keep Missing
Ask where your reorder points came from and the answer is often that someone set them a few years ago based on what felt right at the time. Most systems report what already happened. They do not tell you that a customer has been tapering for two quarters, that a seasonal item is peaking three weeks earlier than last year, or that two SKUs should be bought together. Planners fill that gap with spreadsheets and experience, and the buffer they add to cover the uncertainty is the cash you are looking for. That is not a knock on planners. It is what happens when the tool cannot look forward and a person has to.
What Better Forecasting Is Worth
McKinsey’s work on AI in distribution operations puts AI-enabled forecasting and inventory planning at reductions of 20 to 30 percent in inventory, with fill rates improving 5 to 8 percent (). Apply the low end of that range to a $10 million inventory position and you free up $2 million. That dollar figure is our arithmetic on published percentages, so treat it as directional. The part worth your attention is both numbers moving at once. Less stock and better service usually trade against each other when planning is done by hand.
What to Look For, Whatever Brand You End Up With
If you are evaluating systems, the working-capital question comes down to four capabilities, and you can ask about them in any demo without knowing a vendor’s feature names. Can I see, on one screen, what is on hand, what is already committed, and what is inbound, by location. Can the system forecast demand from history rather than from a number someone typed in two years ago, and can it tell me why it thinks so. Can I see the cash effect of a buying decision before I commit, built from real open orders and payables rather than a spreadsheet. And can I count what I need to count without stopping the operation to do it. A system that answers all four will free cash regardless of whose logo is on it. A system that answers none will leave you counting on faith.
Where to Start Without Buying Anything
You do not need a new system to find your number. Pull on-hand value by SKU, flag anything that has not moved in 180 days, and set that total next to your line of credit balance. Most finance leaders we talk to have never seen those two figures on the same page, and the comparison usually settles whether this is worth a project at all.
Western Computer has spent nearly 40 years and more than 1,750 ERP implementations working on this with distributors, and the honest lesson is that the fix is more about the forward view than about any single feature. We wrote up the six places an aging ERP quietly charges a distribution finance team, inventory and cash among them. .
