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3 Inventory Management Practices To Improve Your Cash Flow

As an eCommerce professional, inventory is your most valuable asset. Why? It’s what generates revenue – the lifeblood of any company. If you’re not paying attention, inventory management can dry up your cash flow. Poor planning can lead to inventory management issues, such as not enough SKUs to satisfy demand, or incurring unwanted storage charges…

Young Asian man doing stocktaking of product in cardboard box on shelves in warehouse by using clipboard and pen. physical inventory count concept

As an eCommerce professional, inventory is your most valuable asset. Why? It’s what generates revenue – the lifeblood of any company. If you’re not paying attention, inventory management can dry up your cash flow. Poor planning can lead to inventory management issues, such as not enough SKUs to satisfy demand, or incurring unwanted storage charges due to slow-selling products occupying valuable warehouse and fulfillment space.

Emerging brands must control inventory or run the risk of suffering from poor cash flow—the reason behind why 82% of small businesses fail. To enjoy success and meet growth goals, brands must have accurate processes in place to monitor sales, and efficiently manage and move inventory.

Understand Your Inventory

In an ideal world, a seller would stock the precise number of items needed to satisfy consumer demand, allowing you to cycle through SKUs quickly to decrease days inventory outstanding. As we all know, though, it is rarely realistic to expect such precision.

When excess SKUs are sitting in warehouses or fulfillment centers, you‘re paying for unnecessary storage costs. The combination of expending too many financial resources into making a product that doesn’t sell, along with paying additional storage fees can cripple cash flow.  

On the other end, having too few SKUs of popular items also creates issues. Potential revenue will be lost if you can’t satisfy consumer demand. It may also hurt your long-term sales, as those customers may turn to a competitor to not only satisfy their current need but future ones, as well.

Poor inventory management can adversely affect cash flow in another way. If you still offer out-of-stock items on your website and customers place an order that you cannot fulfill, that negative experience may cause you to lose their business forever. Trying to gain those customers back via coupons, discounts or other financial incentives could work, but it can limit your cash flow increase.

Brands can avoid these pitfalls associated with poor inventory management by taking the following practices into consideration.

Analyze Seasonal Sales Trends

Every business faces periods of high and low sales for various reasons. Those growing pains can be rough seas to charter, particularly in early growth stages. With more experience, you’ll have better insight into seasonal peaks, as well as periods when sales are slower Understanding these periods will allow you to better calculate sales and manage inventory, accordingly, to minimize cash flow problems.

Improved forecasting becomes easier with the right tools. Certain technology platforms, such as Inventory Management Systems (IMS) and Order Management Systems (OMS), can help keep better track of orders as they are placed, sales volume, and when customers are making purchases.

A quality fulfillment partner can complement your brand’s technology stack with analytical capabilities of their own. By offering better visibility into your inventory, the right 3PL can provide the guidance emerging eCommerce brands need to help determine how much inventory is necessary throughout the year.

Conduct Regular Inventory Audits

As you are immersed in sales peaks, you’ll need to keep track of how many SKUs are selling and how fast each item is moving. This will improve your replenishment procedures because you will know the exact quantity needed to meet demand for each specific product. It’s important to note that various SKUs will sell at different velocities. When re-ordering inventory, do so in smaller quantities more frequently; this has greater cash flow benefits than infrequent larger orders, as it’s easier to adjust how many SKUs you purchase according to the changing demand for each product. This allows you to quickly turn investments into cash.

Organize Products by Sales Velocity

The ideal way to organize products in the warehouse is typically based upon their sales. Strategically placing faster-moving products in more accessible areas will streamline fulfillment. SKUs not generating income should be removed from inventory. There are various ways to accomplish this, such as special promotions like flash sales or donations, or liquidation. At minimum, these products should be placed in less valuable warehouse space to lower storage costs and minimize their effect on operational efficiency.

While there are a myriad of factors that can affect your brand’s cash flow, inventory management is one of the most significant. In addition to allowing your business to properly stock SKUs to maximize sales opportunities and limit product stagnation, it will help establish positive cash flow. This will allow you to do the things you need to do in order to grow your business, like meet bill due dates, pay expenses and make investments. Be sure to monitor your brand’s incoming and outgoing cash throughout seasonal changes to determine if your inventory management practices need improvement.

If you’d like to learn how an experienced fulfillment partner can help you keep accurately manage your inventory, click here to contact us.