Inventory velocity not only accelerates cash flow but it also can contribute to margin improvement. How do we turn inventory faster and keep our money in motion vs. stagnating in the back of our warehouse?
One of the best ways to keep your inventory moving is to put a SIOP (sometimes known as S&OP) process in place. The better picture you have of your demand plan, the better you’ll be able to align that with your master schedule, production plans, detailed schedules, purchase plans, capacity capability requirements, staffing and skill requirements, and sales plans. Aligning these people, processes and technologies with the overall business strategy while optimizing among competing priorities will drive inventory velocity.
For example, at Transtar Metals, we implemented a sales and operations planning process and drove rapid improvement in inventory velocity. In this case, the reduction in inventory levels not only freed up cash but it also was a contributing factor in a higher valuation for the business and ultimate sale.
P.S. To learn more about how to implement SIOP, read our book, SIOP (Sales Inventory Operations Planning): Creating Predictable Revenue and EBITDA Growth.