Inventory Control – Best Practices
Successfully managing inventory to improve cash
flow and buying decisions
Keith Wansley
Mark Lemons
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Agenda
•Seawide Inventory Control - Challenges
•Inventory Management Process – Max / Min
•Forecasting
•Inventory Turns & cash flow
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Seawide Inventory Control – Landscape
•Challenges
•Four warehouses
•50+ vendors
•16,000+ SKU’s
•Key items must be in stock
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Inventory Control Process
Max / Min Inventory Control System
•Set minimum and maximum inventory levels for items you want to
keep in stock.
•When the inventory level for an item drops to the minimum, reorder the
item
Designate Stocked and non-stock items
•Stocked
•Items you must always have in stock
•Inventory turns justify the carrying cost
•Allows you to take advantage of deals
•Non-Stock
•Items sold on an inconsistent basis
•Turns do not justify carrying cost
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Forecasting – Total Sales
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Forecasting – By Product Line
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Forecasting – Inventory Turns
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Inventory Control Process - Continued
Max / Min Inventory Control System
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Cash to Cash Cycle
Cash to Cash Cycle: How long does it take you to convert
cash invested in inventory into free cash to be used to fund
the business.
•Cash to Cash Cycle =
- Days Payable Outstanding: What your terms are from suppliers
+ Days Cost in Inventory: How long it takes you to turn your inventory
•Driven by Max / Min inventory system
+ Days Sales Outstanding: How long it takes to collect your receivables
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Cash to Cash Cycle
DPO
Purchase
Product
Stocked
Inventory
example Sep 1
NonStocked
Product
example Nov 1
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DCI
DSO
Cash to Cash
Pay
Supplier
Sell
Product
Collect From
Customer
30 day
terms
6X Inv
Turns (60
days)
Average 15
days
+
+
+
Oct 1
Nov 1
Nov 15
Cash out on Oct 1
Cash in on Nov 15
45 days
30 days
(terms or
credit card)
On delivery
Average 15
days
- 30 DPO (Days Payable Outstanding)
+ 0 DCI (Days Cost of Inventory)
+ 15 DSO (Days Sales Outstanding)
- 15 Cash-to-cash
Dec 1
Nov 1
Nov 15
Cash out on Dec 1
Cash in on Nov 15
Use of supplier’s cash
for 15 days
30 DPO (Days Payable Outstanding)
60 DCI (Days Cost of Inventory)
15 DSO (Days Sales Outstanding)
45 Cash-to-Cash
Summary
•Having an inventory Strategy is key to running an efficient profitable
business
“The most dangerous kind of waste is the waste we do not recognize.”
Shigeo Shingo,
Japanese industrial engineer considered the world’s leading expert on
manufacturing & inventory practices – Father of Toyota Production System
•Fun Fact
•By taking prompt pay discounts dealers could improve their profit’s
10+ %
•Average product margin 18%, taking a 2% prompt pay increases
product margin 11%
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END
Questions / Comments
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