“Just-in-time inventory…improves cash flow while its partners bear the brunt of long payment cycles.” Andrew J Lauter
Inventory management is a matter which should be of concern to entrepreneurs. However the truth of the matter is much to the contrary. This is an area in which I have made some pretty major mistakes in the past and still do to a much smaller extent to date. So what do I mean by inventory management? It is basically how effectively an organization balances it’s stock demand and supply. When our warehouses are full or we have many unbilled invoices, cash flow is reduced drastically. This has major repercussions on our ability to manage day to day operations as well as grow the business.
Mismanagement of inventory is an area where many entrepreneurs make mistakes because of their inexperience in managing cash flows and liquidity. One of my initial entrepreneurial experiences was in my design firm, we had pre-ordered a lot of fancy paper to reduce production lead time and get deep discounts. It seemed like a good idea in principle. However, when deals in the pipeline kept getting delayed, and we lost a big account, we began to seriously feel the pain. We were fortunate to save the business because of a close friend who helped us bridge our cash flow gap. It was through this lesson that I began to learn how important it is to manage inventory intelligently and not make orders on a whim because of a “good deal”.
Over the next week I plan on demystifying this topic and I hope this series will assist first time entrepreneurs who are not always aware of the challenges of managing their inventory correctly. The concept of inventory should not be restricted to physical stock, it includes any sort outstanding payments that maybe causing a liquidity crunch for the business. The sooner we become adept at managing our inventory cycles, the faster we will be able to grow and scale our business. I hope you enjoy this series and I look forward to your comments and feedback.