Inventory May Appear As An Asset In The Balance Sheet—But Slow-Moving Stock Is Also Cash Sitting On The Shelf.
Every item purchased uses working capital. The business recovers that cash only when the item is sold and the customer pays.
Excess or slow-moving inventory can:
- Tie up cash needed for salaries, suppliers and operating expenses
- Increase storage, insurance and handling costs
- Create damage, expiry and obsolescence risks
- Lead to discounts or eventual write-offs
- Conceal weaknesses in purchasing and demand forecasting
A useful inventory review should consider:
- Quantity on hand
- Date of purchase or production
- Recent sales movement
- Expected gross margin
- Reorder quantities and lead times
- Damaged, obsolete or discontinued items
- Working capital invested in slow-moving stock
The answer is not simply to hold less inventory. Insufficient stock can also result in missed sales and operational delays.
The objective is to maintain the right stock, in the right quantity, based on realistic demand and replenishment requirements.