How To Fix Your Inventory So You Have More Money In Your Pocket (Part 2)

Hey there,

Peak season is fast approaching, and your supply chain is the engine that turns product into profit. Imagine your inventory as a giant vault—every unit you don’t sell is a dollar you can’t spend. Let’s dive into 5 supply-chain–focused strategies, each with practical how-tos and bullet-point next steps to free up your cashflow from pre-delivery through post-delivery.

1. Tighten Your Demand Forecast Window

When you push your forecast horizon farther into the future—say 12 or 16 weeks out—your statistical confidence drops steeply. Small shifts in customer behavior, supplier lead times, or even a single viral marketing moment can skew demand by 20–30% or more. To “cover your tail,” you end up over-ordering safety stock, which means tying up hundreds of thousands in raw materials and finished goods that sit idle while you wait for actual orders to come in.

By tightening your forecast window to 2–4 weeks for volatile SKUs (and no more than 8–12 weeks for your most stable sellers), you:

• Reduce Forecast Error: Shorter windows capture recent trends and minimize demand surprises—so you need less buffer.
  

• Lower Safety Stock: With tighter error bands you can confidently dial back your SS calculations (Z-factor), instantly freeing up that cash.
  

• React Faster: You’ll catch spikes or slow-downs in near real time, so you’re not stuck with overshoot or out-of-stock surprises.
  

• Free Immediate Cash: Every 10% reduction in safety stock translates directly into working capital you can reinvest in marketing pushes, expedited restocks, or new product trials—right when you need it most.

How to do it:

• Rolling 4-Week Forecasts: Every week, update your forecast using the trailing 4 weeks of actual sales.
  

• SKU Volatility Segmentation:
  

  • Stable SKUs (<10% week-to-week variance): Forecast 8 weeks out.
    

  • Medium SKUs (10–20% variance): Forecast 4 weeks out.
    

  • Volatile SKUs (>20% variance): Forecast 2 weeks out.
    

• Variance Analysis: Compare last week’s forecast vs. actuals to refine forecasting algorithms.

Next Steps:

• Pull the last 4 weeks of sales and calculate variance for each SKU.
  

• Set up segmented forecast horizons in your planning tool.
  

• Automate weekly variance reports to catch forecast drift early.

2. Phase Your Purchase Orders (POs) Inbound

When you place one big, lump-sum PO months before peak season, you front-load your cash outlay—paying for 100% of the units before you even know the real demand. Those units sit in transit or idle in your warehouse, accruing storage fees, insurance costs, and tying up capital you could be using elsewhere. You also lose flexibility: if demand shifts, you’re stuck with excess, forced into discounts or write-offs to clear space.

By phasing your POs into smaller tranches timed closer to actual demand signals, you:

• Stagger Cash Outflows: Instead of one massive payment, you spread spending over multiple dates, letting cash flow match sales.
  

• Reduce Storage Costs: Fewer units arriving early means lower warehousing fees and less risk of incurring long-term storage penalties.
  

• Increase Flexibility: You can adjust later tranches up or down based on updated forecasts—minimizing excess or stock-out risks.
  

• Improve Vendor Collaboration: Negotiating phased deliveries often leads to better supplier commitment and can unlock tiered pricing or more favorable terms.
  

• Shorten Cash Conversion Cycle: By aligning pay-for-stock with sell-through timelines, you free up working capital sooner and keep it working for you.

How to do it:

• Split Large POs: Break big orders into 2–3 tranches tied to your peak-season timeline (e.g., early, mid, late).
  

• Vendor Agreement: Lock in tranche quantities and pricing, then automate releases via EDI or your TMS.
  

• In-Transit Visibility: Use your 3PL or freight partner’s portal to track each tranche’s ETA vs. plan.

Next Steps:

• Identify your top SKUs and their total PO volume.
  

• Propose a phased PO schedule to suppliers and confirm MOQ/pricing.
  

• Enter each tranche as a separate inbound PO with its own ETA.

3. Optimize Safety Stock by SKU & Location

When you apply the same safety-stock level to every SKU and every location, you end up with too much capital tied up in slow-moving items and too little buffer for your top sellers. That one-size-fits-all approach:

• Overprotects Low-Turn SKUs: You hold unnecessary stock that sits idle, accruing storage and carrying costs.
  

• Underprotects High-Turn SKUs: You risk stock-outs on your best sellers, losing sales and customer trust when demand spikes.
  

• Ignores Lead-Time Variability: It treats a 7-day lead time and a 21-day lead time the same, even though the longer-lead items need more buffer.

By tailoring safety stock per SKU and location, you:

• Optimize Cash Allocation: Only the right amount of stock is held where it’s needed, freeing cash from slow-movers.
  

• Maintain Service Levels: You assign higher buffers to high-value or volatile products, reducing stock-out risk without overordering.
  

• Reflect True Risk: Calculating SS with each SKU’s specific demand volatility and lead-time deviation ensures your buffer matches reality.
  

• Enhance Responsiveness: With accurate safety-stock settings, your team can reallocate capital from low-risk to high-risk areas as demand shifts, keeping cash flowing.

How to do it:

• Service‐Level Targets: Assign service levels by SKU (e.g., 95% for best sellers, 80% for slow movers).
  

• Lead‐Time Variability: Calculate the standard deviation (σ) of supplier lead times over the past 6 months.
  

• Safety Stock Formula: SS = Z × σ_LT × average daily demand (where Z corresponds to your service level).

Next Steps:

• Export 6 months of lead-time and demand data for your top SKUs.
  

• Calculate σ_LT and determine Z values for each service level.
  

• Update safety-stock settings in each warehouse/location accordingly.

4. Balance Distribution Inventory with Demand Signals

When you push the same quantities to every distribution center, you treat Paris like Peoria—even though sales patterns differ wildly by region. That blunt approach:

• Creates Overstock in Slow Markets: Your DC in a low-demand area sits on excess stock, racking up storage fees and tying up capital.
  

• Triggers Stock-Outs in Hot Zones: Your DC in a high-velocity market runs dry, missing sales and frustrating customers.
  

• Complicates Transfers: You end up transferring goods between DCs, incurring extra handling costs and delays.

By aligning DC allocations to actual regional demand, you:

• Match Supply to Demand: Allocate more inventory where you sell most, and less where you don’t—freeing cash from underperforming locations.
  

• Reduce Transfer Costs: Minimize inter-DC moves by getting the right stock in the right place from the start.
  

• Boost Service Levels: Keep high-demand regions in stock, preventing lost sales and last-mile expedited shipping fees.
  

• Improve Visibility: Your forecasts become more accurate when they’re based on real regional sell-through data, helping you optimize future orders and cash flow.

How to do it:

• Regional Allocation: Use last peak season’s % sales by region to allocate inbound stock per DC.
  

• Dynamic Rebalancing: Weekly, compare actual picks vs. forecast by DC; trigger transfers when deviation >15%.
  

• Cross‐Docking Hot SKUs: For your top 10% fast-moving items, pre-label and stage them on arrival for immediate outbound flow.

Next Steps:

• Analyze last season’s sales by DC to create allocation ratios.
  

• Build a weekly dashboard showing DC picks vs. forecast and set transfer-trigger thresholds.
  

• Configure your WMS/TMS to flag and auto-generate internal transfers when needed.

5. Implement Post-Delivery Flow-Through KPIs

When a product sits in your DC, it’s doing nothing but tying up the dollars you spent to buy, transport, and store it. That line—“cash isn’t free until product ships out”—is a reminder that your real return on investment only starts the moment an order leaves the dock. Here’s why measuring your flow-through speed is mission-critical:

• Reduces Idle Capital: The faster you move goods from receiving to shipping, the less time your cash is parked in inventory. Even shaving one day off your lead time means you can reinvest that money into promotions, new product runs, or ad spend rather than paying storage fees.
  

• Highlights Bottlenecks: Tracking inbound-to-outbound lead times exposes slow points—whether it’s a picking delay, QC hold, or packing queue. Once you see where the drag is, you can add resources or tweak processes to keep product—and cash—flowing.
  

• Improves Forecast Accuracy: When your DC turns inventory predictably, your planners can trust the numbers and rely less on over-buffering, which otherwise inflates safety stock and locks up unnecessary funds.
  

• Drives Operational Discipline: Publishing flow-through KPIs creates accountability. Teams rally around clear targets (“ship within 48 hours!”), and continuous monitoring becomes part of your culture, preventing small delays from becoming big cash drains.

By making flow-through speed a core metric, you turn your DC from a cost center into a high-velocity pipeline that accelerates cash conversion and fuels your peak-season momentum.

How to do it:

• Inbound-to-Outbound Lead Time: Track the time from receipt at DC to shipment out.
  

• Throughput Ratio: Units shipped per day ÷ units received per day—aim for >1.0.
  

• Bottleneck Alerts: Flag any SKU or DC where lead time exceeds your threshold (e.g., 3 days).

Next Steps:

• Define your acceptable inbound-to-outbound lead-time target and throughput ratio.
  

• Build real-time KPIs into your WMS or BI tool and set up automated alerts.
  

• Train your DC team to respond to alerts—e.g., allocate extra pickers or escalate problem SKUs.

Your Peak-Season Cashflow Sprint

• Forecast & Segment: Shrink horizons and tailor by SKU volatility.
  

• Phase POs: Spread spend with supplier-approved tranches.
  

• Tailor Safety Stock: Calculate SS by SKU/location using statistical formulas.
  

• Regional Balance: Allocate and rebalance DC stock to real-time demand.
  

• Measure Flow-Through: Track and alert on DC throughput KPIs.

Implement these now and you’ll unlock working capital just when you need it for ads, promotions, and growth during peak season. Let me know which tactic moves the biggest needle for your cashflow.

Until next time,
Lara