Updated: Sep 13, 2022
Inventory Should be a Four-letter Word
Let’s talk about Inventory. Inventory to any business small, medium, large, new or old can be a make-or-break situation. There are plenty of automated inventory systems available to help businesses track and manage inventory situations such as, re-order point which considers the inventory in stock, inventory conversion (meaning how long it takes to convert inventory to cash), safety stock, lead time and lag time. This is basically the entire supply chain management from vendor to customer. I am not the least bit surprised there are so many different software integration options and point of sales systems to use to track this situation. The bottom line is the longer inventory is held and valued at the lower of cost or market value, the more debilitating this becomes to a business. Businesses need their inventory when purchased to quickly convert to sales, cash that is what is necessary for inventory to truly be an asset and not become a liability.
Precisely how do you keep inventory an asset, meaning specifically it moves as quickly as possible from purchase to sales? You do this by not only selling and driving revenues but also by being intimately familiar with the supply chain briefly discussed above and the market. Today’s market it does not shock me that there are so many sales, blowing out inventory “last years models, last years collection.” The supply chain has been bogged down and left a lot of businesses to pivot and attempt to convert that inventory they are holding into cash and most of time probably selling at break even for purchase and sometimes less and having to take a loss. Again, since the longer inventory sits in the cash conversion cycle it becomes a liability, a heavy liability when it was in fact purchased, originally to be converted into sales. Businesses must be one step ahead of the supply chain, being familiar with the exact re-order point or even moving to an inventory model where purchases or made on pre-order with a sales commitment or just in time to move it out the door. Software and financial ratios such as Inventory conversion, days in sales are tried and true measurements that businesses need to be intimately acquainted with to make money and continue as a thriving company.
Brad Murrill and Robert Simpton are registered representatives of and offer securities through SCF Securities, Inc. - Member FINRA/SIPC Brad Murrill, Tiffany Steadham, and Robert Simpton offer Investment Advisory Services offered through SCF Investment Advisors Inc. 155 E. Shaw Ave. Suite 102, Fresno, CA 93710 • (800) 955-2517 • Fax (559) 456- 6109. SCF Securities, Inc. and Redfish Capital Management are independently owned and operated. www.scfsecurities.com The views and opinions expressed herein do not necessarily represent the views and opinions of SCF Securities, Inc. or any SCF-related entity. This material is for general information only and is not intended to provide specific advice or recommendations for any individual. SCF does not offer tax or legal advice and this material is not intended to replace the advice of a qualified tax advisor or attorney. Please consult legal or tax professionals for specific information regarding your individual situation.