MANAGING MONEY IN MANUFACTURING :
Inventory and Cash Flow
We can ’ t discuss inventory and supply chain in 2023 without first looking at the 2022 economy . It wasn ’ t always sunny and that doesn ’ t look to be changing anytime soon . Almost every business has been affected by supply chain disruptions and rising inflation that hit 8.3 percent in August 2022 . On top of that , business owners are battling rising employee costs and facing a probable recession .
So how will all of this impact your business ? A few ways . Too much inventory can limit the flexibility you have in your business . Purchasing too much inventory that doesn ’ t move quickly will use up the available cash you need to run your business , but with supply chain concerns over the last three years , you don ’ t want to be in a position where you can ’ t get inventory either . This has been a constant battle for business owners who feel they have to “ thread the needle ” between these two extremes . To find a balance you will want to become comfortable with inventory and supply chain management and how they can be tools to help you with your business .
Inventory Management vs . Supply Chain Management
Supply chain management oversees the flow of products from raw goods and production sourcing through final distribution . Inventory management is an umbrella term for the procedures and processes that affect ordering , receiving , storing , tracking , and accounts for all of the goods that a business sells . It is important to know the right level of inventory to hold . You should ask yourself these questions :
• Are your inventory levels based on “ Just-in-Time ” or “ Just-in- Case ” manufacturing ?
» Just-in-Time was developed by Toyota in the 1970s to help meet consumer demands with minimum delays . For example , parts would be ordered and delivered within close proximity of where they would be needed in the manufacturing process . This worked well when the product was easily attainable prior to the supply chain disruptions we have seen since COVID-19 wreaked havoc over the world .
» Just-in-Case is newer terminology due to supply chain disruptions . Manufacturers are now beginning to look at :
• Can they develop the parts / products that are needed in-house ?
• Do they have multiple supplier relationships as back-ups ?
• And are there domestic suppliers who can provide the product ?
• Are you actively reviewing your inventory movement on a consistent basis ?