Balancing Inventory and Capital: 5 Guidelines for Arizona Businesses
Inventory management strategies play a key role in balancing capital and investments in supply. But while inventory is one of the largest assets on the balance sheet for many businesses, there isn’t a one-size-fits-all formula to make sure it’s always at optimum levels.
Even in the face of inventory’s significance, 46% of small businesses don’t track their inventory systematically, according to IHL Group, a global research and advisory firm for the retail and hospitality industries. The impact is significant: In 2020, out-of-stock items in the retail sector were valued at $1.14 trillion.
Labor fluctuations make it increasingly challenging to track and manage inventory effectively. In the Phoenix area alone, a quick search in early 2022 revealed more than 3,000 open operations and warehouse positions with responsibility for inventory.
Putting inventory management to work
Some companies — especially large ones — are innovating in response to these combined obstacles. For instance, in early 2022, Sam’s Club’s floor-scrubbing robots were taking on new technology that equipped them to also scan shelves for accurate stocking and pricing. The tech sends timely inventory reports to store managers while flesh-and-blood employees focus on customers.
Robots aside, employing smart strategies to manage your inventory can also help make the most of your working capital. Here are five ways your Arizona business can craft a responsive inventory strategy:
1. Remember that your banker may have solutions. An experienced relationship banker likely has deep expertise in your industry sector and may have recommendations based on their experience. Your banker also should be able to suggest appropriate cash management strategies to enable more effective inventory management. Options may include rapid, automated deposits and sweep accounts to free up cash flow, along with financing instruments that can deliver more flexibility for inventory management.
2. Weigh lifespan vs. supply-chain issues. Higher levels of inventory can help you avoid problems that arise with a tricky supply chain — but only if your stock has staying power. For example, some Halloween inventory can carry over to the next year: The Hulk is a time-honored classic, and vampire fangs are eternal. On the other hand, “Tiger King” may soon be only a vague memory. You may want to be wary of tying up capital in stock that might not be so desirable six months or a year down the road.
3. Get help from technology. With or without barcode-scanning robots, inventory management technology can reduce your inventory spend. Electronic systems can track inventory in real-time, and they are unlikely to lose records or lose track of stock. Precision tracking enables you to audit stock efficiently to avoid unexpected out-of-stock emergencies and rush-order fees. Your banker can discuss financing options for technology investments and help you calculate their ROI.
4. Bear in mind customer attitudes. Ultimately, an ideal inventory supply reflects both your business and your customers’ needs and wants. Today, gone are the days of overflowing racks of discounted after-holiday purchases. Instead, many retailers may quickly sell out of their minimal stock of holiday goods. In your business, will customers tolerate potentially missing out, or will they spend their money elsewhere? The answer can drive decisions and help you avoid unneeded inventory that could be taking up space (and capital) that you could be using for something else.
5. View inventory as capital — because it is. Each bit of stock represents a financial investment. Both over-stocking and under-stocking carry risk. Your banker and other financial advisors may advise you to build in flexibility so that you have the funding to back up your ordering decisions. Funding availability can enable you to expand your inventory at the right price — especially stock that is a commodity or at low risk of obsolescence.
If you’d like to speak with one of our expert bankers about how our solutions can help you maintain workable inventory levels despite ups and downs in the supply chain and the labor market, contact your Alliance Bank of Arizona relationship manager or find out more about what our bank can offer businesses like yours.