Investing in inventory directly affects profitability and cash flow for a business. Knowing how much to buy and when is a critical game with big gains and losses. Leaders in business must be discerning in their investments; they must make strategic decisions to limit risk and increase cash flow.
Unreliable partnerships can cause strains and restrict cash flow. Manufacturers partnering with inconsistent vendors often find themselves absorbing the costs of those vendors’ shortcomings. For example, when a vendor’s lead times are uncertain and delivery dates are missed, the manufacturer may purchase and store extra inventory to create a buffer against these issues. This extra inventory depletes the manufacturer’s cash flow and takes up valuable floor space.
The solution to these cash flow problems is to create ideal relationships with reliable partners. This will help in a few critical ways.
First, a reliable partner should be able to invest in human and equipment assets to meet lead times consistently. This consistency will eliminate the need for the manufacturer to create a buffer by investing in extra inventory and therefore alleviate those restrictions on cash flow and space.
Second, a reliable partner should be able to assume the risk and responsibility of purchasing and storing inventory. Aligning with such a partner will even out the ebbs and flows, increasing cash flow and floor space for the manufacturer.
At Mainstay, we strive to create ideal relationships. We strategically invest in and manage inventory with intentionality to lift unnecessary cash flow restrictions on our partners. In this way, our partners are able to utilize increased cash flow to make strategic investments to grow their business and add more internal value to customers. Their growing business and capacity needs will, in turn, help to grow our business as well. These ideal relationships allow both sides to strategically invest, creating mutually beneficial relationships.
Leaders in business should be striving to create ideal relationships. Ideal relationships with reliable partners can help free up cash flow for both parties. This will allow leaders to make more accurate cash flow predictions and strategic investments to keep their businesses nimble.
The first step towards increasing cash flow is reevaluating existing relationships and, possibly, exploring new ones. Talk to current vendors and restructure existing partnerships to lift the burden of inventory investments. The next new vendor meeting should be centered on their ability to make those investments and create a mutually beneficial partnership. Take the lead and build an ideal relationship with a reliable partner who will help increase, rather than limit, your flow.