| Organization: A $30 million Florida-based automotive parts manufacturer. | Need: Better cash flow and inventory management. | Outcome: An inventory management program increased net operating profit by 20%. |
Understanding the situation
A $30 million Florida-based automotive parts manufacturer was struggling to maintain a healthy cash flow so reached out to CLA for outsourced CFO services. In addition to a 13-week cash flow analysis, the consulting CFO suggested an ABC inventory analysis to address the manufacturer’s growing stock.
Boost cash flow through better inventory management.
Exploring the challenge
An ABC inventory analysis categorizes inventory based on value and usage. A items have the highest value and fastest usage, B items have moderate value and usage, and C items have the lowest value and slowest usage.
An ABC inventory analysis involves:
- Running inventory usage reports
- Evaluating unit costs and margins
- Comparing inventory levels to revenue values
CLA’s analysis recommended:
- Maintaining a moderate amount of inventory to avoid overstocking and improve cash flow
- Having the purchasing department track components and institute cycle counts for improved inventory management
- Assigning one employee to oversee the A items, providing constant monitoring and accurate tracking
- Reorganizing the shop floor to move the A items to the front for faster processing and shipping
- Selling excess C items in a fire sale to reduce carrying costs
By right-sizing its inventory, the manufacturer increased its net operating profit by 20%.
Achieving results
By right-sizing its inventory, the manufacturer increased its net operating profit by 20%. The owner also felt more confident about his business operations and was able to take a vacation without worrying about cash flow issues.
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