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Balancing working capital is often a challenge for most companies.
After all, it's necessary to balance your current assets – inventory and any other holdings – with your current liabilities – such as salaries and rent – to ensure you have what's needed to sustain the business.
Therefore, we have prepared special content to help you understand more about the relationship between inventory management and working capital.
What is Working Capital?
The working capital of a company encompasses all the financial resources it needs to maintain proper operation. In other words, it is the portion of total investment that is earmarked for paying costs and expenses over time.
The working capital of a company shows how much it already has available in its high liquidity assets – goods and rights that can be converted into cash – to pay its short-term obligations such as suppliers, taxes, employee salaries, etc.
The Impact of Working Capital on Inventory Control
Inventory and working capital are closely intertwined. Most businesses dealing with products or commerce, even indirectly, typically maintain raw material inventory.
Inventory management is a critical aspect of company administration that requires careful attention.
While the cost of holding inventory might seem straightforward, it actually involves several factors such as holding time, storage maintenance, and product deterioration if it becomes stagnant.
Ultimately, while stored, products lose value and can degrade until they are sold. This necessitates maintenance efforts to determine the optimal storage conditions and the best time to liquidate inventory.
Inventory management can be problematic and, depending on how it's handled, can impact working capital. This increases the need for funds to ensure inventory quality, potentially reducing overall profitability.
To gauge how inventory is affecting your company's financial health, it's crucial to understand the average storage period and cost.
This defines what's necessary to maintain product quality and calculate the ideal amount of capital to allocate to this area.
Moreover, managing industry inventory alone isn't sufficient. It's essential to control inventory across your sales channels to forecast consumption and guide production and optimal inventory levels.
How Implanta Can Help You Free Up to 30% of Tied-up Capital
Using the right tools will make all the difference in managing your inventory.
To make the best decisions for your production, it's crucial to use integrated software that provides accurate information and insights for a strategic view of production and sales.
Among the various functionalities offered by Implanta's solutions, our reports show you initial and final inventory, optimal inventory levels, days of inventory sales, reorder point, shelf break anticipation, and opportunities for sales (sell-in).
By investing in the Distribution Visibilityyou can eliminate excess inventory with more efficient management and free up your budget for important sales actions, potentially unlocking up to 30% of your immobilized working capital.
Effective inventory management depends on functional solutions, and Implanta has the solution for your industry.
Want to learn more? Get in touch with one of our specialists.
