5 signs your cash is tied up in inventory

1. Days of supply far exceed the actual replenishment lead time

If an item has 180 days of supply and the supplier consistently delivers within 20 days, the difference needs an explanation. Seasonality or a minimum order quantity may justify it. Repeated orders that ignore existing stock may also be the cause.

Days of supply = current stock / average daily usage.

Calculate this separately for each warehouse, using a period relevant to the product's seasonality.

What specific event justifies holding stock beyond the requirement until the next delivery?

2. Items have no movement, but purchasing continues

Filter items with no stock issues in the past 90, 180 and 365 days. Then check for new receipts within the same periods. No movement combined with continuing replenishment is a clear operational warning.

Possible causes include:

• Min/max parameters left unchanged after demand fell.
• Superseded items that remain active in the item master.
• Automatic ordering that does not exclude blocked products.
• Informally reserved stock with no firm customer order.

3. The same SKU is overstocked in one warehouse and unavailable in another

The company total can look healthy even when the customer cannot obtain the product from the location that must fulfil the order. Compare stock, usage and coverage by warehouse for each SKU.

Before placing a new order, check whether an internal transfer would be faster and cheaper. Distinguish transferable physical stock from reserved, damaged or otherwise unavailable inventory.

4. Order quantities follow supplier thresholds rather than demand

Discounts, free shipping and volume bonuses can improve purchase prices while making cash flow worse. Compare the commercial benefit with the additional inventory value, financing cost and write-down risk.

A better price does not automatically mean a lower total cost. Assess the decision in monetary terms: commercial benefit minus financing, storage, handling, write-downs and clearance costs.

5. Total inventory value is stable, but its composition is deteriorating

A constant total can hide cash moving from fast-selling products into slow-moving items. Track ABC classes, turnover and the share of non-moving stock separately.

Each month, compare the same categories: active, slow-moving, non-moving, reserved and blocked stock. This shows whether a stable total is genuinely healthy.

6. A working checklist for the first hour

1. Export inventory by SKU and warehouse, valued at purchase cost.
2. Add monthly stock issues for the past 12 months.
3. Calculate days of supply for each location.
4. Flag items with no movement for 90, 180 and 365 days.
5. Identify SKUs with excess stock and stock-outs at different locations.
6. Check recent receipts for non-moving items.
7. Separate demand-backed orders from orders justified only by commercial thresholds.
8. Build a shortlist ranked by the amount of capital requiring investigation.

The list is a starting point, not a final verdict. In a real diagnostic, check each warning against the history, supplier, buyer and commercial constraints. The aim is to release capital without creating new stock-outs.