Why your inventory is eating your working capital alive

Let’s face it: inventory is the lifeblood of your supply chain, but for most companies, it’s also the silent killer of profitability. Too many businesses hoard inventory like it’s a badge of honor, while working capital slowly bleeds out, choking growth and innovation. The uncomfortable truth? Your inventory strategy—or lack thereof—is likely doing more harm than good.

Inventory as a lazy capital sink

Think about this: every box, pallet, or container sitting idle in a warehouse is money doing nothing. It’s capital that could have been invested in R&D, automation, market expansion, or even employee development. Instead, it’s collecting dust and costing you rent, insurance, and depreciation.

Yet, many companies treat stockpiling as a safety net. But what’s "safe" about tying up millions in products that may be obsolete tomorrow?

Forecasting is art or just bad math?

How often have you heard someone say, “We can’t run out of stock, or we’ll lose customers!”? Sure, stockouts can hurt, but overstock is worse—it’s a slow, relentless drain. Most companies rely on outdated forecasting models, often driven by guesswork or overly simplistic tools. In today’s world of AI, real-time data, and predictive analytics, there’s no excuse for this level of mediocrity.

The "Just-in-Case" fallacy

The COVID-19 pandemic taught us the dangers of supply chain fragility. But let’s not overcorrect. The "just-in-case" inventory model might seem like the hero after a crisis, but it’s a villain in disguise. Stockpiling doesn’t equate to resilience; it equates to inefficiency. True resilience comes from agility, not excess.

The ROI of smarter inventory

What if you could cut inventory by 30% without compromising service levels? Imagine freeing up that working capital to fuel actual business growth. It’s not just a pipe dream—it’s the result of adopting smarter inventory management practices:

• Not all inventory is created equal. Use ABC analysis to focus your efforts where it matters most.
• Leverage AI-driven demand forecasting and automated replenishment systems.
• Build stronger relationships with your suppliers for better lead times and transparency.
• Stop relying on static buffers; adjust them based on market volatility and demand signals.

Why CFOs and Supply Chain leaders need to talk

The disconnect between finance and supply chain teams is often the root cause of poor inventory management. CFOs see inventory as a cost, while supply chain leaders see it as a necessity. This tug-of-war needs to stop. The solution? Joint accountability. Working capital management must be a shared goal, measured and rewarded across departments.

Working capital isn’t infinite

The bottom line is brutal: companies that don’t get their inventory under control will lose their competitive edge. While your competitors are channeling their capital into innovation and market expansion, you’ll be stuck paying for yesterday’s decisions.

So, here’s a challenge: look at your balance sheet. What percentage of your working capital is locked up in inventory? If it’s over 20%, you’re in trouble. It’s time to stop treating inventory as an untouchable sacred cow and start viewing it as the strategic lever it truly is.