The cover story in this week's (Nov 22-28, 2008) The Economist is titled "All You Need is Cash: Managing in the Downturn." The two articles (pg 17 and 79-81) stress that today's managers will be tested by their ability to manage their cash.
The article covers all types of strategies that firms are pursuing to generate cash including strategies for the managers in the supply chain. They mention that “another area that needs to be put under the microscope is working capital.” We agree with their assessment and have seen a recent rise in the number of firms looking to rethink their inventory strategies to see if can they free up cash.
The articles also correctly point out that if inventories are reduced without much thought behind it, they “risk annoying consumers who cannot get hold of their products because they are out of stock.” And, of course, a lost sale is a lost opportunity to get cash.
This is another example of how inventory optimization can immediately help a firm. If you can reduce inventory systematically, you can both free up cash and minimize your chances of lost sales.