We all agree that cash-flow is the bloodstream of a company and that the ultimate goal of doing business is to return the money we have put into business in the original form – CASH. This cycle of property reminds me of a cycle that occurs in the nature – ice melts at a certain temperature and turns into water; the water vaporizes; then it falls again in the form of water to the ground and after lowering of the temperature, it again turns into ice.
Operational assets of an enterprise can also be divided into three aggregate states:
Cash – is a solid aggregate state, which is the goal of the entire business cycle. Everything we do in our company is focused on production and maximizing cash-measured assets. When a company wants to take over another company, how do they measure the other company’s value? It is measured by estimating how much the company we want to buy is able to generate cash for the next 5-10 years, and not how valuable the buildings and other assets are.
Inventory – is current aggregate state because they are less “solid” state of assets, but they are at least in our warehouse and we have them “under control”. In fact, we only have the feeling that they are the asset, and, according to the definition of asset we have already talked about, the inventory is not an asset because it is not operational. It is in operation only when sold or otherwise used (e.g. in production).
Receivables– it is the gaseous aggregate state of assets and special attention should be paid to the methods for converting this gaseous state to the solid state of cash.
How we help to free cash-flow potential in your business:
- Portfolio optimization – Based on the cash-flow Index tool, we calculate which cash-flow potential is for your inventory. Then, through a carefully elaborated procedure, we determine which products have the potential to generate profitable growth.
- Focus – We adjust the supplies structure with the needs of real sales and markets and focus on the part of the goods and assortment that is sold well and adjust the supplies level to the desired level of availability.
- Solving the causes that led to forming the stock – We help find and eliminate the causes of dead and unprofitable stock.
- Smart Order – We create the Smart Order method by defining the optimal stock according to a custom stock matrix, defining the optimal quantity and frequency of ordering.
- Early Warning System – We monitor the stock and stock turnover through introduction of Early Warning System from generating unwanted stock.
- Get rid of the dead stock – Implementing methods for dealing with dead stock to make them a part of everyday supply management
Solving inventory problems
Problem solving is the process of making decisions about what to do to correct a problem that has occurred in the past and/or prevent it from happening in the future. Therefore, we can look at it based on two criteria: temporal dynamics (past and future) and the depth of the solution (solving the cause or the consequence). This matrix clearly shows the interrelationships between these two criteria and also gives us a guide to the best way to solve (in the following example) the problem of excessive inventory:
| Past | Future | |
|---|---|---|
| Cause | Corrective actions Joint educational workshops •Involve multidisciplinary teams (logistics, procurement, and sales) •Supply chain simulations •Jointly identify critical points | Preventive Actions Systems to prevent future deficits •Specific S&OP and More Accurate Forecasts •Early Warning System (Traffic Light System) for New Products Introductions (NPIs) •Expanded Focus Groups (Principals and Big Customers) |
| Consequence | Adaptive actions Systematic deficit resolution that concerns everyone • Shake-up of the assortment • Conversion of dead stocks into cash, “expiry-date cleaners” • Focus groups (procurement, sales and logistics) | Contingency actions Uncertainty management • Resolving deficits in the future if they occur • Creating scenarios that deal with uncertain events, -testing the current strategy on them and -avoiding the traps of those scenarios in the future |
CASE STUDY:
Cash flow improvement – Zoo Hobby d.o.o.:
Techniques to improve cash flow through supply optimization that Mr. Antonio Zrilić helped to implement have helped significantly to understand the structure of the tie-in inventory, its actual allocation, value, and the prerequisites for setting up the assortment management strategy.
In collaboration with Mr. Zrilić, we have developed a specific method of inventory management, product prioritization, resource investment in essential things, and optimization of the entire process.
His understanding of the specific area was crucial in organizing data, designing the method, and applying a new model of work.
Although all elements of the change have not yet been completed, without his help, we could not make that step forward and launch processes that could have long-lasting positive effects on the level of service, quality of work, and optimization of tie-in money…
“…He has dramatically improved our cash flow….”
– Edvard Varda, Direktor, Zoo Hobby
Inventory optimization – Husqvarna (Drezga d.o.o.):
“
Based on the work with LOGIKO inventory management the inventory was reduced by 20%. This fact helped us to reduce the cost of logistics and overcome the recession that went relatively painlessly. We can no longer imagine inventory tracking and ordering without this extremely useful tool.
What is even more importantis the fact that besides the cost reduction, the level of customer service has increased at the same time. Setting up a help model with ordering enabled facilitation of the operational procurement and shortened the long and tiresome ordering procedure. Now, we spend 50% less time for ordering.
The liquidity of the company has been preserved and in this very turbulent period of economy crisis stability has been ensured.The greatest benefit we have gained in cooperation with Mr. Zrilić and LOGIKO is that we are now managing the inventory and costs. The whole logistics is now in function of the strategy and goals of our company. As a conclusion, we recommend Mr. Zrilić and LOGIKO to anyone who thinks that supply optimization is a way to improve their business.
“…The entire logistics is now aligned with the company’s strategy and objectives…”
– Arijana Drezga, direktorica Drezga d.o.o. (HUSQVARNA)
“Call the consultant and resolve uncertainties, problems, and challenges IMMEDIATELY! Contact us on tel. +385 91 222 0123 or e-mail: info@logiko.hr.“
– LOGIKO TIM