Why production & inventory matter
If you sell a product, you need to hold inventory. The money you spend on raw materials and finished goods is cash you cannot use elsewhere until the product is sold. By speeding up production and moving inventory faster, you free up cash sooner to fund growth.
Assess your production and inventory cycle
- Measure your production lead time: How long does it take from ordering materials to finishing a product?
- Track days of inventory: How many days’ worth of stock do you hold?
- Identify slow-moving items: Which products sit on shelves longest?
Knowing these metrics helps you target improvements.
Strategies to shorten the cycle
- Adopt lean and just-in-time (JIT) methods. Companies like Toyota have reduced the time products sit in inventory by using lean manufacturing and JIT production. Produce smaller batches more frequently so cash isn’t tied up in large quantities.
- Improve production schedules. Coordinate work orders to minimise idle time and ensure materials and labour are available when needed. Use scheduling software to spot bottlenecks.
- Avoid false economies of scale. Buying in bulk may reduce unit costs, but if you hold excess inventory you lose the use of that cash. Evaluate whether quantity discounts outweigh the cost of tied-up cash.
- Order smaller quantities more frequently. Ordering smaller batches reduces inventory sitting in the warehouse and may cut the cash cycle by dozens of days.
- Use demand forecasting. Analyse past sales data to forecast demand, so you produce only what you expect to sell. This prevents over-production and helps maintain optimal stock levels.
Keep refining
Reducing production and inventory time requires continuous monitoring. Track your days inventory outstanding (DIO) – the average number of days it takes to sell inventory – and set targets to lower it. By freeing up cash tied to stock, you can invest sooner in marketing, R&D or additional capacity. Next, see how shortening your delivery cycle can speed up your cash flow even further.