The old adage “time is money” has never been truer than in today’s digital environment. For today’s exporter, getting time on your side requires effective supply chain management. Lean inventory management is not new, the less time capital is stuck in inventory the more money there is to expand and run the business. However, today’s customers demand a seamless experience. Beyond ensuring you can fulfill the order, you need to do it fast. A sense of immediacy elevates customers’ sales expectations. This is true not only for Business-to-Consumer (B2C) sales but also for Business-to-Business (B2B) sales.
The Supply Chain Metric: Inventory VelocityThe key to managing this elevated customer service expectation is aggressively measuring the speed at which inventory passes through your supply chain based upon real time customer demand and optimizing this for financial performance. The focus has shifted more to supply chain visibility (i.e., real time management of the cash conversion cycle and alignment with marketing and sales) rather than a purely logistical or accounting function.
The website Inboundlogistics.com defines inventory velocity as “the speed at which inventory moves through a defined cycle”, for example, the cycle time from raw materials or assembly of parts to the transfer of title to the customer. Inventory velocity is also known as inventory turnover ratio. To measure this critical supply chain metric you divide the cost of goods sold over inventory for the measurement period.
This metric is key to managing cash flow and working capital. The less time inventory is stationary, the higher the value of inventory. Too much inventory and you are tying up capital; too little inventory and you lose the sale to today’s click happy customer. The challenge is finding the right balance. By measuring inventory velocity, you can place an upper cap on speed that allows you to maintain the optimal minimum investment in inventory.
While digitization has made the world a smaller place, opening up international markets to U.S. companies, it also presents unique financial challenges. The Rolling Stones may have been onto something when they sang, “time is on my side … oh yes it is!”
The Solution: EXIM Bank Working Capital Guarantees and Export Credit Insurance
Do you need working capital to help you maintain optimal inventory velocity as you expand your business globally? Do you want to protect your revenues against buyer nonpayment? Would you like to convert those foreign receivables into collateral so your local bank can expand your credit base? If you do, give your local EXIM Bank representative a call today and help get time on your side.