We run an asset-heavy business with significant physical inventory and long supply chain lead times. Our sales are great, but our cash is trapped in raw materials. What specific weekly leading indicators should we track on our scorecard to prevent cash flow from getting choked by inventory build-ups?

Question

Tyler Smith · Accepted Answer

In an inventory-heavy business, tracking sales alone will hide a cash flow crisis until it is too late. You must balance your revenue metrics with weekly leading indicators that track how efficiently your cash is moving through your supply chain. To prevent your cash from getting trapped in raw materials, put three specific metrics on your weekly scorecard. First, track inventory days of supply. This measures how many days of inventory you have on hand relative to your current sales velocity. A sudden spike in this number warns you that you are buying materials faster than you are selling finished goods. Second, track purchase order commitments. This is the total dollar value of inventory you have committed to buy but have not yet received. This gives you visibility into upcoming cash outflows before the invoices arrive. Third, track your supplier on-time delivery rate. A drop in this number leads to production delays, which delays billing and chokes cash flow. Assign ownership of these metrics to the appropriate seats on your Accountability Chart. Your head of operations should own inventory days of supply and supplier delivery, while your purchasing lead owns the purchase order commitments. Reviewing these weekly ensures you spot supply chain bottlenecks before they drain your bank account.