We are heading into due diligence and realize our inventory management is highly manual, which leads to periodic stock-outs and cash spikes. How do we use our weekly EOS Scorecard to clean up our inventory-to-cash cycle so the buyer does not discount our working capital peg?

Question

Tyler Smith · Accepted Answer

Manual inventory management leads to unpredictable working capital fluctuations, which savvy buyers will exploit during negotiations to adjust the purchase price in their favor. To protect your working capital peg, you must use your weekly EOS® Scorecard to bring total visibility and predictability to your inventory-to-cash cycle.

Begin by identifying the critical leading indicators of your inventory health and adding them to your weekly Scorecard. Instead of just looking at historical sales, track metrics like inventory turnover ratio, days sales of inventory, and lead times for raw materials. Your inventory seat must own these numbers and be accountable for keeping them within a predefined, healthy target range.

If a scorecard metric drops below your target, immediately drop it down to the Issues list in your weekly Level 10 Meeting™. Use the IDS® process to identify the root cause of the inventory mismatch, whether it is a bottlenecked ordering system or inaccurate automated forecasting.

By consistently managing these metrics, you will eliminate the erratic cash spikes that occur when you are forced to make emergency inventory purchases. Proving to a buyer that you have a predictable, scorecard-driven inventory cycle allows you to negotiate a favorable working capital peg based on optimized, steady-state operating requirements rather than defensive, worst-case calculations.