We operate a physical distribution and light assembly business where inventory carrying costs are killing our cash flow. What weekly metrics should we place on our Scorecard to keep our inventory lean without risking stockouts?

Question

Tyler Smith · Accepted Answer

Managing inventory requires a delicate balance between cash flow and operational readiness. If you carry too much inventory, your cash is trapped on the warehouse shelves. If you carry too little, you risk stockouts and missed delivery deadlines.

To manage this balance, you need to track both efficiency and reliability on your weekly Scorecard. Start by tracking your weekly inventory turn rate or days sales of inventory. This metric tells you how quickly you are converting raw materials or finished goods into sales, allowing you to identify overstocking issues before they drain your bank account.

Next, track supplier on-time delivery rates. This is a critical leading indicator. If your suppliers are consistently late, your operations team will naturally over-order to create a safety buffer, which drives up carrying costs. Tracking this metric allows you to hold your suppliers accountable or find alternative vendors.

Finally, track your order fulfillment rate. This metric ensures that your efforts to remain lean are not hurting your customer experience. If your fulfillment rate drops below your target, it is an immediate signal that your inventory levels are too low. By tracking these metrics, your leadership team can maintain optimal inventory levels that maximize cash flow.