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Jana Pfeiffer October 20, 2020 2 Minutes
Categories: Ecommerce | Logistics and fullfilment

If you want to improve your company's liquidity and thus reduce your own capital requirements, you should focus on optimized "working capital management". Because: The capital tied up in current assets cannot be used for investments or projects. An excessively large or unoptimized inventory is a frequent cause of a lack of liquidity. Therefore, we have summarized below four ways in which liquidity can be freed up through optimized inventory management.

Free up liquidity: 4 ways to optimise your own warehouse

1 - Optimize order quantity

An optimal order quantity exists when the order and inventory costs are as low as possible. If the order quantity is less than the demand, there is a risk of an out-of-stock event; if, on the other hand, the ordered quantity is significantly greater than the demand, the excess inventory ties up important liquidity. To determine the optimal order quantity, the following points should be taken into account: 

  • The more frequently orders are placed (= turnover rate), the higher the order costs for the individual orders. 
  • The less frequently orders are placed, the lower the order costs; however, for the same total quantity, the higher the delivery volume within an order, which allows better delivery conditions (quantity discounts or lower freight costs)... 
  • The lower the order volume within an order, the lower the storage costs. Less order volume means less capital commitment and improved liquidity. The greater the order volume within an order, the higher the storage costs (= inventory turnover time). 

2 - Improve inventory turnover time and frequency 

Especially long inventory turnover times tie up considerable capital. For improvement, it is recommended to establish an article classification (ABC analysis in combination with the turnover rate). In this way, priorities for precise goals, such as delivery capability, can be set for the articles, measured and optimized if necessary. 

3 - Reduce superfluous stocks

If goods are not sold within the inventory turnover time despite optimized order quantities, the reduction of these goods can be a sensible way to release liquidity from the inventory in the long term. A variety of strategies can be used to reduce merchandise. For one, a discount code can be used to clear merchandise in the short term. Those with an email list of customers or social media channels with high customer engagement can use them to inform customers of the discount to increase conversion. If you sell as an e-commerce seller on Amazon, the clearance items can be released for the Amazon Outlet.

4 - Pre-financing of goods to release liquidity 

For those who want to release liquidity from inventory, recourse to a commodity collateralised loan can be a good option. By means of a collateralized loan, products or inventory can often be used as collateral for a loan approval. The liquidity gained in this way can then be used for goods orders or other working capital. In addition, the repayments of the previous financing or the repayment schedule can often be aligned with the e-commerce sales cycle, which improves inventory turnover time and turnover rate. 

In summary: 

Those who rely on optimized "working capital management" and want to free up liquidity are confronted with a variety of options. One way to free up liquidity is to optimize inventory levels. After all, a large inventory and the associated storage space often tie up too much company capital and reduce its liquidity. Using the methods described above, the inventory can be optimized and capital can be freed up for projects or other investments.

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