From Inventory Bloat to Cash Flow Boost: Unlocking Capital Through Smarter Ops

Inventory is often seen as a sign of strength. Full shelves suggest preparedness, customer satisfaction and production continuity. But there’s a hidden cost to overstocking that many manufacturers overlook. Excess inventory quietly ties up working capital, eats into margins and limits your ability to pivot when market conditions shift.

Too often, manufacturers sit on stock “just in case” while that same inventory loses value, grows obsolete or requires more insurance and maintenance. The result? A company with solid sales and thin cash flow. And in an economy where agility matters just as much as volume, that’s a liability.

Here’s the good news: There’s cash hiding in that inventory. You just need to know how to find it. And that’s where smarter operations come in.

The real cost of inventory bloat

You can’t improve what you don’t measure. And for many manufacturers, inventory bloat is out of sight and out of mind… until it isn’t. Inventory holding costs typically range from 20% to 30% of the inventory’s value each year. When you multiply that by months of slow-moving or excess stock, it adds up fast.

According to the U.S. Census Bureau, total business inventories, including manufacturing, reached approximately $2.56 trillion by the end of 2023. While sales slowed, inventory levels rose, indicating a buildup that’s tying up cash and creating downstream risk. In manufacturing specifically, that kind of accumulation doesn’t just create a warehouse problem. It creates a working capital crisis.

Here are just a few areas where excess inventory drains cash without most business owners realizing it:

• Storage and logistics: More inventory means more space, higher energy costs and increased staffing to manage it.
• Spoilage or obsolescence: Inventory that sits too long risks damage or becoming outdated before it’s used or sold.
• Insurance and taxes: Property insurance premiums and inventory-related taxes go up with every dollar of goods on hand.
• Opportunity cost: Capital locked in unused inventory is capital not available for upgrading equipment, hiring talent or expanding operations.

That excess inventory is already costing you, even if your P&L doesn’t scream about it. The longer it sits, the more expensive it becomes — and the more it gets in the way of real growth.

Data-driven decisions: the first step to operational efficiency

Every manufacturing floor tells a story, but not every manufacturer is listening to the data. And that’s where opportunity hides. From order frequency and supplier lead times to production delays and inventory turnover, your systems are likely capturing useful metrics daily. The question is whether you’re using that data to inform smarter decisions.

Many small to mid-sized manufacturers rely on gut instinct or anecdotal trends to guide purchasing and stocking. That might work in a stable economy, but current instability in supply chains, labor and demand makes that approach too risky. A missed reorder point or inaccurate forecast can leave you with too much inventory or not enough. Neither is good for cash flow.

Modern demand planning and ERP tools give you access to insights that help you respond faster and with more precision. You can align production with actual demand, fine-tune your safety stock, and adjust procurement schedules to avoid overbuying. Even simple metrics like days inventory outstanding (DIO) can spotlight areas where inventory sits for too long.

We work with manufacturers to build dashboards that focus on actionable KPIs. When you track turns by product line, understand your supplier performance and spot lagging sales early, you’re able to reallocate capital more confidently. That’s where operational efficiency begins, by making data useful, not just available.

Explore our Business Advisory services to see how we help manufacturers get clarity from their numbers.

Lean inventory strategies that actually work

Lean inventory is about aligning your stock levels with real-world needs while preserving service quality. And it’s not one-size-fits-all. For some, that means incorporating just-in-time (JIT) practices. For others, it may involve minimum viable inventory (MVI) thresholds or vendor-managed inventory (VMI) arrangements.

What matters most is intentionality. When you implement lean methods without fully understanding your customer cycle, you risk stockouts that hurt relationships. But when lean principles are adapted to your actual business model, you can reduce holding costs, minimize waste and free up cash that’s better used elsewhere.

The National Association of Manufacturers reports that more than one-third of manufacturers expect their inventory levels to decline over the next 12 months, while only 20.8% expect increases. This signals a shift toward more agile inventory strategies. Manufacturers are adapting by renegotiating supplier agreements to allow smaller, more frequent deliveries and adjusting reorder points using rolling forecasts instead of static seasonal models. These moves are financial strategies designed to protect working capital and maintain responsiveness in uncertain markets.

If your business has aging inventory, one strategy is to cycle it out systematically by bundling with higher-turn products or offering strategic discounts to preferred customers. This lets you recover capital while preserving relationships. It also helps create room, (literally and financially) for more profitable stock.

When done right, Lean is a practical, measurable way to boost agility and control. This is especially true when guided by a team that knows how to tie operational changes back to financial goals.

Turning excess inventory into working capital

Inventory that sits is cash trapped on your shelves. And when margins are tight, that idle capital could be put to better use for payroll, equipment upgrades or strategic growth. The good news is that even old or excess stock can be a source of financial relief if handled intentionally.

Start by identifying what inventory is truly non performing. This includes slow-moving items, obsolete SKUs and components tied to discontinued products. Once these are flagged, consider liquidation through targeted sales events or negotiated discounts to high-volume clients. These deals can convert aging inventory into immediate cash without damaging your pricing structure across the board.

Another option is donation. Donating certain materials to educational institutions or nonprofit partners not only clears space but may result in a tax deduction, depending on your structure and location. That’s value back to your business with added goodwill.

Some manufacturers find opportunity in repurposing parts for other product lines. If you have compatible components, reengineering kits or builds can help you avoid waste and squeeze new value from existing assets.

But the real opportunity lies in changing the policies that led to the overstock. Are your reorder points too high? Is your safety stock based on outdated assumptions? Working with a financial advisor who understands manufacturing cycles can help you reset those benchmarks with a focus on both performance and cash flow.

Learn how our outsourced CFO services help businesses unlock capital and support smarter operations.

Aligning operations with financial goals

Operational changes without financial alignment miss the mark. That’s why your inventory strategy has to work hand in hand with your broader financial objectives. Otherwise, you may free up space but still fall short on EBITDA, return on assets or other key performance metrics that define long-term growth.

A bloated inventory can mask cash flow issues, distort your balance sheet and reduce your borrowing capacity. On the flip side, overly aggressive reductions in stock can lead to lost sales or strained vendor relationships. The key is balance, and that starts with visibility.

We work with manufacturers to ensure inventory decisions connect to KPIs that matter. For example, when you reduce days inventory outstanding, you improve liquidity and increase your ability to reinvest in production capacity or R&D. When you fine-tune your procurement schedule, you reduce overbuying and improve margin.

With a clear understanding of your operational drivers and their financial impact, you can build a strategy that supports profitability instead of undermining it. Aligning purchasing, production and planning with your financial model creates a healthier, more agile company ready to adapt without compromising your bottom line.

How inventory reform can fuel growth in manufacturing

When inventory swells beyond what your business needs, it becomes a drain on your financial health. But it also holds hidden potential. By treating inventory like the working capital it truly is, manufacturers can unlock resources that are better directed toward innovation, hiring or debt reduction.

At James Moore, we help manufacturers pinpoint the operational blind spots that block growth. Whether you need support rethinking procurement strategies, reducing excess stock or strengthening financial planning, we bring the insights and tools to help your business do more with what it already has.

Contact a James Moore professional to learn how our Business Advisory team supports manufacturers ready to boost performance and improve their cash position.

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