A BizBucks Reminder.
An old axiom of years gone by, says: use it up, wear it out, make it do, or do without.
The modern business version of this comes from the world of logistics: 1. Use inventory rather than buying new. No cash outflow. 2. Even use more expensive inventory, if necessary. That reduces cash outflow from avoiding a purchase. 3. Make standards across all divisions of the company consistent. This avoids unnecessary inventory.
How much does “spare” inventory cost? The cost of capital may be 10% or greater.
The incremental cost of warehousing, insurance, and increased taxes may add another 2-3% or even more. Using only 12% as the variable cost of inventory, $1,000,000 of unnecessary inventory, costs your company about $120,000 of cash EVERY YEAR!
Truly unneeded inventory should be sold and written off.