Faster Turns Without Stockouts: How a Distributor Freed Up Cash
In the winter of 2021, a regional distributor was cash-strapped. The previous year had tied up working capital in inventory that sat for months, and lenders were watching closely. The CFO set a blunt target: double inventory turns. The warehouse team took it literally, cut purchase orders across the board, and within weeks the company was stocking out on its best-selling lines while still sitting on slow-moving goods. Turns had improved on paper and the business was worse off.
Inventory turnover is cost of goods sold divided by average inventory; it tells you how many times you sell through your stock in a period. Higher turns generally free up cash and reduce the risk of obsolescence, which mattered enormously coming out of a year of disrupted demand. But the ratio is an average, and averages hide where the money actually is.
Why the blunt approach failed
Cutting every line by the same percentage treated a fast, reliable seller the same as a dead item. The distributor reduced safety stock on products that turned quickly and predictably, the very items where a stockout costs a sale and a customer, while the genuinely slow stock, the real cash trap, barely moved because no one had analyzed it.
An across-the-board cut ignores that a small share of SKUs usually drives most of the volume and most of the value.
Turns measured only at the aggregate level let slow and fast items cancel each other out, masking both problems.
Service level and turns trade off against each other; pushing one without watching the other just moves the pain.
What worked instead
The team rebuilt the approach around segmentation. They ran an ABC analysis, sorting SKUs by their share of annual sales value, and treated each class differently.
Protect the A items. High-value, high-velocity products kept enough safety stock to hold service levels, and were reordered more often in smaller lots to turn faster without risking stockouts.
Right-size the B items. Mid-tier products got reviewed order quantities and reorder points, trimming excess without the fragility of a hard cut.
Attack the C tail. Slow, low-value items, where cash was truly stuck, were discounted, returned to suppliers, or discontinued, freeing the working capital the CFO actually wanted.
Watch turns and fill rate together. They tracked inventory turns alongside order fill rate so an improvement in one could not quietly destroy the other.
Within a quarter, overall turns rose meaningfully, cash was released from the slow tail rather than the fast lines, and service on the A items held steady. The CFO got the working capital; customers never noticed. The point was not to turn everything faster, but to turn the right inventory faster and let the dead stock go.
If you need to free up cash from inventory without putting service at risk, XNM's procurement, sourcing & contract management can help you target the inventory that is actually trapping your capital.