Top Ways to Free Working Capital to Invest in Innovation
Growing your business requires striking a careful balance between having access to free cash and optimally reinvesting resources in your future. Why? To answer that question simply and clearly, let’s look at the relationship between reinvestment, working capital, and growth.
First, working capital is how a business manages its everyday expenses: salaries and wages, operational expenses, and material and manufacturing costs. Efficient management of working capital ensures that a business runs smoothly, managing the various demands of inventory, accounts payable, accounts receivable, and cash. In fact, managing working capital well is the foundation for short- and long-term success: if an OEM runs out of money to pay for everyday expenses, production could become intermittent or delayed—with frustrated vendors and customers and rising backorders the result.
If short- and long-term stability require proper management of working capital, growth requires reinvestment. Funding research, driving innovation, developing and refining new products—all of these activities are essential to growth, and they all necessitate reinvestment. While it’s ideal to earmark working capital to reinvest in a business, actually finding the funds to do so can prove challenging.
That’s because the push and pull between inventory, accounts payable, accounts receivable, and cash can mean that capital you’d like to reinvest is instead trapped in some aspect of your business. While this scenario is common for many OEMs, there are some tried-and-true ways to free captured cash to enable reinvestment in your highest priorities.
Optimize consigned inventory
Consigned inventory represents a great deal of cash. That’s because each unit of inventory is a past cash expenditure your business has yet to turn into cash from procedures. The longer your inventory is held without being used or sold, the less you may profit overall, so it’s important to utilize it. It’s also important to ensure your inventory is where it will be utilized to meet demand—and not parked with a distributor or sales rep who is holding onto it when those devices could be used elsewhere and instead are driving up your backorder totals.
Turn loaner kits efficiently
OEMs that can respond to loaner kit demand with the smallest pool of loaner kits, turned with maximum efficiency, minimize captured cash for this aspect of a business. Fast turn times—such as 24-hour turnarounds—cut down on the overall number of loaner kits you need in your pool.
Reclaim lost and expired inventory
Whether consigned by distributors and sales reps or stored in warehouses, inventory that has not been used by its expiration date is a sunk cost. Repackaging and selling it, however, can help you reclaim some of the capital it has trapped. Just as with loaner kit turns, managing reverse logistics to the highest level and processing expired inventory can help you free captured cash from this aspect of your business. See more on recouping and reducing inventory loss.
Consider large capital expenditures very carefully
Every incremental facility expansion requires significant cash outlay. Just because you have the space or capacity doesn’t mean that operating your own clean room or building an on-site distribution facility is the best investment in your business. Outsourcing services such as packaging, cleaning, loaner kit management, and finished goods warehousing often offers better value, along with ability to scale at lower total cost.
Seek labor and resources that flex
Increasing headcount and fixed count to handle peak and unanticipated demand is a sure way to drive up everyday expenses and consume working capital. When you consider optimal resource allocation and the high cost of labor, outsourcing often provides financial and operational advantages. See more on the consequences of high-cost labor.
Outsourcing with the right partner can accelerate your ability to free captured cash, helping you turn loaner kits more efficiently, put in place disciplined processes to recapture lost inventory, and giving you access to labor and resources—without capital expenditure and headcount increases. The best leaders know how to evaluate, choose wisely, and direct reinvestment to the most potentially profitable areas of their businesses to fuel long-term growth.
At Millstone, we get it. We believe quality drives patient success. That’s why we’ve perfected all the capabilities medical device manufacturers need to get to market. Today we offer post-manufacturing and aftermarket services to more than 50 customers, including some of the top 10 orthopedic companies in the world. We are constantly evolving our processes and services to help OEMs achieve sustainable success. We offer clean room packaging, medical device specific warehousing, finished goods distribution, loaner kit management, advanced inspection and reverse logistics services—all with an unparalleled focus on quality.
What could we help you do better? Learn more at http://millstonemedical.com.
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