Executive Briefings

You Should Have Slashed Inventory, Not Cut the Staff Back

Relying heavily on layoffs and wage reductions to cut costs over the last year, mid-sized and small businesses missed a huge opportunity to generate cash out of improvements in inventory and working capital, a newly released survey suggests.

The potential to cut costs by slashing inventory seems especially large among mid-sized companies ($10m to $500m in revenue), according to a Greenwich Associates survey of 519 financial decision-makers from small and mid-sized outfits. Although only 17 percent of the mid-sized companies cut inventories last year, the ones that did so saved an average of almost $520,000. While layoffs were much more popular - 47 percent of mid-sized companies cut staff or management - the reductions saved an average of just $400,000.

Indeed, layoffs were far and away the most common cost-cutting tool among the companies represented in the survey, which was conducted from March 1 to March 26, 2010. About 40 percent of small businesses ($1m to $10m) slashed staff or trimmed management during the previous 12 months, saving about $175,000 for the effort. But 16 percent averaged savings of more than $100,000 by pulling back inventory.

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Relying heavily on layoffs and wage reductions to cut costs over the last year, mid-sized and small businesses missed a huge opportunity to generate cash out of improvements in inventory and working capital, a newly released survey suggests.

The potential to cut costs by slashing inventory seems especially large among mid-sized companies ($10m to $500m in revenue), according to a Greenwich Associates survey of 519 financial decision-makers from small and mid-sized outfits. Although only 17 percent of the mid-sized companies cut inventories last year, the ones that did so saved an average of almost $520,000. While layoffs were much more popular - 47 percent of mid-sized companies cut staff or management - the reductions saved an average of just $400,000.

Indeed, layoffs were far and away the most common cost-cutting tool among the companies represented in the survey, which was conducted from March 1 to March 26, 2010. About 40 percent of small businesses ($1m to $10m) slashed staff or trimmed management during the previous 12 months, saving about $175,000 for the effort. But 16 percent averaged savings of more than $100,000 by pulling back inventory.

Read Full Article