Cash Flow Inventory Management: How Growing CPG Brands Stop Bleeding Working Capital

Summary: What Growing Companies Need to Know

•       Inventory is the largest working capital drain for most CPG brands; when managed reactively, it quietly strangles cash flow before revenue catches up to exposure.

•       Over-buying SKUs that don't turn fast enough ties up capital in dead stock, increases carrying costs, and leaves brands unable to fund growth or weather disruption.

•       Effective cash flow inventory management starts with demand planning: knowing exactly what you need, when you need it, and what lead times make that possible.

•       SKU rationalization (prioritizing inventory investment in your highest-velocity, highest-margin items) is one of the fastest levers for freeing cash without cutting revenue.

•       Carrying costs (storage, insurance, obsolescence, opportunity cost) are consistently underestimated; the true cost of holding excess inventory is typically 20-30% of its value annually.

•       Brands that implement structured S&OP processes and right-sized reorder systems move from reactive purchasing to intentional inventory, and that shift is where margin is protected.

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Cash flow is the operating system of a growing business. And for most CPG brands between $1M and $100M in revenue, the single biggest drag on that cash flow isn't their cost structure or their margins. It's how they manage inventory.

Inventory sits at the intersection of sales, operations, and finance. When those three functions aren't talking to each other, or when there's no one owning that coordination, brands end up buying too much of the wrong things, too little of the right ones, and constantly reacting instead of planning.

This article walks through how to think about cash flow inventory management: what's actually tying up your capital, how to identify where to cut without risking stockouts, and how to build the planning systems that put you in control of your working capital, not the other way around.

Why Inventory Is a Cash Flow Problem First

Most founders think about inventory as a supply chain issue. It's not. It's a cash flow issue that shows up in the supply chain.

When you buy inventory, cash leaves your account immediately, often 30, 60, or 90 days before that product sells through and you get paid. If your purchasing decisions are driven by fear of stockouts, by trade deals that require large minimums, or by inaccurate forecasts, you end up holding far more inventory than your sales velocity justifies.

The result: working capital is locked in product sitting in a warehouse, unavailable for marketing, hiring, product development, or debt service. For growth-stage brands, this is one of the most common reasons a profitable business on paper starts to feel financially suffocating.

The Working Capital Trap

Here's how it typically unfolds. A brand gets a large retail win. They build inventory to cover projected sell-through. The sell-through is slower than expected. The brand is now sitting on 90 to 150 days of stock when 45 was appropriate, and they have another purchase order coming due with their co-man or supplier because lead times required they commit early.

This cycle (over-forecast, over-buy, under-sell, scramble) is the working capital trap. It doesn't resolve on its own. It requires deliberate intervention.

FAQ: How does inventory directly affect my company's cash flow?

Inventory is paid for upfront but generates revenue only when it sells. The gap between purchase and payment, multiplied across a large or misaligned SKU portfolio, is one of the most significant drains on working capital for growing CPG brands.

Understanding the True Carrying Cost of Inventory

One of the most consistent blind spots we see in growing brands is underestimating what it actually costs to hold inventory. Founders tend to track what they paid for product. They rarely track what it costs them to hold it.

The carrying cost of inventory, also called the holding cost, includes several expenses that compound quietly in the background:

•       Warehouse and storage costs (including any 3PL pick-and-pack minimums)

•       Insurance on goods in storage

•       Shrinkage, spoilage, and product obsolescence

•       The opportunity cost of capital tied up in product instead of invested elsewhere

•       Labor associated with managing, counting, and moving excess stock

•       The cost of markdowns or promotions required to clear dead stock

Across most CPG categories, the annual carrying cost of inventory runs between 20% and 30% of the inventory's total value. That means if you're carrying $500,000 in excess inventory, you're spending somewhere between $100,000 and $150,000 per year just to hold it.

When you reframe inventory decisions through that lens (not just what you paid, but what it costs you to carry), the math on over-buying changes entirely.

FAQ: What is a realistic carrying cost percentage for a CPG brand?

For most CPG companies, carrying costs run between 20% and 30% of inventory value annually when you account for storage, insurance, obsolescence, shrinkage, and the opportunity cost of tied-up capital. Many brands budget only for storage, which means they're significantly underestimating what excess inventory is actually costing them. If you need help with your carrying cost, contact us for a free consultation.

Just-in-Case vs. Just-in-Time: Finding the Right Inventory Philosophy

There are two dominant philosophies when it comes to inventory management, and most growing brands oscillate uncomfortably between them without ever committing to either.

Just-in-case inventory management is driven by fear. You keep extra stock because you're worried about supplier delays, demand spikes, or running out during a promotional period. This approach prioritizes availability at the expense of capital efficiency.

Just-in-time inventory management is driven by precision. You stock only what you need when you need it, with minimal safety buffer, relying on tight supplier relationships and accurate demand signals. This approach optimizes for cash flow but increases execution risk.

The Right Answer for Growth-Stage CPG Brands

Neither extreme works well at the growth stage. Pure just-in-case ties up too much working capital. Pure just-in-time requires forecast accuracy and supplier reliability that most $5M to $50M brands haven't yet built.

The right approach is a calibrated middle ground: setting safety stock levels that reflect actual demand variability and supplier lead times, not gut feelings or worst-case scenarios, and building those levels systematically by SKU, not as a blanket rule across your catalog.

This requires knowing your inventory turns by SKU, your actual (not quoted) supplier lead times, and your historical demand variability. With those inputs, you can set safety stock that protects service levels without over-funding inventory.

FAQ: How much safety stock should a CPG brand carry?

Safety stock should be calculated by SKU based on demand variability and supplier lead time variability, not set as a blanket number. A high-velocity, reliable SKU may need only 2 weeks of safety stock. A slow-moving or hard-to-source SKU may need 6 to 8 weeks. The goal is targeted protection, not uniform over-buying.

Inventory Turn Benchmarks: Are You Holding Too Much?

Inventory turnover, meaning the number of times your inventory cycles through in a year, is one of the most direct indicators of cash flow health. Slow turns mean money is sitting on a shelf. Fast, consistent turns mean capital is working efficiently.

Benchmarks vary by category, but here are useful reference points for CPG brands:

Category	Typical Inventory Turns (Annual)
Food & Beverage (shelf-stable)	6–8x
Supplements & Wellness	4–7x
Beauty & Personal Care	5–7x
Pet Food & Treats	6–9x
Household & Cleaning	6–9x

If your turns are consistently at the lower end of your category benchmark or below it, you likely have excess inventory: either too many SKUs, too much of the wrong SKUs, or both.

Tracking turns by SKU (not just across your portfolio) will show you where capital is performing and where it's stagnating. That SKU-level view is where actionable decisions live.

FAQ: What is a good inventory turnover rate for a CPG brand?

It depends on category, but most CPG brands should target 6x or higher annually. Brands turning inventory fewer than 4 times per year are typically carrying excess stock that is unnecessarily tying up cash and increasing obsolescence risk.

SKU Rationalization: Investing in the Right Inventory

One of the fastest levers for improving cash flow inventory management is SKU rationalization, the process of deliberately evaluating your product portfolio and concentrating inventory investment on your best performers.

Most brands accumulate SKUs over time without a structured way to evaluate whether each one is earning its place. A SKU that generates $30,000 in annual revenue but requires dedicated production runs, separate packaging, and complex demand forecasting is not delivering the same return as a core SKU doing $300,000 at a consistent velocity.

How to Evaluate Your SKU Portfolio

A useful starting framework ranks every SKU across two dimensions: revenue contribution and inventory velocity. High contribution, high velocity SKUs are your cash engines. These deserve priority in inventory investment and purchasing attention. Low contribution, slow-moving SKUs are capital sinks that should be evaluated for rationalization.

Questions to ask for each SKU:

•       What is this SKU's contribution margin, net of its true carrying cost?

•       How many days of supply do we currently hold, and how does that compare to demand patterns?

•       Does this SKU require unique components, packaging, or production commitments that add complexity and cost?

•       Is this SKU growing, flat, or declining?

•       If we discontinued this SKU, would those customers shift to another product in our line, or would they leave?

Rationalization doesn't always mean cutting SKUs. Sometimes it means rebalancing inventory investment by building deeper on your top performers and running leaner on the tail. That rebalancing alone can free meaningful working capital without any change to your revenue line.

FAQ: How do I decide which SKUs to cut or reduce?

Start with a contribution margin analysis by SKU that includes carrying cost. Any SKU with a contribution margin below your threshold, declining velocity, and no strategic reason to maintain it is a rationalization candidate. The goal isn't necessarily to cut every underperformer. The goal is to stop over-funding them with inventory you can't afford to tie up.

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Demand Planning: Buying the Right Inventory at the Right Time

Demand planning is the operational core of cash flow inventory management. Without it, every purchasing decision is a guess, and the aggregate of those guesses determines whether your working capital is working for you or against you.

Strong demand planning connects sales signals to purchasing decisions through a structured, repeatable process. It answers the questions every ops leader needs to answer every week: What do we expect to sell? When do we need inventory available? Given our lead times, when do we need to place the order?

The Inputs That Drive Good Demand Planning

Effective demand planning for a growth-stage CPG brand requires at minimum:

•       Rolling sales history by SKU and channel, typically 12 to 24 months, seasonally adjusted

•       Confirmed and projected retailer promotional calendar, as promotions spike demand and must be planned for

•       Supplier lead times by component and finished goods, including the variance in those lead times, not just the quoted number

•       Current on-hand inventory and in-transit visibility by SKU

•       Any known demand signals: new distribution doors, lost accounts, launches, or delistings

With these inputs, you can build a demand plan that drives purchasing decisions forward, placing orders based on projected need at the right time, not in reaction to a stockout that's already happening.

The S&OP Connection

Demand planning doesn't live in a vacuum. It's most effective when it's connected to a Sales & Operations Planning (S&OP) process, a regular cadence where sales, operations, and finance review the plan together and resolve misalignments before they become inventory problems.

For a brand doing $5M to $30M, S&OP doesn't need to be a complex enterprise process. A monthly meeting with the right people, the right data, and clear ownership of decisions is enough to move from reactive to intentional. The goal is alignment, not ceremony.

FAQ: What is demand planning and why does it matter for cash flow?

Demand planning is the process of forecasting what you'll sell and translating that into inventory and purchasing decisions. It matters for cash flow because it replaces reactive, gut-driven purchasing with a data-driven system that reduces over-buys, minimizing stockouts, and aligning inventory investment with actual expected demand.

Dead Stock: How to Exit Inventory That's Already Draining You

Even with the best planning systems, most growing brands have some amount of dead or slow-moving stock already on hand. Addressing it is part of the work.

Dead stock, meaning inventory that hasn't moved in 90 or more days relative to its historical velocity, represents capital that is both tied up and continuing to accumulate carrying costs. The longer you hold it, the more it costs you.

Strategies for Clearing Dead Stock

•       Promotional pricing through existing retail or DTC channels to accelerate sell-through. Taking a margin hit now is almost always better than the carrying cost over time

•       Bundling slow-moving SKUs with fast-moving ones to create value sets that move at full price

•       Liquidation channels: while margin recovery is low, liquidation clears the carrying cost and frees capital

•       Donation and write-off, particularly for product approaching code date, which may also carry tax benefits

•       Returning product to the supplier where your terms or relationship allow it

Whatever path you take, the strategic principle is the same: sunk cost is sunk. The decision to hold dead stock should be evaluated on what it will cost you going forward, not what you paid for it. In most cases, moving it (even at a loss) is the right financial decision.

FAQ: What should I do with slow-moving or dead inventory?

Evaluate every option against the ongoing carrying cost of holding. Promotions, bundles, liquidation, and write-offs all recover something; holding does not. The decision framework should be: what does it cost me to hold this for another 90 days, and does any exit option outperform that cost?

People Also Ask

1. How can a CPG brand improve cash flow through better inventory management?

   By aligning purchasing decisions with accurate demand forecasts, rationalizing the SKU portfolio to concentrate investment in high-velocity items, and setting safety stock levels based on actual lead time and demand variability, not blanket buffers. Each of these levers reduces excess inventory, which directly frees working capital.

2. What is the relationship between inventory turns and cash flow?

   Higher inventory turns mean capital is cycling through product faster, which means less cash is locked up in stock at any given time. Brands with low turns below 4x annually in most CPG categories are effectively lending money to their warehouse. Improving turns is one of the most direct ways to improve cash flow without changing pricing or margins.

3. How do I know if I'm carrying too much inventory?

   Calculate your days on hand by SKU: divide current inventory units by average daily sales. If you're consistently sitting on more than 45 to 60 days of supply across your portfolio, or significantly more on specific SKUs, you're likely over-inventoried. Benchmark against category inventory turn norms as a gut-check.

4. What is SKU rationalization and when should a growing brand do it?

   SKU rationalization is the deliberate evaluation of your product portfolio to determine which SKUs are earning their place in terms of revenue, margin, and operational complexity. Growing brands should do it at least annually, or whenever cash flow tightens, operations feel complicated, or they're considering new distribution that will require inventory commitments.

5. What's the difference between demand planning and inventory management?

   Demand planning is the forecasting process: projecting what you'll sell and when, and using that to inform purchasing decisions. Inventory management is the execution process: tracking what you have, where it is, and how it's moving. Strong operations require both: demand planning sets the strategy, inventory management keeps it honest.

6. How does a founder know when they need dedicated operations support for inventory?

   When inventory decisions are being made reactively, when cash flow surprises are frequent, or when no one in the organization has clear ownership of the demand planning process. Those are indicators that the brand has outgrown ad hoc inventory management and needs structured operational support.

Conclusion: Inventory Is a Strategic Asset, Not a Cost to Manage

Cash flow inventory management isn't a finance function or a supply chain function. It's a strategic discipline that lives at the intersection of both, and at growth-stage companies, it almost always gets less attention than it deserves until it creates a crisis.

The brands that get this right early have a few things in common. They know their inventory turns by SKU. They have a demand planning process that connects to purchasing. They set safety stock intentionally, not emotionally. And they regularly review their portfolio to make sure capital is concentrated in the inventory that earns it.

None of this requires enterprise-grade systems or large teams. It requires clarity of ownership, the right data, and a structured cadence for making decisions together across sales, operations, and finance.

If your cash flow inventory management feels reactive, or if you're not sure where the working capital is going, that's the right problem to solve, and it's solvable.

Found this useful? Share it with a founder or operator who is feeling the strain of inventory decisions at scale.

If you want help right-sizing your operations and building a demand planning process that actually works for your stage, reach out to Kedia Consultants. We work with growth-stage CPG brands to create clarity, reduce operational chaos, and protect the margin you've worked hard to build.