Transforming Cash Flow by Liquidating Excess Inventory for a Leading EPC Company

Background

In this case study, we explore the journey of a large EPC (Engineering, Procurement, and Construction) company in India, specializing in industrial equipment manufacturing. The company, with over 20 years in business, faced a severe cash flow challenge due to a massive buildup of inventory. This situation was causing multiple issues: funds stuck in inventory, occupied space hindering new production, delays in deliveries, difficulty in tracing materials, ordering new items despite having stock, and unusable materials due to damage and wastage. These problems further exacerbated cash flow issues and frustrated the business owner.

The goal was to reduce the inventory level from ₹3.5 crores to ₹1.5 crores, effectively liquidating ₹2 crores of excess inventory. With my experience in managing similar issues in my water treatment EPC business, I assured the owner that we could overcome these challenges through a structured approach.

Transformation Journey

Step 1: List & Categorize

We began by making a comprehensive list of all inventory items and categorizing them as Usable, Sellable, or Scrap. Additionally, we classified the items based on their value into High Value, Mid Value, and Low Value.

For Usable Items

The list of usable items was circulated among production, stores, design, proposals, and sales teams.

• Production, Stores, and Purchase: These teams were tasked with using the stock items, either as they were or with minor modifications, approved by clients. For example, substituting a 2” valve for a 1-1/2” valve or using a different brand of pump.
• Design Team: Started incorporating stock items into new BOMs.
• Proposals and Sales: Offered specifications of stock items in their proposals.
• Service Spares: Some items were used as service spares or as stop-gap solutions to address client issues, earning goodwill and future business.

The inventory list was updated weekly to keep everyone informed.

For Sellable Items

Sellable items were divided into two categories: Assembled Equipment and Components.

• Outreach: We reached out to friendly competitors and contractors likely to use these items, offering them at good prices and terms to ensure quick liquidation.
• Promotion: Assembled equipment was promoted as ‘Ex-Stock’ on social media, through emails, and calls to potential clients, sometimes selling at a premium due to immediate availability.
• Bartering: Bartered items needed by competitors for materials in their stock that we could use or sell.

For Scrap Items

Scrap items, which were obsolete, outdated, or damaged beyond use, were cleared out. Although there was no monetary gain, it freed up valuable space and prevented these items from lingering in inventory indefinitely.

Step 2: Prioritization and Execution

High-value items were given extra attention for liquidation. Progress was monitored weekly through cross-functional reviews, and the inventory list was updated regularly. Responsibilities for liquidating inventory were distributed among multiple people, with weekly targets set for each functional area.

Outcome

Over three months, these efforts yielded significant results:

• Freed Up Funds: Approximately ₹1.5 crores were freed up, adding to the operating cash flow and alleviating financial pressure.
• Improved Cash Flow: The company saw a noticeable improvement in cash flow, enabling smoother operations and reducing delays.
• Cleared Space: Valuable space was cleared, allowing for new production and better organization of materials.

This focused, time-bound corrective action effectively improved cash flow by liquidating excess inventory. The business owner gained a deeper understanding of inventory control’s importance, and we began working on preventive measures to maintain optimal inventory levels.

This case study highlights that even complex inventory issues can be resolved with a structured approach, methodical execution, and continuous monitoring. For EPC businesses facing similar challenges, this example demonstrates that solutions are within reach, and significant improvements can be achieved. If you need support in improving inventory management or any other area of your EPC business, reach out for a complementary brainstorming session. Let’s work together to find the best solutions for your business challenges.