Too much inventory

In 1992 or so I read The Goal: A Process of Ongoing Improvement by Eliyahu M. Goldratt. It changed my business life and allowed Robert Kiyosaki to influence my world-view on work and investing. The Goal is written as a novel. The concepts emerge in the story.

One point Goldratt made — inventory is not an asset. Your accountant calls it an asset, it’s on the left side of the balance sheet. But it costs money to store, insure, count, sell and protect. This was fairly revolutionary thinking at the time. I now use Robert Kiyosaki’s definition — “an asset is something that feeds me”.

To prove the point, I asked a friend who runs an Software Solutions company what his inventory value is. He laughed.

Anyway, looking at my business. I’ve been digging through old records and my warehouse. I discovered the cost price of the stuff in my warehouse was about $1 Million AUD! That’s a lot of working capital tied in obsolete inventory. So time to clear it.

One thought on “Too much inventory”

  1. Thanks for that Paul, will track down Mr Goldratt. Calling ‘Work in Progress’ an asset is also an exercise in chicken counting imho….it’s only income when the cheque clears!

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