Plan purchasing around cash: how to stop inventory from swallowing working capital
For most retailers, wholesalers and manufacturers, inventory is the largest use of working capital. Yet purchase planning is usually driven by sales targets, last year's volumes and supplier offers — not by how much cash the business can afford to lock into stock, and for how long. The result: too much of the wrong stock, too little of the right, and a finance team that learns about big commitments when invoices arrive.
Reports rarely show this leak. The income statement shows margin, not the financing cost of the stock that produced it. The balance sheet shows total inventory, not which part of it is excess. And in high inflation, buying early 'before prices go up' feels right even when it costs more than it saves.
Where working capital leaks in purchase planning
Cash gets trapped in stock through a few recurring habits:
- Buying to last year: last year's volumes plus a growth target, ignoring current sell-through and stock already on hand or on order.
- Volume deals without the math: a bigger-order discount is accepted without comparing it with the cost of holding the extra stock.
- Uniform cover targets: every SKU gets the same weeks of cover, though predictable items need less and volatile ones more.
- Terms mismatch: suppliers are paid in 30–60 days while the stock takes 120 days or more to sell. The business finances the gap.
- Forgotten open orders: new orders go out before earlier ones arrive, because on-order stock isn't shown next to on-hand stock.
- A disconnected cash plan: finance forecasts cash monthly, purchasing commits weekly, and nobody reconciles them until cash runs short.
How to size cash tied up in inventory: a simple formula
Two calculations give a first picture. The first shows cash in excess stock and its carrying cost:
Excess stock = current stock at cost − (average monthly cost of goods sold × target months of cover). Monthly carrying cost of excess ≈ excess stock × (monthly financing rate + monthly storage and obsolescence rate).
The second tests a forward buy. It pays off only if: discount received + expected price increase avoided > monthly carrying cost rate × extra months the stock is held on average.
Illustrative example (hypothetical round numbers): a business sells goods costing 10 million TL a month and holds 40 million TL of stock — four months of cover. Its target is 2.5 months, so excess stock is 15 million TL. At an assumed monthly carrying cost of 3%, that excess costs about 450,000 TL every month. Now a supplier offers 5% off for buying six months of an item at once instead of monthly. Buying six months upfront means holding, on average, about 2.5 months more stock than buying monthly: 2.5 × 3% = 7.5% carrying cost against a 5% discount. The deal only makes sense if the supplier's price is expected to rise by more than about 2.5% in that period.
Once this math is on the table, purchasing and finance argue about assumptions, not opinions.
Why ERP, budgets and spreadsheets miss the cash cost of purchasing
ERP systems hold every piece of the puzzle, but in different modules owned by different teams. The purchase order screen doesn't show an order's cash impact, and the cash forecast doesn't know what purchasing is about to commit.
Spreadsheet open-to-buy plans are built once a season at category level; by the time sales diverge from plan, the next months' orders are already placed.
- Purchase approvals check the budget, not the cash position on the payment date.
- Cover is measured on total inventory, so excess in some SKUs hides shortages in others.
- Supplier deals are judged on unit price, not on total cost including financing.
How an AI-agent approach to cash-aware purchase planning works
An AI-agent approach connects every purchasing decision with its cash consequence. Detect: per SKU and category, the agent compares stock on hand plus on order with forecast demand and target cover, and flags both excess and projected shortages. It also checks each proposed purchase order against the cash forecast for its payment date. Diagnose: it explains why cover drifted (a forecast miss, a supplier delay, a volume deal) and whether the excess will sell through on its own.
Assign: recommendations go to the right person with numbers attached — reduce, delay or split an order, rebalance stock between warehouses, or accept a volume deal because the math supports it. Buyers and the CFO approve; nothing is ordered automatically. Measure: after each decision the agent tracks days of inventory, cash released and service level, so rules can be tuned on evidence.
The data needed: sales history, stock and open orders, supplier lead times and payment terms, costs and price lists, and the cash plan from finance. Zzeti's forecasting and scheduled runs can prepare a weekly cash-aware open-to-buy per category, e-mail it to buyers, and route exceptions to the Actions Inbox. The platform runs on your own infrastructure, so supplier prices and cash positions stay internal.
A 4-week pilot plan for cash-aware purchasing
Choose one category or supplier group with meaningful stock value, plus a buyer and a finance counterpart.
- Week 1: Connect sales, stock, open orders, supplier terms and costs. Agree on target cover and carrying cost rate; size current excess.
- Week 2: Generate demand forecasts and a cash-aware open-to-buy for the next 8–12 weeks. Review open orders against it.
- Week 3: Approve a first set of actions — delayed or reduced orders, split deliveries, transfers — and run any pending volume deals through the forward-buy test.
- Week 4: Measure cash released or avoided, stock cover, in-stock rate on fast movers and forecast accuracy. Decide on extending to more categories.
KPIs for purchase planning and working capital
Track these weekly in the pilot; working capital gains only count if fast movers stay in stock.
- Days inventory outstanding (DIO) by category.
- Cash conversion cycle: days of inventory + days receivable − days payable.
- Excess stock above target cover and its monthly carrying cost.
- Open-to-buy usage against the cash-aware plan.
- In-stock rate and fill rate for fast-moving items.
- Forecast accuracy at SKU and category level.
- GMROI (gross margin return on inventory investment).
Purchasing is a cash decision as much as a product decision. Put the financing cost next to every order, plan open-to-buy against the cash forecast, and let buyers and finance approve on the same numbers.
Frequently asked questions
What is open-to-buy?
Open-to-buy is the purchasing budget still available for a period: planned sales plus planned ending stock, minus current stock and orders already placed. A cash-aware version also checks whether the payments for those purchases fit the cash plan on their due dates.
How much inventory should a business hold?
Enough to cover supplier lead time plus a safety buffer for demand and supply variability, and no more. A single cover target for every item usually creates excess and shortages at the same time.
Should I buy ahead of price increases when inflation is high?
Sometimes. Compare the expected price increase plus any discount with the cost of holding the stock for the extra months. If the first is clearly larger, buy ahead; if not, it is expensive speculation.
How does purchase planning affect working capital?
Every purchase turns cash into stock until the goods are sold and the money is collected. The longer stock waits relative to supplier payment terms, the more working capital the business has to finance.
Plan purchasing around cash
Zzeti combines the demand forecast with payment terms, currency and supplier lead times, and recommends when and how much to buy together with the cash impact.