When finance asks a food business to reduce inventory, the reason is understandable: money tied up in stock is money the business cannot use elsewhere. But before agreeing to a reduction, I would want to understand what that inventory is doing for us. It may be securing a purchasing rate worth retaining. It may also be costing more than the benefit it brings. The answer depends on how the goods move, what we pay for them and when the money comes back.
Start with how stock actually moves
I would start by looking beyond the orders we are shipping today and the purchase orders we have already placed. What do the demand patterns tell us? Can we use the history of those orders to get a better idea of what is coming next?
How often do customers reorder, and how long does replenishment take? Those questions help us investigate why we carry the stock we do. We need to understand the relationship between buying goods and selling them before deciding how much inventory makes sense. The fact that we currently hold a certain amount does not establish that it is the right amount.
Shelf life belongs in that conversation from the beginning. A food product’s useful selling window matters when we are considering how long to keep it. I would put that alongside the reorder pattern and the time needed to bring more goods in. A purchasing arrangement has to make sense for the product we actually have to sell.
This means getting close enough to the operation to explain what is happening. If the discussion stops at the value of stock in the facility, we have a cash figure without much understanding of the activity behind it. We should be able to describe how goods arrive, how often customers buy them and how long they stay with us.
Establish what holding inventory buys you
The next question is whether carrying that inventory gets us a better purchasing rate. If it does, and that improves our margin, there may be a reason to keep the arrangement. Having cash committed to stock is a cost to understand, but it does not automatically mean the business would be better off without that stock.
I would want the purchasing advantage made explicit. What rate are we getting now? If we move towards just-in-time supply, would we still get it? If we would give something up, that needs to be part of the discussion with finance before we change the way we buy.
Then put the advantage beside the costs. We have the expense of holding the goods. We also have the opportunity cost of using that money here, because it cannot be used for something else at the same time. Where borrowing supports the inventory, there is a financing cost to understand as well. A better purchase price has to be considered alongside those demands.
In its June 2026 analysis of procurement and cash, PYMNTS observes that “every purchasing decision is also a financing decision”. Its discussion connects discounts and inventory requirements with payment timing. That is a useful connection when evaluating a buying arrangement: the price of the goods and the money committed to buying them belong in the same conversation.
For our operation, the question remains whether the purchasing benefit is worth the cost of carrying the stock. That is something we need to establish from our own arrangement and costs.
A canned-tomato distributor’s buying decision
One delivery.
Or one every week?
Customers need 100 cases a week for the next four weeks. The supplier offers a $1-per-case discount if all 400 cases arrive at once.
50 cases per pallet. Deliveries arrive at the start of each week; 100 cases leave at the end. Each pictured pallet represents one pallet held for that week.
$400saved on the goods
−$120extra storage
left to cover financing
and any other differences
The discount gives you a reason to consider holding stock. The next question is whether funding it—and using the money here—is worth that remaining $280.
Could the same stock work with different terms?
Keep the 400-case delivery and its $25 rate. Change only the agreed date for paying its $10,000 invoice.
$10,000 leaves on day 0. You have paid for all four weeks of stock before any customer payment arrives.
$10,000 leaves on day 30. All the stock has shipped by day 28. You pay later, while the same $200 storage bill remains.
Customer payment datesDays 37, 44, 51 and 58Each weekly shipment is paid 30 days after dispatch.
What the change affectsTime spent funding the purchaseThe price, stock movement and storage charge stay the same.
Compare the supplier payment schedules
| Buying arrangement | Supplier payments |
|---|---|
| Four weeks at once | $10,000 on day 0$10,000 on day 30 |
| Weekly deliveries, paid on arrival | $2,600 on days 0, 7, 14 and 21 |
Customer payments arrive in stages, so the amount needing funding changes over time. These dates alone do not give a financing cost.
What still needs checking before choosing?
The $280 is a difference after purchase and storage costs, not profit. Compare financing, the alternative uses of the cash, and any differences in freight, handling, waste or service. Confirm actual lead times and demand; no safety stock is modelled here. The later payment date is an agreed term, with the bulk price unchanged.
Look at when cash leaves and comes back
I would also look at the payment terms on both sides of the business. Is there room to work with suppliers on when we pay? What are the customer terms, and could those change? Bringing the timing of those payments closer together may reduce the period for which we have to fund the gap.
That requires looking at what actually happens as well as what the terms say. Are customers paying on time? If we expect the cash back on one date and it arrives later, we need to understand that when discussing how the inventory is funded.
Where a line of credit is involved, bring its cost into the conversation. We should be able to explain what it costs us to carry the business under the current arrangement. Otherwise, we risk discussing tied-up cash as a general concern while leaving out the borrowing cost that helps us judge the choice.
Payment timing and physical storage are connected to the same stock, but they are different costs. Changing when a supplier gets paid can change the funding period. It does not, by itself, change how much space the food occupies or how much work goes into handling it.
Academic inventory research also considers payment timing alongside the goods themselves. In a 2017 inventory model, R. Udayakumar and K. V. Geetha describe a supplier offering a retailer “a trade credit period to settle the amount.” Their model considers delayed payment together with inventory storage and deterioration. It illustrates the connection; its assumptions do not determine how much stock our business should carry.
The practical question is what room we have to change payment timing, and what that would mean for the cost of funding this operation.
Give finance the operational trade-off
Once we understand the goods, the purchasing benefit and the cash timing, we can have a much more useful conversation with finance. We can explain what the present arrangement gives us, what it costs and what might change if we reduce inventory.
There may also be ways to change how goods pass through the facility. Could some arrive closer to when they are needed? Could we cross-dock incoming goods into an outgoing load instead of putting them into storage? If two loads arrive, could we combine them for the customer? Those are possibilities I would examine when asking whether everything needs to become held inventory.
Each possibility needs to fit the operation. Use the reorder patterns and lead times already reviewed to consider how a different arrangement would work. Then compare any purchasing advantage we might give up with the holding and borrowing costs we could reduce.
That conversation may justify keeping inventory because the overall arrangement works. It may support reducing it or changing the way goods flow. Payment terms may be another part of the answer. What matters is being able to explain why the choice makes sense for this business.
Before agreeing to an inventory target, I would want us to understand what the stock earns, what it costs and how the operation would work with less of it. That gives finance and operations something concrete to decide together.
