Cash in P&L & Balance Sheet – thanks to Hardness Logic
Where is the tied-up cash? Supply chain expert Ingo Glawe explains in an interview how companies can unlock cash from inventories – using hardness logic, which only recognizes confirmed results. Depending on the industry and company, 5 to 20 percent of inventory can typically be reduced, thereby freeing up cash.
What is currently the biggest pain point for customers regarding supply chains?
The challenge is to maintain responsiveness through intelligent processes rather than high inventory levels. Companies need short lead times to meet demand quickly; at the same time, excess inventory ties up cash needed for new business, investments, and liquidity. Many companies want to free cash from operational business, so we focus on shortening lead times and targeted inventory reduction without jeopardizing delivery capability. Our customers are often surprised at how much liquidity is hidden in the supply chain.
Is there an initial assessment or supply chain health check at the start of the project? How does it work?
Yes. We begin with a targeted self-assessment or health check in three clear phases. In Phase 1, we collect and analyze all available data. This usually takes around two weeks due to limited data quality and availability. In multiple sessions, we first clarify what data exists, where it is located, and how to process it meaningfully.
Phase 2 involves on-site validation: we review processes and organization in daily operations and conduct structured interviews with employees from the relevant areas. Scope and duration depend on company size and complexity – typically one to two weeks.
Based on this, Phase 3 creates the business case and a concrete roadmap: we prioritize measures (e.g., using ABC logic), compare investments with expected potential including payback, and develop a roadmap with clear actions, responsibilities, milestones, and target values for implementation.
What phases are such projects divided into? What measures are taken when, with what goals, and how long do the steps take?
We work in four consecutive phases. First, the analysis phase (3–4 weeks): we create transparency by preparing data, processes, and key metrics to establish a reliable baseline.
Next is the concept phase (2–3 weeks), in which we define specific solutions – from appropriate inventory and planning logic to required ERP parameter adjustments and process changes.
Third, we create the implementation plan (1–2 weeks): a Project Management Office (PMO) sets the framework, responsibilities are assigned, the correct sequence of measures determined, and measurable milestones defined. This ensures that planned measures are executed on time and their effects confirmed in controlling. Finally, in Phase 5, we support the client during roadmap implementation (several weeks to months) to consistently realize the agreed levers.
Are the results reflected in the profit & loss statement?
Exactly. We use hardness logic: a result is only considered achieved once it is confirmed by controlling and reflected in the P&L or balance sheet. This ensures that not only “parameters are adjusted” but that measurable economic effects are realized.
What short-term measures (quick wins) exist?
Five steps deliver rapid impact:
- Physical inventory adjustment: We set target and maximum stock levels per area. This includes reorganizing storage zones spatially and logically so the right items are in the right place – with short paths, clear quantity limits, and appropriate replenishment logic. The goal: optimize inventory, shorten lead times, and reduce picking errors and search times.
- ERP parameter refresh: Minimum and safety stocks, lot sizes, and replenishment times are reviewed using simple digital analyses that provide planners with concrete adjustment suggestions instead of relying on gut feeling.
- Demand forecast improvement: Ensures that only the products actually needed are procured and manufactured, increasing service levels and customer satisfaction.
- Consignment stock with strategic suppliers: Goods remain the supplier’s property until consumed, ensuring availability, reducing tied-up capital, and increasing planning flexibility. Particularly suitable for C-parts and frequently required components – delivery capability remains high.
- Elimination of obsolete stock: In coordination with the CFO, via special promotions, sales, or, if economically sensible, scrapping – instantly generating liquidity.
These measures are quick to implement, transparent, and deliver early measurable effects.
Which long-term measures provide sustainable impact?
We make structural decisions such as make-to-order versus make-to-stock per product and market, implementing them across the value chain. Choices are context- and criteria-specific (e.g., product characteristics, market, sales strategy, required availability) and aligned with the customer.
Our goal is to systematically reduce inventory while maintaining delivery capability.
What tools/technologies/resources do you use?
The backbone is a well-parameterized ERP (e.g., replenishment times, min/max, lot sizes). We also use analytics and digital tools to detect trends early and accelerate parameter reviews – even producing concrete planning suggestions. Principle: process logic first, then IT; technology follows the target state, not vice versa. The PMO and experienced consultants ensure speed and accountability.
How do you engage employees? Which internal stakeholders are involved?
We work with a change story per persona (management, planning/SCM, production/logistics, development, sales, finance/controlling, IT): “Where are we – what do we want to achieve – what’s in it for me?”
Affected employees are involved early and co-create solutions, leading to practical solutions with high acceptance. Projects are largely conducted on-site with regular workshops; steering committees and clear responsibilities ensure speed and anchoring.
How do you measure success?
Quantitative targets are defined before the project (e.g., % inventory reduction, € cost effect, target service level). KPIs are tracked during and after the project. Only hard effects confirmed by controlling – i.e., reflected in the P&L or balance sheet – count, ensuring measurable economic results.
How do you ensure the sustainability of project success?
We remain closely involved after implementation waves: regular coaching and quick checks – initially weekly, later monthly or quarterly depending on maturity.
We continuously compare status with the original plan, adjust measures, and secure implementation through clear responsibilities. All effects are integrated into existing KPI/financial reporting, keeping progress visible and deviations detectable, ensuring lasting impact.
What risks or dependencies exist?
The biggest risk is lack of top management support. If middle management is motivated but the C-level lacks commitment, projects fail. We mitigate this by securing an early strong executive sponsor, activating the steering committee, and keeping board members closely engaged.
Another challenge is often limited data quality and availability at the start, which is why Phase 1 is typically allocated around two weeks for data collection, cleansing, and coordination.
We therefore deliberately prioritize analysis and concept before adjusting IT. Overarching principle: hardness logic – effects only count once confirmed by controlling, making them realized and audit-proof.
Contact:
KLOEPFEL by EPSA
Damir Berberovic
Tel.: +49 211 941 984 33 | Email: rendite@kloepfel-consulting.com