Let’s talk about one of the biggest issues food CPG founders face: managing inventory without draining cash reserves. If you’ve ever watched your inventory pile up while your cash diminishes, you’re not alone.
You, more than anyone, know the unique challenges food CPG brands face. Too much inventory means your products are at an expiration risk and you might have to markdown inventory to sell before best-by dates.
But it’s not just selling your inventory that poses challenges: keeping your inventory in a warehouse is expensive, especially when your products need special handling or temperature control. On the flip side, stockouts lead to a loss of direct revenue, but they can also influence your relationship with retailers. If your products stock out frequently, retailers might reduce your shelf space or drop your product. What’s worse? For brands, customer loyalty is directly related to availability.
But with long production cycles, large minimum order quantities, and seasonal demand, how can you keep up with fill rates without depleting your cash flow?
Here’s the good news. You can master this balancing act by focusing on a few principles.
Understanding your costs
Before you place orders, take a look at your landed costs. Instead of focusing only on COGs, you need to go deeper and look at all your costs:
Direct Costs:
- Purchase price
- Shipping costs
- Customs duties and taxes
- Handling fees
- Insurance
- Currency conversion
- Storage fees
Hidden Costs:
- Opportunity cost of capital tied up in inventory
- Potential markdown costs as products approach best-by date
- Warehouse handling fees
- Administrative cost of inventory management
Once you know your true costs, here’s how experienced founders turn that insight into better decisions:
- Buy for cash flow, not just cost savings. Bulk discounts can be tempting, but tying up cash in excess inventory can kill flexibility. The best operators balance order size with sell-through projections—ensuring they have enough stock to meet demand without draining working capital.
- Negotiate beyond price. Suppliers care about volume, but flexibility is often on the table. If minimum order quantities (MOQs) are too high, negotiate staggered shipments, extended payment terms, or better freight rates to align costs with your cash flow.
- Price with full costs in mind. Too many founders price based on product COGS alone, but real margins are shaped by freight, warehousing, spoilage, and markdowns. The most profitable brands calculate true landed costs and adjust pricing—or their SKU mix—accordingly.
- Turn cost insights into strategic growth. Understanding costs isn’t just about cutting waste—it’s about making your money work smarter. If optimizing inventory frees up cash, reinvest it where it fuels growth, whether that’s marketing, expanding distribution, or launching a higher-margin SKU.
Inventory planning that protects your cash flow
Managing inventory is a balancing act—too much stock ties up cash, while too little leads to missed revenue. Smart forecasting helps you maintain the right inventory levels without putting financial strain on your business.
Why Forecasting Matters
Inventory issues aren’t just operational headaches; they directly impact cash flow. Over-ordering locks up capital in unsold stock, while under-ordering results in stockouts, lost revenue, and damaged retailer relationships.
Successful brands don’t just look at historical sales—they layer in market trends, retailer demand, and seasonality to create a complete demand picture.
Avoiding Inventory Bloat
Over-ordering to secure bulk discounts can seem like a smart move, but excess stock drains cash flow, increases storage costs, and forces markdowns. Many brands also rely too heavily on outdated demand projections rather than real-time sales data, leading to overcommitment on inventory that doesn’t move.
The key to avoiding bloat is aligning order quantities with true demand. AI-powered forecasting tools now help brands predict SKU-level sales, adjust purchasing dynamically, and keep inventory lean without risking stockouts.
Preventing Stockouts Without Overbuying
Stock shortages don’t just hurt revenue—they weaken retailer confidence and push customers toward competitors. These happen when production cycles, supplier lead times, or order quantities aren’t aligned with actual sales velocity.
Instead of reacting to low inventory, proactive brands use demand forecasting to anticipate spikes and adjust orders before they run out of stock. AI-driven models can factor in seasonal shifts, retailer demand, and real-time sales data to refine forecasts and ensure inventory availability.
The Bottom Line
The best brands don’t just manage inventory, they manage cash flow. Strategic forecasting ensures inventory is working for you, not against you, keeping stock levels optimized while freeing up cash to grow the business.
Manage it all in one place
The key to growing isn’t just about the right products at the right time–it’s about managing those products efficiently with your cash flow. When food CPG brands use Settle, they’re able to get a true picture of inventory, AP automation, and financing options, all in one place.
Settle is the modern way that CPG brands manage to balance perfect stock with cash flow needs.
- See true product costs in real time
- Automate POs and tracking from a flexible dashboard
- Get same-day working capital to make larger inventory purchases
- Use AI-powered analytics to generate accurate demand forecasts at the SKU level
- Manage cash flow appropriately across all channels and vendors
We’ve all heard the terrifying stat: that 85% of all new CPG brands fail, but one of the biggest reasons they fail is likely because they’re not planning properly.
Whether it’s by accessing funding that doesn’t match their needs, improperly forecasting which leads to stockouts or inventory bloat, or struggling to track and manage products across channels and warehouses, challenges are always there.
But when you have trusted technology on your side and a suite of products built for your needs, it’s easier than ever to innovate, shift your inventory strategies, expand to new markets, or renegotiate with vendors.
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Settle is the unified solution for best-in-class procurement, inventory, AP, and financing.
Looking for more expert insights on managing cash flow and inventory as a food CPG founder? Check out The Good Food CFO.
