Follow a defined cohort
An inventory programme often arrives at an executive meeting with a percentage reduction and an encouraging headline about cash. The two may be connected, but the connection needs explanation. Material can leave the balance because it has been sold, consumed in production, physically disposed of or written down. New receipts may replace what has moved. Payment terms determine when cash changes hands. Without an account of those events, a lower inventory figure can conceal an earlier loss or an unfinished operating problem as easily as it can demonstrate better purchasing discipline.
At Alverenne, we reviewed a fixed slow-moving cohort with EUR9.6 million of opening carrying value. We excluded new purchases from the cohort account so its later movements could be followed. Over eighteen months, EUR3.2 million entered production and EUR1.1 million was written down, leaving EUR5.3 million of carrying value. The arithmetic was straightforward. The management explanation required more care. Neither the consumption nor the write-down was an equivalent cash receipt, and the remaining balance still contained items that needed continuing attention rather than an assumption that the whole problem had been resolved.
Using a fixed cohort gave the operating teams a practical object to discuss. Production and engineering could identify material that remained suitable for current requirements. Account leaders could examine whether the customer variants associated with other items had credible future demand. Finance could review the valuation evidence without allowing new purchases to obscure the movement of the original stock. The cohort was not the entire group's inventory, and we did not present its result as proof that every plant's policy had improved. Its value was a bounded account whose components could be understood.
Some commercial colleagues expected older customer variants to return. They wanted to preserve the material and its reported value because the customer relationship remained important. I did not dismiss that possibility simply because demand had been quiet. We asked for evidence that could support it: a realistic requirement, a technically usable item and a credible period in which it might be needed. A historic relationship can justify careful investigation, but it cannot by itself establish the value of every component once purchased to serve it. The distinction helped keep the review from becoming a dispute about loyalty to an account.
A valuation decision does different work
The EUR1.1 million write-down acknowledged a reduction in carrying value. It did not put money into the bank, recover the original purchase cost or show that the purchasing decision had become successful. It was necessary to make the account more faithful to the evidence available. The appropriate reporting assessment remained with finance and its specialists, supported by operating information about condition and demand. We kept that judgement separate from physical disposal, since a financial adjustment and the eventual handling of an item are not automatically the same event.
The EUR3.2 million consumed in production had a different meaning. It represented use of material already held, which could reduce the need for some later purchasing if it matched genuine requirements. That potential effect needed its own account of orders and payments. We did not label the entire consumption amount a new saving or assume that every item used displaced an identical purchase at the same price. Some material could require additional work, and the timing of future demand still mattered. Production use was a concrete operating result, but its cash consequence was not established by the inventory movement alone.
The review itself cost EUR180,000 in engineering assessment and stock handling. Plant managers were concerned about diverting specialist attention from current orders. We scheduled the work with delivery requirements in mind and asked account teams to participate rather than leave engineering to resolve every historic assumption. That cost belonged in the account of the programme. A stock review does not become free because its tasks are performed by people already employed, and a lower balance should not be used to make the resources consumed in achieving it disappear from management's view.
There is a reporting temptation to combine the movements because the aggregate looks stronger. In this case, carrying value fell by EUR4.3 million. Saying only that amount would have lost the difference between useful production consumption and recognition that some value was not supportable. I wanted directors to see both, even if the explanation was less celebratory. A finance function should be able to improve the clarity of a problem without needing every correction to be described as an operating victory. That restraint makes later claims about cash and purchasing more credible.
Change the purchase that comes next
The most useful follow-up concerned the decisions that created the cohort. Several components remained because the original customer-variant assumption had never been assigned a new review owner. The item continued to exist in the system, so it continued to look like part of the active commercial plan. We worked with account and product teams to establish when those assumptions should be revisited. The intention was not to prevent every uncertain purchase. It was to make the reason for holding material and the evidence that would change that reason available to the next manager.
Purchase quantities also deserved scrutiny. A lower unit price can encourage buying beyond a realistic requirement, especially when the purchasing result is measured before storage, obsolescence and financing consequences become visible. Finance should help compare those terms with the operating need, rather than use hindsight to criticise every forecast that proved wrong. The question is what the team knew when it committed and whether the decision process included the material uncertainties. A later write-down can prompt learning, but it cannot reconstruct certainty that did not exist at the time.
I would make the next review earlier and more selective. Waiting until a balance is conspicuously old can leave fewer useful alternatives. At the same time, reviewing every item with equal intensity would consume resources without improving the important decisions. Product changes, customer departures and significant differences between planned and actual demand can identify where a fresh assessment is most valuable. Finance can help make those triggers visible, while engineering and commercial colleagues explain the operational meaning. The aim is a more informed purchase and retention decision, not a permanent administrative exercise around every shelf.
A board reader should leave the inventory discussion knowing what physically happened, what changed in the valuation and what cash consequence has actually been observed or is still expected. In our case, EUR9.6 million became EUR5.3 million through two clearly different movements, with a defined review cost and unresolved stock still present. That account gave directors a better basis for questioning the next purchasing plan than a single reduction percentage could. A lower balance matters most when the enterprise understands why it fell and what it will do differently before committing the next amount of cash.