What is the cash-tied-up-in-inventory framework?
The cash-tied-up-in-inventory framework is a way of seeing inventory as money rather than as units. It values every SKU's stock on hand at landed cost, totals it, and sorts it by how long it will take to sell at current velocity. The result answers two questions a store owner rarely has a precise answer to: how much cash is on the shelves, and how much of it is in stock that will not sell for months, if ever.
The Inventory FTE on ftes.ai reports the framework monthly in the Performance tab and is reviewed on the dead-stock cash figure in the Targets tab.
What are the framework's inputs and tiers?
The framework needs three inputs a store already has, and it produces three tiers with thresholds the owner sets in days of cover.
- Stock on hand per SKU, from the store or inventory system, including stock at a marketplace or a 3PL.
- Landed cost per SKU, from the owner's cost sheet, including freight, duty and inbound handling.
- Current velocity per SKU, units sold per day over a recent window, from orders.
- Healthy tier: days of cover below the owner's upper target; the stock will sell in a normal cycle.
- Slow tier: cover between the target and the dead threshold; the stock will sell, but the cash is stuck longer than it should be.
- Dead tier: cover above the dead threshold, or no sales in the window; the cash will not come back on its own.
How is it calculated, with a worked example?
Cash in a SKU is stock on hand multiplied by landed cost; days of cover is stock on hand divided by daily velocity; the tier follows from the thresholds. A labelled worked example, illustrative only: a SKU has four hundred units on hand at a landed cost of twelve, so four thousand eight hundred in cash. It sells two units a day, so two hundred days of cover. The owner's dead threshold is one hundred and twenty days, so the SKU is in the dead tier with four thousand eight hundred trapped.
A second SKU has two thousand units at a landed cost of three, six thousand in cash, selling forty a day: fifty days of cover, healthy. The second SKU holds more cash and is fine; the first holds less and is the problem. Ranking by cash trapped within the dead tier, not by units or by total cash, is what points at the right shelf.
Why rank dead stock by cash rather than by units?
Ranking dead stock by cash rather than by units matters because a store's dead stock is usually concentrated in a small number of expensive SKUs, not spread across the many cheap ones that show up first in a units list. A hundred units of a low-cost accessory that stopped selling is a tidy-up; forty units of a high-cost item bought for a season that did not come is where the money went. The cash ranking finds the second; the units ranking hides it.
The same ranking tells the owner how much cash a release action would return, which is the number that justifies a markdown or a return to the supplier.
What release action does each stuck tier get?
The framework attaches a release action to every SKU in the slow and dead tiers, because a tier without an action is a report nobody acts on. The Inventory FTE proposes one per SKU with the cash and margin effect: a markdown, run through the Conversion or Retention FTE on approval, with the margin at the reduced price; a bundle with a healthy SKU; a return to the supplier where the terms allow it, with the restocking cost; a transfer to a marketplace where the SKU sells faster; or a write-off where nothing else returns cash. Slow-tier SKUs usually get a stop on reordering first, which costs nothing.
The owner decides. A markdown is a pricing decision and a write-off is an accounting one, and neither happens without approval.
How should the framework be applied month to month?
The framework should be applied monthly, on current stock and a recent velocity window, and reported beside the cash ceiling for purchase orders so that buying and releasing are seen together: cash committed in new orders on one side, cash released from dead stock on the other, and the total cash in inventory against the owner's ceiling. The Inventory FTE's review shows the tiers, the ranked dead-stock list with each SKU's proposed action, and the effect of last month's actions on this month's cash.
Seasonality moves SKUs between tiers, and the review says so: a seasonal SKU ahead of its season is slow by the arithmetic and healthy by the calendar, and the FTE labels it rather than proposing a markdown that would give away the season.