Australian manufacturers slash stock as cash pressure mounts

Australian manufacturers cut average stock on hand to AUD $185,134 in the second quarter, according to new data from Unleashed. That was down 60% from AUD $462,735 a year earlier.

Stock holdings also fell 11% from the first quarter. Unleashed's Manufacturing Health Index, based on anonymised records from hundreds of Australian manufacturers, points to a broad retreat from the larger safety buffers many businesses built up last year.

The decline comes as manufacturers face pressure on both balance sheets and trading conditions. Average sales revenue across all industries fell to AUD $385,395 in the second quarter, down 33% from AUD $573,859 a year earlier, suggesting businesses are trying to free up cash tied up in inventory while demand remains weak.

Cash pressure

Inventory is typically one of the largest working capital items on a manufacturer's books, and changes in stock levels can have an immediate effect on liquidity. Lower holdings can free up cash, but they can also leave businesses more exposed to supply disruptions or sudden swings in demand if purchasing assumptions are wrong.

Jarrod Adam, Head of Product at Unleashed, said many manufacturers' biggest challenges stem from internal settings and processes rather than events outside their control.

"Global uncertainty isn't going away, but manufacturers don't have to be at the mercy of it. The businesses performing strongest today are the ones focusing on the operational levers they can control," Adam said.

He said stock data and supplier settings can directly affect purchasing and cash flow.

"Inventory should be one of your greatest competitive advantages, not a hidden liability. When supplier lead times aren't configured correctly, businesses risk making purchasing decisions based on outdated or inaccurate information, leading to costly stockouts, excess inventory and unnecessary pressure on cash flow," Adam said.

Internal gaps

The data points to a shift in manufacturer behaviour after a period in which many companies raised inventory levels to protect themselves from shipping disruption and longer lead times. As imported raw materials and components become more expensive, the cost of carrying excess stock rises, along with the risk of tying up money in items that may not move quickly.

Unleashed argued that some of the most expensive inventory errors stem from routine operational decisions. These include using generic supplier lead times, failing to update default inventory settings after implementation, and relying on forecasts that do not reflect current sales patterns.

That can leave businesses with too much stock in slower-moving product lines while still missing demand for higher-revenue items. In that situation, cutting inventory across the board may improve short-term cash flow but increase the risk of lost sales.

"Environmental factors can quickly affect input costs and margins, so purchasing may need to be more conservative, supply contingency needs to be built in, and stock decisions should be backed by accurate, real-time data. The businesses that perform strongest are the ones that understand where stockouts will have the biggest commercial impact and manage those risks deliberately," Adam said.

Lean inventories

The figures suggest smaller businesses in particular are shrinking inventories as they respond to weaker revenue and tighter cash positions. Running leaner can make sense where product demand is predictable and replenishment lead times are well understood, but the model depends on accurate information.

Adam said one practical step is to review supplier timing assumptions, which often remain untouched for long periods.

"Something as simple as reviewing supplier lead times can have a significant impact on purchasing accuracy, customer fulfilment and cash flow. It's one of those operational improvements that doesn't require major investment but can deliver meaningful business outcomes," Adam said.

The broader message from the latest data is that the inventory debate has moved beyond whether businesses should hold more or less stock. The sharper question is which products need tighter protection and which can tolerate a higher risk of stockouts without damaging margins or customer relationships.

"We've seen many manufacturers move away from the large safety-stock buffers they built during periods of uncertainty. The next step is making sure every purchasing decision is backed by accurate data so businesses can remain agile without increasing risk.

"When businesses are running lean and holding lower stock on hand, the priority must be identifying and managing their key revenue drivers more closely. That means stocking according to risk, accepting a higher tolerance for stockouts on slower-moving or lower-value products, while staying much closer to the margins, demand patterns and supply requirements of top-performing lines," Adam said.

He added that external shocks will remain a fact of life for the sector.

"There will always be global events outside a business's control. The manufacturers that will thrive are those that invest in the operational disciplines they can control, from accurate forecasting and supplier management through to inventory visibility and planning," Adam said.