In Chapter 12, Dynamic Inventory Management, David McMahon explains why inventory is one of the biggest drivers—or destroyers—of cash flow in retail. He emphasizes that strong performance comes not from selling more volume alone, but from managing inventory quality, turnover, and margin. Businesses that outperform competitors focus on measuring inventory health, improving GMROI, and actively managing the full product life cycle.

David outlines the key metrics that drive inventory performance, including GMROI, inventory-to-sales ratio, sales per square foot, best-seller in-stock rates, percentage of current inventory, and delivery completion. He explains how best sellers, new items, and slow movers (“dogs”) must each be managed differently, using data—not intuition—to guide buying, reordering, and markdown decisions.

The chapter introduces a dynamic, ongoing process: reinvest profits from best sellers into replenishment, flush slow-moving inventory quickly using aging systems, and carefully test new products. Success requires disciplined execution across buying, warehousing, merchandising, sales, and accounting, supported by accurate systems, regular review, and accountability. When done well, dynamic inventory management accelerates cash flow, improves profitability, strengthens teams, and delivers a better customer experience.