The Home Depot story revisited

- When last we spoke about Home Depot, back in 1985,…cash flow problems had pushed the company to the wall.…- In fact, with a cash burn rate…of three million dollars per week,…and with just nine million dollars cash in the bank,…Home Depot had just three weeks to figure out…how to either get some additional external financing,…or reduce, dramatically, its cash burn rate.…- So, what did they do?…- Well, a combination of factors really.…Much of what they did was focused…on improving their operating cash flow.…- First and foremost,…they launched an inventory management system…that allowed them to track their inventory more carefully.…

With more careful inventory management,…they didn't need as much inventory lying around,…idle in their warehouse stores.…- Less inventory lying around…means fewer inventory purchases,…and that means less cash flowing out to suppliers…to pay for inventory…that is just going to be sitting around on shelves.…- In 1985, Home Depot spent 69 million dollars…to buy extra inventory.…That contributed to their 1985 cash flow problems.…