Part 5 of 10, Fraud Inoculation
Inventory replenishment became an intricate chess game as on-the-shelf inventory value in the warehouse quickly dropped from well over $1 million to less than $500,000, causing the purchasing manager major headaches. Many stretched vendors began to do business with this firm on a cash-on-delivery or paid-in-advance basis.
The purchasing manager and the owner made new deals with different publishers to intentionally raise costs by sharing part of the rich margin of regular new publishing with them, entreating them to make units for us in bulk, then holding on to our inventory, doling out product to us as they were paid in cash.
This inventory process is a kind of ‘just-in-time’ inventory, available whenever cash is fronted, yet we begged and pleaded for these terms instead of dictating them. All the risk for inventory overruns is ours as well, at these new publishing houses. The only real risk faced by these two long-time, friendly suppliers is our bankruptcy, which the regular publishing of new inventory renders increasingly unlikely.
Payroll expenses were trimmed again and again in to reduce the bi-weekly consumption of cash in order to maintain sufficient cash for new inventory acquisition. Occupancy expenses followed payroll expenses as the second largest expense line item, so three locations were consolidated into two. Payments to landlords and leaseholders were renegotiated to smaller amounts as the credible threat of filing for bankruptcy (though decreasing over time) became a weapon to extract concessions.