Build an Inventory Timing Model

Before you start

• A Cost of Goods model that links units to direct costs.

• A sense of how far in advance you purchase inventory relative to sales.

• An understanding of Assets, COGS and payment delays in Model Reef.

If needed, read:

• Build a Cost of Goods Model

• Build a Working Capital Model

Build an Inventory Timing Model

Model Reef does not implement formal inventory accounting with stock ledgers and cost layering, but you can approximate inventory-like behaviour using timing rules, COGS, and asset variables. This guide explains how to represent key inventory dynamics such as buying ahead of sales and tying up working capital.

What you will build

• A timing structure that captures:

  • When you purchase inventory.

  • When you sell goods and recognise COGS.

  • When you pay suppliers.

• Optional asset variables that represent stock or prepaid balances at a high level.

1

Map your operational inventory cycle

Clarify your cycle in plain language, for example:

• Purchase inventory one month before sale.

• Pay suppliers 30 days after receiving goods.

• Aim to hold 60 days of inventory on hand.

These time gaps drive the working capital and cash effects you want to capture.

2

Approximate inventory purchases using timing

You can treat cost flows in two ways:

Option A: Simple delay on COGS

• Set COGS accrual timing to match sales (as usual).

• Apply a delay to represent payment terms only.

• This captures only payables timing, not pre-purchasing of inventory.

Option B: Use an Asset variable for pre-purchased inventory

• Create an Asset variable called Inventory Balance or similar.

• Set it up so that:

  • It increases when you purchase inventory (for example based on expected sales in future periods).

  • It decreases when inventory is consumed and transferred to COGS.

• Implement this with drivers that describe:

  • Target inventory days or months.

  • The relationship between future COGS and current purchases.

This is a higher level representation, not a detailed stock ledger, but it captures the main balance sheet and cash timing effects.

3

Link inventory purchases to cash and payables

Whether you model pre-purchasing explicitly or not, define when suppliers are paid:

• For any Asset or COGS variables representing purchases, apply payment delays that match supplier terms.

• This will create:

  • Accounts Payable when purchases are accrued but not paid.

  • Cash outflows when payments occur.

Combined with the inventory Asset variable, this approximates the classic inventory and payables pattern.

4

Monitor approximate inventory levels

To ensure inventory representation is reasonable:

• Create charts or custom series showing the Inventory Balance Asset over time.

• Compare it to COGS:

  • Inventory days on hand can be approximated from Inventory divided by COGS.

• Look for:

  • Inventory building when growth is high.

  • Inventory reducing if you intentionally run down stock.

Adjust drivers as needed to keep the pattern realistic.

5

Understand working capital impact

Inventory ties up cash and affects working capital.

• Open the Cash Waterfall and look at:

  • Change in Net Working Capital.

  • COGS cash outflows.

• When you buy inventory earlier than sales, you should see:

  • Earlier cash outflows.

  • A larger working capital drag versus a pure services or just-in-time model.

This helps quantify the cost of carrying inventory.

6

Test alternative inventory strategies with model copies

To explore different inventory policies, create separate models, for example:

• Model - Inventory - High Stock

• Model - Inventory - Lean Stock

In each model:

• Adjust drivers that control how many days or months of inventory you target.

• Change payment terms and purchasing schedules.

Compare cash, working capital and valuation to understand trade-offs between service levels and capital efficiency.

Check your work

• Inventory Asset balances are in a realistic range relative to COGS.

• Payables and cashflows reflect purchase timing and payment terms.

• Working capital and cash burden from inventory feels plausible.

• The approach is documented as an approximation, not full inventory accounting.

Troubleshooting

Inventory appears to grow without bound Check your purchase logic and ensure there is a link to consumption or clear target levels.

Cash impact is much larger than expected Review both the amount and timing of purchases and payments. Small timing errors can have large cash effects in growth phases.

Too complex for the decision at hand Simplify by using delays on COGS only and avoid explicit inventory Assets if a high level approximation is sufficient.

Related guides

• Inventory Purchases & Reorders

• Timing Engine Overview

• Delay Rules

• Timing Modal