FIN.3:5.1 - A stock reduction releases cash once

In a separate constructed two-year trial, operations supplies a feasible lower-stock policy. It avoids a scheduled purchase of 20 now while preserving the current sales receipts, reducing stock by 20. Thereafter it maintains that lower stock, saves storage and handling cash of 3 per year, and loses expected contribution of 4 per year through additional stockouts. These figures are net of all affected operating payments and taxes; the storage saving excludes any financing or capital charge. At the end of year 2 the trial restores the same stock as the baseline by an extra purchase of 20. There are no other differences, and a qualified 10% annual valuation rate applies.

The incremental cash is +20 now, −1 at year 1 and −21 at year 2, including restoration. Its value is 20 − 1/1.10 − 21/1.10² = 1.74. The result combines temporary funding relief with a recurring operating loss. Treating the released 20 as an annual saving would misstate the policy. If expected lost contribution is instead 6 per year, the flows become +20, −3 and −23, with value −1.74. The initially lower cash requirement remains, but the economic preference reverses. Operations must still support the changed service assumption, and FIN.2 must cover the restoration payment.