Three Machines: Inventory to Cash
How the Three Machines framework transformed a distribution company's inventory management, driving 310% cash flow improvement.
The Challenge
Regional distribution companies often struggle with capital efficiency. Inventory ties up cash that could fund growth, yet stockouts damage customer relationships. This case examines how the Three Machines framework unlocked working capital.
Understanding the Three Machines
The Three Machines framework identifies three distinct engines within every business:
- Cash Machine - How efficiently does capital flow through operations?
- Profit Machine - What margins do you generate on each transaction?
- Growth Machine - How quickly can you scale revenue?
Most operators focus exclusively on the Growth Machine, neglecting the Cash and Profit engines that fuel sustainable expansion.
The Framework in Action
When applied to distribution, the Three Machines framework reveals hidden opportunities:
| Machine | Focus Area | Typical Quick Win |
|---|---|---|
| Cash | Inventory turns | Right-size safety stock |
| Profit | Gross margin | SKU rationalization |
| Growth | Customer acquisition | Sales process optimization |
Results
After 14 months of implementation, this distribution company achieved:
- Inventory Turns: 4.2x to 8.7x (+107%)
- Cash Conversion Cycle: 45 days to 18 days (-60%)
- Free Cash Flow: $1.2M to $4.9M (+310%)
Key Takeaways
The Three Machines framework works because it creates visibility into capital efficiency. Operators can’t improve what they don’t measure, and most distribution companies lack granular inventory analytics.
Start by mapping your current state across all three machines before optimizing any single dimension. Use the Three Machines Assessment to evaluate where your business stands, and explore how Operational Thinking can help you systematically improve each machine.