In an uncertain economic environment, top management will be interested in asset management and cash flow management. The two most common strategies used to improve cash flow and return on assets are: (1) reducing accounts receivable and (2) reducing the investment in inventory, as inventories and accounts receivable are a major portion of corporate assets. They can represent over 50 percent of manufacturers' total asset, and more than 80 percent of wholesalers' and retailers' total assets.

When top management mandates a reduction in accounts receivable and/or inventories, its objective is to improve cash flow and reduce the company's investment in assets. Usually, management assumes that revenues and other coats will remain the same. But reduction in the terms of sale, or even enforcement of the stated terms of sale, in effect changes the price component of the firm's marketing mix. In addition, simply reducing the level of inventory can significantly increase the cost of logistics if current inventories have been set at level that allows the firm to achieve least total cost logistics for a desired level of customer service.

The arbitrary reduction of accounts receivable and/or inventories in the absence of technological change or changes in the logistics system can have a devastating impact on corporate profit performance. If a manufacturer changes its terms of sale, for example, the effect on wholesalers and retailers will be twofold. First, the change alters the manufacturer's price and therefore the competitive position of its products, which may lead to decreased sales. Second, it further complicates the cash flow problems of the manufacturer's customers. Forcing faster payment of invoices causes channel members to improve their cash flow by reducing their inventories of the manufacturer’s products. They do so by placing smaller, more frequent orders, which may increase total logistics cost for both the manufacturer and its customers. This situation may also result in stock-out of the manufacturer's products as the wholesale or retail level of the channel, further reducing sales volume.

Similarly, a manufacturer's policy of arbitrarily reducing inventory level to increase inventory turns, in the absence of a system change, may escalate transportation costs and/or production setup costs as the logistics system scrambles to achieve the specified customer service levels with lower inventories (as­suming the company was efficiently and effectively distributing its products prior to the policy change). Alternatively, pressure to reduce expenses may preclude the use of premium transportation or increased production setups to achieve the desired customer service levels with smaller inventory. In this case, customer service levels would be eroded, and a decrease in market share might result. In either set of circumstances, the increased cost of transportation and/or production or the lost sales contribution could far exceed the savings in inventory carrying cost.

However, if management concentrates on systems changes that improve logistics efficiency and/or effectiveness, it may be able to satisfy all of the firm's objectives. For example, many companies have not kept pace with the new technology in order processing. By replacing an outdated order processing and in­formation system, a firm may be able lo achieve some or all of the following: (1) increased customer service levels; (2) lower inventories; (3) speedier collections; (4) fewer split shipments of orders; (5) decreased transportation costs as a result of freight consolidation; (6) lower warehousing costs; (7) improved forecasting accuracy and production planning; and (8) improvements in cash flow and return on assets.