Reducing Your Inventory Costs

The primary goal for all supply chains is to provide clients with what they want, when they want it. Inventory management plays a crucial role in the need of every supply chain to satisfy its clients.

However, in many organizations the opportunities to lower inventory costs are too rarely addressed or are not exploited thoroughly enough. If your company requires assistance taking money out of inventory there are numerous strategies you can employ that will pay off immediately. Here are five of them:

  1. Letting Economics Dictate Base Cycle Stock: For manufactured products, if production equipment changeover costs are in a similar state, getting them in place will either reduce average inventory through shorter runs or allow for reducing changeover and receiving labor through longer runs. For purchased products, keeping control over your acquisition transaction costs will either reduce average inventory or allow for reducing purchasing and receiving labor.
  2. Lowering of Inventory Holding Costs: Improving your space utilization in contracted, leased, or public warehouses (or minimizing or delaying the expansion of owned facilities) through layout, narrow-aisle handling equipment, mezzanines, or more appropriate storage modes will all reduce your holding overhead.
  3. Shortening of Lead Times: For either purchased or manufactured products, any reduction in lead time (receiving cycle time, supplier lead time, or transportation time) provides a single, permanent reduction in cycle stock inventory proportional to the throughput level of the SKU and the degree of lead time reduction. In a similar manner, the elimination of lead time variability and growth of inbound unit-, SKU-, or order-fill rates both will increase your supply reliability and reduce your safety stock inventory for all customer service levels respectively.
  4. Liquidation: While there remains a short-term price to pay on the profit and loss (P&L) and the balance sheet, when it becomes obvious that the value to be gained through liquidation – by sale at reduced price, sale as distressed product, salvage, or by charitable donation –exceeds the most optimistic estimate of future gross margin from conventional product sales, liquidation becomes your best course of action.
  5. Accuracy of Inventory Balances: Inaccurate stock balances have the lingering effect of undermining the very best forecasting and safety inventory management processes that you can employ. Through effective cycle counting and with effort towards identification of the root causes of issues, you can keep on top of identification efforts.

Whether your business is large or small, the best on-the-go tool you can employ for your inventory management is FreshVu2Go, a constantly evolving and improving application with all the particulars to suit your company.