10 Ways to reduce inventory cost

Reducing inventory is important in any organisation concerned about the bottom-line. Many companies are finding that information can replace inventory — enabling organisations to become more flexible while continuing to meet customer needs. Below are some factors to consider when trying to reduce inventory:

  1. Determine cycle stock.  Understand average inventory and reduce safety stock. Reduce overall lead time and lead time variability.
  2. Understand total cost. Evaluate holding costs and have a clear understanding of real potential savings with bulk purchases.
  3. Improved warehouse layout. Optimise warehouse layout and evaluate the potential of using narrow aisle handling equipment.
  4. Rationalise SKUs. Eliminate low yielding SKUs to reduce holding costs.  Understand one-time events, seasonality, and prior forecasts.  Establish a baseline forecast.
  5. Use cross-docking. Consolidate purchase orders from multiple distribution centres into a single order and cross-dock. This will reduce cycle stock inventory.
  6. Evaluate merge-in-transit. Components are shipped from multiple suppliers and merged at a point located close to the end customer. Merge-in-transit avoids traditional warehousing and reduces overall holding costs.
  7. Use technology.  Use technology such as Vendor-managed Inventory (VMI) to increase visibility. Information replaces inventory.
  8. Transfer stock. Transfer stock from one location to another to avoid unnecessary purchases.
  9. Negotiate consignment stock. Ownership of consignment stock is not transferred until used. This can have a significant impact on your working capital and cash flow.
  10. Collaborate with partners. Share information with suppliers to increase visibility and reduce overall supply chain costs.

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