Forecasting and reordering calculations can be based on point of sale demand data, not demand at each stage of the supply chain. And, with a view of stock levels across all echelons, inventory can be balanced out, so excess stock at one location can be redistributed to other sites, where levels of the same item are lower. Any organization looking to lower costs across their supply chain and improve profit margins should therefore start by taking a closer look at how to reduce their stock levels. However, simply cutting inventory across your entire product range is not the approach to take.

The expenditure may vary depending on the staff member’s location and payment terms in their location. Whether you manufacture your products or buy them from a third party, you need a place to stock your inventory. It is also difficult to find a rental space due to limited availability.

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As you near that point, consider a high-discount sale, selling to a clearance retailer, looking for a new market where the product may find new life, or just scrapping the stock. The trick is getting that safety stock level right to balance your attempt to go lean. That means holding enough extra stock to meet unexpected surges in demand, or high per-unit purchases of your products per customer.

The POWER Interview: 3D Printing as a Supply Chain Solution – POWER magazine

The POWER Interview: 3D Printing as a Supply Chain Solution.

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Re-doing physical inventory counts when cost variances are too wide. When inventory counts and costs are off, manufacturers double-down their efforts to do more physical inventory counts every quarter or even every month. Doing periodic physical counts gets expensive quickly and ties up valuable time that could be better spent getting orders out to customers. But when a manufacturer is locked into manual inventory management and costing, inaccurate inventory counts almost always lead to customers getting incomplete orders and defective products. One of the biggest advantages of using an automated warehouse and inventory management system for perishable items is that it can help prevent over-ordering.

Quantitative Forecasting

Manufacturers don’t need to be locked into doing manual inventory counts forever. You can reduce obsolete inventory by offloading inventory while it still has value. If you don’t decide in time, you may end up paying to dispose of or throw them away.

We specialize in creating purpose-built solutions to meet our customer’s unique needs. Many of them have complex demands for tight lot control of raw and finished goods, or are heavily regulated and require robust traceability and audit capabilities. Our solutions improve overall production and supply chain operations, enabling our customers to maintain a competitive edge and benefit from a tangible return on investment.

To prevent a build up of obsolete stock it’s critical to understand where in the product life cycle each of your inventory items sit . As items begin to reach the end of their product life cycle you can put stock reduction strategies in place to manage slow-moving items. Inventory optimization software, such as EazyStock, enables inventory management teams to plan and manage inventory with one centralized view.

Bundle it as free gifts when customers purchase popular itemsReturn it to your supplier if their return policy allows for it. Free up your inventory for new and potentially more profitable products while reducing the cost of your warehousing. Many organisations find that making frequent, smaller purchase orders is more flexible compared to the carrying costs of making large orders to fill up the warehouse. Not only does this trim your carrying costs, but the increased flexibility could allow you to adapt and pivot based on changing customer demand and market conditions. For some businesses, reducing inventory is a small task – all they need to do is run a little leaner or cut out a bit of waste. For others, it’s about cutting inventory being held all the way back to meet customer demand.

Together we’ll build a solution that fits your unique business requirements. Carrying costs help you compare your profits with those incurred due to the inventory you hold. So, always keep in mind that your average carry cost of inventory should be within 15–30% of your total inventory value.

How Manufacturers Can Reduce Inventory Costs

We’ve tried to cover the supply chain bases with these articles, which I’m sure you’ll enjoy. Get in-depth coverage from industry experts with proven techniques for cutting supply chain costs and case studies in supply chain best practices. The prime objective for all supply chains is to provide clients with what they want, when they want it. Inventory management plays a central cost reduction strategies role in every supply chain’s need to satisfy its clients. You get to enjoy real-time updates on stock movements across all sales channels – no more spending hours manually updating your inventory every day. And every item that sits unused in your storage facility is taking up space that could be used for carrying faster-moving items, or experimenting with a new product line.

  • For the ease of this example, let’s also say Awesome Office Supply sells both for a 30% profit margin on average.
  • If you didn’t read them the first time, now is the opportunity to catch up.
  • The WiSys suite of Supply Chain Management solutions give process and discrete manufacturers the tools needed to be competitive while also staying compliant with industry regulations.
  • You can also use inventory management software to automatically record all the information.
  • While these stats will vary to some degree, this is the theory behind ABC inventory analysis – a model that can be usedto categorize your stock.

As a result, you can adjust the ordering frequency with your distributors or manufacturers based on actual demand to reduce inventory carrying costs. If your business has not invested in a cloud-based inventory management software solution, it’s time to consider signing up for the fastest, most cost-effective way to save on inventory holding costs. E-commerce sellers can use inventory forecasting to help find that balance.

Not including inventory management when forecasting

Automating inventory management looks to solve these challenges first. Standalone systems help reduce the drudgery of physical inventory but don’t deliver real-time visibility and control. Standalone inventory systems help alleviate the problems with manual inventory tracking to a point.

For example, if you know that product costs are set to drop, you can reduce your current order to the bare minimum. If you know that costs are set to go up, you can order several turns worth if storage and management costs don’t exceed the increase in price. And, if you know that a product is on its way ‘out’, you can get rid of your inventory before it becomes dead stock. When this important aspect is overlooked, things can quickly spin out of control. Consider these inventory cost reduction strategies to help save you money if you find yourself struggling with inventory management. Your inventory is one of the biggest assets of your eCommerce business, but the task of monitoring it and keeping inventory costs at a minimum is a difficult one.

how to reduce inventory cost

One major aspect of running a lean business is reducing inventory – that is, a reduction in the amount of inventory your organisation keeps on hand at a given time. Depending on your industry, you can partner with suppliers that can deliver based on your current needs. This way, you manage to keep stocks under control and reduce the lifespan of your stock in the warehouse.

You may not be able to pay for the volume of products listed in the MOQ. SMEs that are experiencing hyper-growth for the first time can be caught off guard by snowballing inventory costs. So we’ve put together six ways to keep costs low while optimizing your inventory performance. Paying for warehousing, accounting for breakage, shrinkage, and quality control can be expensive – especially when adding more products and new collections to your growing business.

Improve customer satisfaction

Relying on manual inventory cost management alone is like driving a car at night with no headlights, speedometer, or gas gauge. Manufacturing moves forward, but no one knows how fast, in what direction, and no one can see if there are obstacles in the way. Based on inventory forecasting, you can purchase more strategically and have the basis to negotiate lower purchasing prices with suppliers to reduce the total inventory value.

how to reduce inventory cost

That means you won’t be spending more on storing excess items, or risk the shortage costs that come with disappointed customers. Supplier lead times have a big impact on the amount of stock you hold. For example, if lead times are long or continually fluctuate, you’ll need to carry more safety stock to cover the risk of run-out while you wait for your delivery. Finally, because the entire reordering process in EazyStock is automated, inventory management teams find they have the resources to order as frequently as required.

Putting Inventory Forecasting to Work

At the same time you can reduce levels of less important items, or simply not stock them at all, reducing inventory investment and saving on warehouse space. It’s tough to get rid of stuff when you’re in the inventory management business. Those are products, after all—products that are theoretically worth real money.

After VMI implementation, you won’t have to worry about running out of stock. Your supplier will be responsible for adjusting delivery schedules when they see you’ve hit your reorder point. Inventory costs are important because they can have a major impact on your business’s bottom line – inventory is often one of the largest expenses an eCommerce business has. For the December issue of SCMR, we’re featuring some of the best columns and articles from the past year. If you didn’t read them the first time, now is the opportunity to catch up.

Better Storage Of Perishable Items

To calculate par level, you need your current demand, likely increase in demand, and lead time for a new order. For example, if you are selling computers or technology, new models come out every 8-12 months, and you will have to refresh inventory and get rid of old stock by that date. For example, kitchen utensils almost never go out of style, which will enable you to stock them for years or even decades. Where bright green might be hip one year bright blue might be popular the next, completely changing sales trends.