Inventory Reduction Tips

Inventory is expensive. Often very expensive. In addition to the storage costs that result from having to maintain extra space, it ties up working capital, which can cost you dearly. Therefore, unless you’re getting a deal too good to pass up on a plastic or metal that is currently skyrocketing in cost, you want to get your inventory as lean and mean as possible. How can you do this? A recent article in Industry Week, inspired by Cornerstone Solutions, had a fairly exhaustive list of what you can do to reduce inventory. The suggestions were:

  • Reduce Demand Variability
    Get a better handle on what you are using, when, and make sure that you order consistently from your suppliers.
  • Improve Forecast Accuracy
    Combine your improved insight into your current usage with upcoming marketing campaigns and market projections to forecast better. Then alter your order sizes and intervals as appropriate.
  • Re-examine Service Levels
    How fast do you really have to service a customer if something breaks. If you’re selling a key component in a production line, then you definitely have to do next day, if not same day, servicing and must have the part(s) in stock. But if you’re selling tractors, and Farmer Joe’s breaks down on a Friday, I’m sure that, even if he is a little disgruntled, he can wait until Monday. And if you’re selling iPods — guess what, your user can go without a replacement for a couple of days.
  • Address Capacity Issues
    Make sure your low-lead time suppliers can produce enough products to meet unexpected demand spikes (that you sense on the front-end because you’re carefully monitoring your sales data with amalgamated nightly feeds through your supply chain visibility solution).
  • Reduce Order Sizes
    If you only use 100 a month, don’t order 1000, even if the discount “looks” attractive — chances are, after you factor in the holding cost and the working capital cost, you’re losing money.
  • Reduce Manufacturing Lot Sizes
    Find a supplier who can produce smaller lot sizes economically, especially for items that you have low volume requirements for.
  • Reduce Supplier Lead Times
    The faster you can get a product, the less of it you have to keep in stock. Work with your suppliers to reduce lead times as much as possible.
  • Reduce Manufacturing Lead Times
    Select manufacturers who can quickly re-configure their production lines and who have short lead-time relationships with their raw material suppliers.
  • Improve Supply Reliability
    Make sure that you either dual-source or have a back-up plan ready to go if something should happen to your primary supplier or its primary facilities.
  • Reconfigure the Supply Chain
    Revise your distribution network to be as efficient as possible. Don’t be afraid to deploy strategic sourcing or distribution network optimization solutions.
  • Reduce the Number of Items
    Standardize on common components across your product lines and across your business units. One type of memory, one type of power supply, and one type of paper when one will do.
  • Eliminate Questionable Practices
    Given that certain types of questionable practices can land you in jail under SarBox, this should be a no-brainer.

Great advice (even if the article itself was a little too brief).