Inventory is a necessity for businesses – too much, and you’re tying up valuable resources that could be used elsewhere; too little, and you risk running out of stock and losing sales. Fortunately, you can do several things to help reduce your inventory levels without impacting your business too much.
What Is Inventory Reduction?
Lowering inventory levels to satisfy customers’ needs is referred to as inventory level reduction. It is essential to remember that this is more than just a mat more than of shifting surplus goods.
It also involves avoiding the buildup of surplus inventory in the first place while simultaneously expanding the stock of items moving through the store more quickly.
Reduce Inventory Levels
The capacity to efficiently manage inventory levels may be the deciding factor in whether or not the manufacturing of any size, from minor to medium, achieves success or failure. According to lean manufacturing principles, inventory levels are one of the “wastes” that must be removed the most urgently. It should be considered a “non-value add” and deleted from the system if the inventory levels are not continuously cycled through the manufacturing process. An excessive inventory ties up operating capital, consumes precious storage space, poses the risk of becoming outdated, and is more susceptible to damage.
Incorporating practices that help reduce inventory levels into a firm’s culture should be considered a best practice. The OptiProERP software has created a list of six strategies to decrease inventory levels, all of which may be used by any manufacturing firm, regardless of size, to improve inventory levels performance. But first, let’s look at different inventory management and optimization approaches.
1. Better data collection
It is necessary to be aware of the whereabouts of your inventory levels at all times, whether at your premises, with your suppliers, or in transit. Without this understanding, there is a risk of holding excessive safety stock. Therefore, cycle counts or regular counting should monitor inventory levels.
2. Shorten lead times
When lead times are reduced, there is a need for fewer inventory levels. Look into different strategies to reduce the time it takes to make transactions and deliver goods.
3. Speed up production.
If you can manufacture or distribute products more rapidly, you can satisfy client demand while maintaining smaller inventory levels.
4. Avoid bulk buying.
Avert your eyes from economies of scale. The money spent on storage is usually higher than the discounts gained, often resulting in unsold inventory levels.
5. Build key supplier partnerships
There is also the possibility of using an inventory levels solution that is controlled by the vendor, in which case the expenses of keeping inventory might be split.
Why is inventory reduction necessary?
Inventory levels reduction is essential for three reasons: it helps maintain low holding costs, reduces the likelihood of spoiling and shrinkage, and optimizes fill rate. The costs of holding inventory are the expenditures that are involved with retaining inventory for a more extended period than is required to sell it.
It ought to be one of any company’s primary priorities to get their stocked items into the hands of consumers as rapidly as they can. This safeguards the goods from being misplaced, stolen, spoilt, or otherwise destroyed.
You may also show that you have effective warehousing methods and that you can correctly estimate demand if you reduce inventory that is not essential. However, this results in a high fill rate, which indicates that you need an adequate amount of inventory levels for any item.
Optimizing inventory is key to an efficient supply chain
It is defined as a method of balancing the manufacturers’ capital investment constraints and goals with the defined service-level goals over a large assortment of stock-keeping units. Supply chain inventory optimization is defined as a method of achieving this balance. It covers the technique of having the appropriate inventory levels to reach your desired service levels while retaining a minimal amount of capital tied up for inventory. Having the appropriate inventory levels is an essential part of lean inventory levels management.
Warehouse and supply chain managers often regard inventory level optimization as the next level beyond essential inventory management. Because of this, firms may accomplish comprehensive Inventory Optimization by considering supply and demand swings and reducing excessive inventory levels.
Optimizing the supply chain’s inventory may readily assist manufacturers in overcoming challenges associated with warehouse management and stocking, resulting in less overall inventory levels. According to several studies, the inappropriate manner of packing, storing, or securing goods in freight containers is responsible for roughly 65 percent of the damaged inventory levels. Optimizing inventory levels may mitigate the effects of these mistakes to a significant degree. Also, in 2015, the global cost of overstocking goods was $470 billion, while the cost of understocking was more than $600 billion. Firms may use predictive analytics and data-driven insights to reduce their working capital needs and stocking challenges with precise inventory level optimization.
1. DEMAND FORECASTING
To effectively optimize supply chain inventory levels management systems, accurate demand forecasting is a critical component. Forecasting the demand and supply chain may be done in several different ways, depending on the sort of goods or services being discussed, the product life cycle, and the industry served. One strategy is using the demand data from the previous year or period and using particular request projections from the sales teams. For manufacturers to effectively estimate demand and determine where certain SKUs are located in the product lifecycle, they need complete information on the precise inventory levels quantity and the product lifecycle. In addition to this, they need to monitor seasonality patterns and new product releases, both of which have the potential to influence demand projection statistics.
2. INVENTORY STRATEGY
In addition to this, it is essential to have a solid grasp of the items that need to be supplied, as well as in what amounts and throughout what periods. The ABC analysis is a valuable tool for determining the amounts of SKUs to stock since it splits the SKUs depending on the yearly consumption value of the item. It is also helpful in understanding the calculations for safety stocks, which are used to account for abrupt swings in demand, variances in the supply, or other unexpected interruptions. Last but not least, you need to consider the number of warehouses you have to maximize the efficiency with which your inventory levels are dispersed between your locations in the appropriate quantities at the appropriate time.
3. STOCK REPLENISHMENT
It is essential to complete this stage to understand which quantities need to be reordered at when periods in time and then actually place the order for those amounts. The dependability of the suppliers is something that manufacturers need to bear in mind when it comes to this since every supplier has its own set of lead times and production cycles. It is not enough for manufacturers to monitor just the items that are now stocked at the warehouse; they must also monitor the commodities that are currently in route. Although it may seem clear, most ERP systems need to make it simple to record this information.