November 26, 2022

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Reduce Inventory Costs Through Effective Inventory Management

3 min read
Supply Chain

Inventory reduction is indeed one of the topmost issues for all manufacturing industries. Storing tons of inventory in small-sized warehouses is the biggest reason for inventory reduction and hence most of the time the root cause of such huge losses for the companies concerned. This huge inventory of inventory sitting idle in the warehouses has a significant impact on the overall profit margin of the company and to curb this situation it is essential for companies to take strong inventory management steps.

One of the fundamental steps taken by almost all companies to curb inventory reduction is, they concentrate on improving their service level or increasing customer satisfaction. Both these endeavors are aimed at improving the quality of service offered to their customers. If the level of service provided by the company remains good then chances are more that customer would come back again to avail of your products and services. This is exactly what you desire, get your customer’s repeat business.

Improving service level is not only limited to customer satisfaction, it also involves improving the inventories. To tackle the problem of inventory reduction companies have to focus on both quality and quantity of raw materials. In order to improve the quality of raw materials, companies have to deploy more men to increase the production capacity. To increase the production capacity more people have to be deployed to handle the rush of materials during the manufacturing process itself.

In addition to deploying more men for increasing the production capacity, companies also have to look into the issue of storage of inventories. This factor alone can add hundreds of dollars to the overall production cost. There are numerous ways that can be utilized to reduce the inventory reduction while keeping good quality of manufactured goods for manufacturing businesses. These include the following:

Increase efficiency in the transport of goods from the manufacturing units to the warehouses. This factor alone can reduce the transport costs by a significant percentage. By using refrigeration trucks and other vehicles that can reduce the transportation costs by up to 90%. Implementing new business model which allows manufacturers to reduce the stocking of inventories can help to reduce inventory reduction by a significant percentage.

Make good use of the forecasting and trend data to determine the demand forecasts. When calculating the demand forecasting, it is important to keep in mind the fact that there are two kinds of forecasts which are known as long range and short range. Long-range forecast offers the overview about the industry or area where the product is manufactured in and provides a comprehensive picture about the demand and supply scenario. It is important to adopt forecasting and trend data to determine the inventory reduction that is necessary for meeting the customer demands. Short-range forecasting offers a more concise and basic overview about the market.

The use of automation and other tools can reduce the warehouse labor requirements thus leading to an increase in efficiency and reducing the inventory reduction. By automating many of the activities within a warehouse can greatly reduce the physical labor requirements and thereby improving the customer service. However, automated systems may not be able to handle the quantities of merchandise which are too large for manual storage and therefore it would require additional facilities such as pallet racks or forklifts to carry out the repetitive warehouse activities. To reduce the cost of inventory reduction through these activities and still keep good inventory levels, it would be wise to purchase warehouse equipment which is capable of storing both small and large quantities of inventory.

There are many companies that offer consulting services related to inventory reduction. It is important to choose a company that has the experience and expertise in carrying out the inventory management activities. The consultant should be in a position to give suggestions on the inventory management software as well as suggesting alternative software solutions for any issues related to the inventory management. These companies also reduce inventory loss through training programs and advice on strategic planning.

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