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10 ways to reduce inventory cost

October 21, 2008
  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 cost and have a clear understanding of real potential savings with bulk purchases.
  3. Improved warehouse layout. Optimize warehouse layout and evaluate the potential of using narrow aisle handling equipment.
  4. Rationalize SKUs. Eliminate low yielding SKUs to reduce holding cost.  Understand one time events, seasonality and prior forecasts.  Establish a baseline forecast.
  5. Use cross-docking. Consolidate purchase orders from multiple distribution centers 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 cost.
  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 cost.
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