10 ways to reduce inventory cost
October 21, 2008
- Determine cycle stock. Understand average inventory and reduce safety stock. Reduce overall lead time and lead time variability.
- Understand total cost. Evaluate holding cost and have a clear understanding of real potential savings with bulk purchases.
- Improved warehouse layout. Optimize warehouse layout and evaluate the potential of using narrow aisle handling equipment.
- Rationalize SKUs. Eliminate low yielding SKUs to reduce holding cost. Understand one time events, seasonality and prior forecasts. Establish a baseline forecast.
- Use cross-docking. Consolidate purchase orders from multiple distribution centers into a single order and cross-dock. This will reduce cycle stock inventory.
- 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.
- Use technology. Use technology such as Vendor-managed Inventory (VMI) to increase visibility. Information replaces inventory.
- Transfer stock. Transfer stock from one location to another to avoid unnecessary purchases.
- 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.
- Collaborate with partners. Share information with suppliers to increase visibility and reduce overall supply chain cost.