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Six Inventory Reduction Ideas That Are Not As Outdated As They

  • One of the benefits of Inventory Reduction is the reduction of costs associated with stock keeping. These include: Reducing Costs - Less cash tied up in inventory than previously. Less warehouse room required. Reduced insurance costs, because the risk of lost stock is significantly reduced.

    Inventory Reduction can also be associated with cutting the cost associated with storage of large quantities of inventory that are not in demand. This includes items such as: Old, obsolete inventory, products that are rarely used. Outdated, no longer used product is normally "on backorder" which means it cannot normally be filled and must be stored until it can be sold to a customer. This additional storage charges reduce customer demand, which in turn reduces the cost associated with inventory reduction.

    Inventory Reduction can be maximized through a resiliency approach to inventory reduction. Using the KANBA Best Practices Guide for reducing inventories in six ways, helps businesses develop methods for effectively reducing inventories in five ways, by identifying and implementing a Six Sigma Quality Flow for doing so. These steps include: Reduce lead times, reduce waste, improve service, increase sales and keep inventory costs low. The six ways to reduce inventories are:

    Reduce lead times. Reduce the time to market by identifying which products need to be held in storage while they go on inventory, which products should be kept in active inventory, which products should be placed on hold while processing an order and which products can be moved faster to meet customer requirements. This, in turn, will improve the accuracy and efficiency of warehouse operations. In addition, reducing lead times for inventory reduction minimizes the level of excess inventory which is held in warehouses.

    Reduce waste. A valuable tool for inventory reduction is the data-driven warehousing system, also called a KIS, or "key performance indicator". By combining historical sales information with current and real-time information on stock levels and stock going out, and a system for estimating future sales as well as future stock needs, businesses can determine which of their existing warehouse processes are not impacting their results negatively. For example, a KIS can determine that certain lines of credit from a supplier are not being used to meet high demand due to an excessive amount of hold time, or that a particular warehouse process is being incorrectly used to take up excess processing time rather than reducing the level of throughput. Implementing the use of a KIS, which is based upon the number of average lead times for a given shipment, can greatly reduce the amount of time that products sit in inventory. The KIS can also identify weak areas in a warehouse which are costing the company money due to processing time alone.

    Increase profitability. One of the primary reasons for maintaining excess inventories is the fact that many business owners simply do not feel that they are taking the necessary steps to reduce their risk. When these inventories begin to build, they are often held back because it is not considered cost-effective to reduce the inventory levels. Reducing the number of products which are held in stock, through processes such as reducing the number of hold times for products or implementing a data-driven warehousing system can significantly reduce the amount of time which products sit in inventory, making it more feasible for businesses to reduce their inventory reduction costs. If multiple sets are applied, then profits can increase, especially when the profits created through the reduction of inventory can be reinvested in new products or in acquiring additional inventory.