“But customers choose my company because we always have what they want in stock!”
Can you really reduce inventory without losing customers? Some companies build their business model on having plenty of everything in the warehouse so that at a moment’s notice, they can rush out orders. The cost for conducting business this way, however, can be draining. And when you have to maintain A & D book, it can be even more challenging.
Inventory is a significant investment for many companies, sometimes even the largest asset. Sure, you want to reduce your inventory, but to do so without a plan for managing it more effectively can be disastrous. These five steps can help you plan and reduce inventory without losing customers to your competitors through the dreaded “out of stock” messages.
Five Tips to Reduce Inventory Investment
Not every business can reduce their inventory in the same manner, but everyone can probably tighten inventory levels to some degree. Try these five tips to reduce your inventory load and see where you can further reduce stock levels without harming customer relationships.
1. Reduce order times.
One reason why many companies maintain excess inventory is because it’s so hard to get new materials in the first place. Rather than wait weeks or months for an order, they’d rather keep items in stock so they can fulfill customer orders without delay. Yet this adds excess inventory and ties up capital that could better be used elsewhere. The answer may lie in reducing ordering cycles and quantities. With better inventory data, you can potentially order as needed, or order weekly in smaller quantities rather than ordering on a monthly schedule. Negotiating faster shipping times with vendors is another possibility. Seek faster modes of transportation, and understand the trade-offs between fast and inexpensive; you often pay more for faster delivery. Carry some safety stock, but reduce your total inventory to levels that better match customer demand.
A steady stream of inventory can be better for cash flow, warehouse management and filling customer orders, rather than larger, infrequent orders that fill the warehouse.
2. Change your order cycle.
A benefit to data systems such as ERP systems is that you can see when items need to be ordered in real time. You aren’t locked into an arbitrary order cycle. By changing up your order cycle and ordering in a way that’s better aligned with demand cycles, you can reduce your investment in inventory without sacrificing service to your customers.
3. Improve forecasting.
We mentioned that ERP systems provide real-time data, including inventory and order data. Reviewing orders and using the data found within your ERP system can help you improve forecasting. The better your forecast, the more accurately you can maintain inventory levels without overstocks.
Consider collaborating with your customers to help them reduce their inventory. Suggest a steady stream of smaller order quantities, just as suggested above. Not only will this reduce the space you need for inventory, but also match your customers’ demand to your new ordering stream.
4. Evaluate what’s selling.
Businesses can easily slip into ruts when it comes to product inventory. If you’ve always carried certain items but haven’t looked at the reasons why you’ve carried them, it may be time to evaluate how well it fits into your current product line. You may be carrying obsolete items, or items customers just aren’t buying anymore.
Look at regency and frequency data from your ERP system. Look not only at the quantities sold, but the number of times ordered and the average order size. This can give you valuable information as you revamp your order stream. Then, get rid of slow or non-moving inventory. You might take a loss, but the free warehouse space and cash will more that cover the “loss” (after-all, you aren’t making any money with inventory that isn’t moving.)
5. Reduce SKU proliferation.
Some businesses add customer-specific SKUs to their inventory to make a task easier, only to find that managing redundant items with multiple SKUs makes stock-taking worse, not better. If your warehouse is clogged with duplicate items tagged with different SKUs, look for ways to use your technology in a smarter way and change how you’re tagging them. Reducing duplicate SKUs frees up warehouse space which can help you either add more appealing products or reduce overhead costs.
Use your ERP’s Customer Item Cross-Reference to reference your item number. Then, if necessary, relabel the item when it leaves your warehouse. Also consider establishing a “Stocking Products” list and develop a policy to put items on (or off) the list. These are the products that your customers depend on. Then, special order the rest of the non-stocking products.
The best way to reduce inventory is to gain greater insight and visibility into your supply chain. The more you know, the more you can do throughout the supply chain to tighten costs and meet customer expectations. Products such as Easy Bound Book , Container Management and Inventory Analysis can help you both manage your inventory and comply with regulations. It makes your tasks of managing inventory, pleasing customers, and meeting expectations a lot easier.