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How do you optimize inventory when there's too much or too little?

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Inventory management is a crucial skill for any business that deals with physical goods. It involves balancing the supply and demand of your products, ensuring that you have enough stock to meet customer orders, but not so much that you incur excess costs and waste. However, inventory optimization is not a one-size-fits-all solution. Depending on your industry, market, and business goals, you may face different challenges and opportunities when it comes to managing your inventory levels. In this article, we will explore some of the common scenarios where you may have too much or too little inventory, and how you can optimize your inventory accordingly.

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1 Too much inventory

Having too much inventory can be a sign of poor forecasting, overproduction, or slow sales. This can result in higher storage costs, lower cash flow, and increased risk of obsolescence, spoilage, or theft. To optimize your inventory when you have too much, you must identify the root causes of your excess stock and take corrective actions. Adjusting your demand forecasting methods and parameters to better reflect the market trends and customer behavior is one strategy to consider. Additionally, reducing production or purchasing levels to align with your actual sales and implementing inventory reduction techniques such as clearance sales, discounts, promotions, or donations can help move your excess inventory faster and free up space and capital. Finally, adopting inventory management systems and tools that can monitor inventory levels, track performance, and automate replenishment is another way to address the issue.

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Robert Wilson
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With a third party computer maintainence vendor, the field workers would "store" thousands of dollars of inventory in order to provide the best service to the customer they could. I started listening. Working with F.I.S.(feild inventory specialist), I developed a plan called, "Take away their excuses". I heard their reasonings over everything, not just big things. Adding space in the office inventory with the workers names. First it's out of their inventory, now it's accessible world wide because FIS can put their hands on it and ship it as necessary. Eventually, the designated shelving was empty. And the inventory was clean.

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2 Too little inventory

Having too little inventory can be a sign of high demand, underproduction, or supply chain disruptions, leading to lost sales, customer dissatisfaction, and lower market share. To optimize your inventory when you have too little, it is important to anticipate and mitigate the factors that can affect your inventory availability and delivery. Strategies such as improving supply chain visibility and communication, increasing production or purchasing capacity, implementing inventory buffer techniques such as safety stock, reorder point, or lead time, and adopting inventory optimization models and methods can help you determine the optimal inventory level, order quantity, and order frequency for each product.

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Cory Connors ????

Your Sustainable Packaging Source????| Top Voice LinkedIn | 90K+ on TikTok @Corygated | Host of Sustainable Packaging Podcast | IPPO Member | I'll Help You make your Packaging more Sustainable
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Having a backup source can be the key here. Working with a supplier that can have backup supply on their floor ready for you can be a life saver.

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3 The right inventory level

Finding the right inventory level for your business is not an easy feat. It requires a thorough assessment of inventory costs, benefits, and trade-offs, as well as an understanding of your inventory objectives. To reach the optimum inventory level, you need to carefully consider the inventory holding cost, ordering cost, shortage cost, and service level. The holding cost is the cost of storing, maintaining, and financing your inventory. The ordering cost is the cost associated with placing, processing, and receiving your inventory orders. The shortage cost is the cost of not having enough inventory to meet customer demand. Lastly, the service level is the percentage of customer orders that you can fulfill from your inventory. By understanding and optimizing these factors, you can achieve an inventory level that minimizes total costs while maximizing customer satisfaction and competitive advantage.

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4 Inventory optimization techniques

There are many techniques and tools that can help you optimize your inventory level and performance, such as ABC analysis, economic order quantity (EOQ), reorder point (ROP), safety stock, and inventory turnover ratio. ABC analysis categorizes products into three groups based on their value, demand, and importance to your business. EOQ calculates the optimal order quantity that minimizes the total inventory cost. ROP determines the minimum inventory level that triggers a new order for a product. Safety stock is a buffer of extra inventory to prevent stockouts due to unexpected demand or supply fluctuations. Lastly, inventory turnover ratio measures how often you sell and replace your inventory in a given period and indicates how efficiently you manage your inventory and how fast you generate sales.

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Cesar Trejo

Operations & CI Supervisor : Green Belt at EP Logistics LLC
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understanding and implementing these inventory optimization techniques and tools can significantly improve the efficiency and profitability of your business operations. It allows you to strike the right balance between maintaining sufficient stock levels and minimizing carrying costs, ultimately leading to better customer satisfaction and financial performance.

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5 Inventory optimization best practices

To optimize your inventory effectively and consistently, you should implement some best practices that can help you improve your inventory management processes and outcomes. This includes defining clear and measurable objectives, such as reducing costs or increasing turnover. You should also track and monitor key performance indicators to measure progress. Furthermore, regular inventory audits and reviews should be conducted to verify data accuracy. Finally, you should seek feedback and insights from customers, suppliers, and industry peers, as well as test and refine optimization techniques to adapt to the changing market.

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6 Here’s what else to consider

This is a space to share examples, stories, or insights that don’t fit into any of the previous sections. What else would you like to add?

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How do you optimize inventory when there's too much or too little?

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3

4

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6

1 Too much inventory

2 Too little inventory

3 The right inventory level

4 Inventory optimization techniques

5 Inventory optimization best practices

6 Here’s what else to consider

Inventory Management

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How do you optimize inventory when there's too much or too little?

1

2

3

4

5

6

1 Too much inventory

2 Too little inventory

3 The right inventory level

4 Inventory optimization techniques

5 Inventory optimization best practices

6 Here’s what else to consider

Inventory Management

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感谢您的反馈

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