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You’re trying to reduce inventory costs. What’s the most effective way to do it?

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Inventory costs can eat up a significant portion of your profits, especially if you have excess stock, low turnover, or high storage fees. Reducing inventory costs is not only a way to save money, but also a way to improve your customer service, operational efficiency, and competitive edge. But what's the most effective way to do it? Here are some strategies you can apply to your inventory management.

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Thomas Dent, CPIM, CSCP, CPSM, CPSD

Director of Program Management

1 Track your inventory

The first step to reduce inventory costs is to know exactly what you have, where you have it, and how much it costs. You need to track your inventory levels, movements, and values using a reliable system, such as a barcode scanner, an RFID tag, or a cloud-based software. This will help you avoid overstocking, understocking, spoilage, theft, or misplacement of your inventory. It will also help you analyze your inventory performance, identify trends, and forecast demand.

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Shakeel Ur Rehman

X- Indus Home Ltd | X- Shafi Texcel | X- Nishat Chunian
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The most effective way to reduce inventory costs involves implementing data-driven strategies such as just-in-time inventory management, leveraging technology for accuracy and efficiency, and negotiating favorable terms with suppliers. By closely analyzing historical data and demand patterns, streamlining processes, and optimizing ordering policies in real time, a lean and efficient inventory system can be achieved, leading to significant cost reductions without compromising operational effectiveness.

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2 Optimize your ordering

The second step to reduce inventory costs is to optimize your ordering process, so that you order the right amount of inventory at the right time and from the right supplier. You need to balance your inventory holding costs, such as storage, insurance, and depreciation, with your ordering costs, such as shipping, handling, and discounts. You can use various methods to calculate your optimal order quantity, such as the economic order quantity (EOQ), the reorder point (ROP), or the safety stock. You can also negotiate better terms with your suppliers, such as lower prices, faster delivery, or longer payment periods.

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Thomas Dent, CPIM, CSCP, CPSM, CPSD

Director of Program Management
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Look into the cadence of how often you review Leadtime, safety stock, production cycle times and other variables that can lead to over or under ordering materials. These ERP/ MRP fields are often neglected the further away you get from new ERP launch and organization turnover.

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3 Implement lean inventory

The third step to reduce inventory costs is to implement lean inventory practices, which aim to eliminate waste and increase value in your inventory management. Lean inventory involves reducing the amount of inventory you keep on hand, minimizing the time it takes to move inventory from one stage to another, and improving the quality and accuracy of your inventory. You can use various tools and techniques to implement lean inventory, such as the just-in-time (JIT) system, the kanban system, the 5S method, or the six sigma method.

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Thomas Dent, CPIM, CSCP, CPSM, CPSD

Director of Program Management
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A deep dive into ABC classification identify which high-volatility, slow-moving products can drain resources. Shifting these to a Make-to-Order model, away from traditional Make-to-Stock, significantly reduced waste and improves efficiency.

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Yvonne Cannon

Wilbert plastic services- Customer Service Sales Administrator Senior
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Visual kanban system is super helpful. It works and is proven everywhere: Stockrooms, restaurants, manufacturing, McDonalds. If you can "see"your inventory is at your set minimum, time to reorder, restock, roll the silverware into napkins, turn on the press, fill the cups and sandwich wrappers.

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4 Automate your inventory

The fourth step to reduce inventory costs is to automate your inventory management, using technology to streamline and simplify your inventory processes. Automation can help you reduce human errors, increase productivity, enhance visibility, and speed up decision-making. You can use various solutions to automate your inventory management, such as inventory management software, artificial intelligence (AI), machine learning (ML), or internet of things (IoT).

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5 Train your staff

The fifth step to reduce inventory costs is to train your staff on how to manage inventory effectively and efficiently. Your staff are the ones who handle your inventory on a daily basis, so they need to have the skills, knowledge, and attitude to perform their tasks well. You need to provide them with regular training on how to use your inventory system, how to follow your inventory policies and procedures, how to prevent and solve inventory problems, and how to communicate and collaborate with other departments and stakeholders.

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Yvonne Cannon

Wilbert plastic services- Customer Service Sales Administrator Senior
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Absolutely. Train your staff as the champions of your inventory. But do not turn over the process to anyone else when it's time for the physical inventory event. I have seen inventories being taken by departments that have never seen or worked with the inventory. Big mistake! Argument- need a fresh unbiased set of eyes to achieve a true physical count. NO! They are value-add in a precount, maybe, or an audit yes! You want those familiar with process, where used, units of measure, packs, sizing, color, obsolescence to be on point come inventory.

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6 Review your inventory

The sixth step to reduce inventory costs is to review your inventory performance regularly and make adjustments as needed. You need to measure and monitor your inventory metrics, such as inventory turnover, inventory accuracy, inventory carrying cost, or fill rate. You need to compare your actual results with your goals and benchmarks, and identify any gaps or opportunities for improvement. You need to take corrective or preventive actions, such as adjusting your inventory levels, changing your suppliers, or updating your inventory system.

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Yvonne Cannon

Wilbert plastic services- Customer Service Sales Administrator Senior
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One of the worst mistakes is not having MRO items required regularly. This is the most unreviewed metric of inventory cost. Even if you don't have the option of changing suppliers, you can inquire about MOQ or EOQ. Have they changed? Is there a price break available? Consignment possibility? Freight LTL sharing with another account using the Supplier as well? You'd be surprised what you'll get when you ask. They want your business. Retaining business is easier than getting new business. Make them work!

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7 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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You’re trying to reduce inventory costs. What’s the most effective way to do it?

1

2

3

4

5

6

7

1 Track your inventory

2 Optimize your ordering

3 Implement lean inventory

4 Automate your inventory

5 Train your staff

6 Review your inventory

7 Here’s what else to consider

Inventory Management

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You’re trying to reduce inventory costs. What’s the most effective way to do it?

1

2

3

4

5

6

7

1 Track your inventory

2 Optimize your ordering

3 Implement lean inventory

4 Automate your inventory

5 Train your staff

6 Review your inventory

7 Here’s what else to consider

Inventory Management

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