Last week, i had a meeting with an owner of a manufacturing company supplying fully machined pressure Die casting parts. They have inhouse casting and machining facilities and are depending on approved vendors too. After the initial meeting he took me on a visit to his plant and the first thing i wanted to see was his stores. What i could see was an alarming level of Inventory in WIP area. When i received the MIS report, i was shocked to see a whopping 42% in WIP at any given point of time. This made me write this artcile
Of course, reducing inventory in a manufacturing sector can be a challenging task, but it is essential to maintaining a lean and efficient operation. Excessive inventory can tie up valuable capital, increase storage and handling costs, and increase the risk of obsolescence or damage. However, there are several methods that can help to reduce inventory levels while ensuring that production runs smoothly.
- Implement Just-in-Time (JIT) Inventory System: JIT is a production strategy that emphasizes the timely delivery of small quantities of materials, components, and finished products. By only ordering what is needed, when it is needed, manufacturers can reduce the amount of inventory they need to hold on-site.
- Conduct Regular Inventory Audits and Assessments: Regularly reviewing and assessing inventory levels can help manufacturers identify areas where inventory can be reduced. This could include items that are slow-moving or obsolete or items that can be consolidated or eliminated.
- Utilize Demand Forecasting: Accurately forecasting demand for products can help manufacturers avoid overproduction and reduce inventory levels. This can be done using a variety of methods, such as statistical analysis, market research, or sales history data.
- Implement Vendor-Managed Inventory: Vendor-managed inventory (VMI) is a collaboration between a manufacturer and its suppliers. The supplier is responsible for monitoring inventory levels at the manufacturer’s site and replenishing them as needed. This can reduce the amount of inventory that the manufacturer needs to hold on-site.
- Improve Supplier Relationships and Negotiate Better Delivery Times: Strong relationships with suppliers can help manufacturers negotiate better delivery times and reduce inventory levels. For example, manufacturers can negotiate to receive smaller, more frequent deliveries rather than larger, infrequent deliveries. This can help to reduce the amount of inventory that needs to be held on-site.
- Utilize Consignment and Safety Stock Agreements: Consignment and safety stock agreements allow manufacturers to reduce inventory levels while still ensuring that they have the materials they need to produce products. In a consignment agreement, a supplier holds inventory at the manufacturer’s site and only invoices the manufacturer when the inventory is used. Safety stock agreements allow manufacturers to hold a minimum level of inventory on-site, with the supplier responsible for providing additional inventory as needed.
- Implement a Barcode or RFID System for Tracking Inventory: A barcode or RFID system can help manufacturers track inventory levels in real-time and reduce inventory levels by ensuring that inventory is properly managed and controlled. This can help to prevent overproduction and reduce the risk of stock obsolescence or damage.
- Implement Cycle Counting Procedures: Cycle counting is a process that involves regularly counting a portion of the inventory, rather than counting all inventory at once. This can help manufacturers identify discrepancies and reduce inventory levels by ensuring that inventory is accurate and up-to-date.
- Reduce Lead Times on Purchases: Reducing lead times on purchases can help manufacturers reduce inventory levels by ensuring that they receive materials and components in a timely manner. This can be achieved by improving supplier relationships, negotiating better delivery times, or using expedited shipping methods.
- Utilize Technology such as Inventory Management Software: Inventory management software can help manufacturers reduce inventory levels by providing real-time visibility into inventory levels, automating inventory management processes, and helping to improve accuracy. This can help to prevent overproduction, reduce inventory carrying costs, and improve overall efficiency.
To sum up, you need not go in search of new customers to increase revenue. Just focus on reduce inventory and operational rejections and the organization will start seeing unbelievable pile of cash in reserve.
