Prime Advantage Blog

Five Inventory Management Tips to Cut Costs

Dan Grant on Mar 3, 2016 6:00:00 AM

One item that often gets misrepresented in budgets is the true carrying cost of inventory. Inventory isn't only about the physical space that is being taken up or the shelving that's holding your materials. It also encompasses the manpower and equipment required to stock and track your inventory, as well as the loss or damage that happens from parts sitting around. This begs the important question of, "what else could you do with that space, time, and money???"030316_Image

When expansion is in the plan, there are big costs involved with adding additional space and capacity. This is always a very big decision and a step that usually gets delayed until an organization is certain there is no other choice. The initial capital costs are huge and apparent, but the intricacy of having a multiple location operation is a continual cost in efficiency and business oversight.

So how do you get the most out of your inventory strategy and maximize what you already have on hand? Here are five tips to best handle what's sitting on your shelves:

1. The first step is to keep your inventory under control. You may be shipping from overseas and need to ensure you do not run out of items while you are waiting for the boat. This means you should keep a manageable amount of inventory; not months of overstock.

2.  Exhaust older inventory before new ones so you aren't letting items sit around to potentially get damaged prior to getting disbursed, thus reducing their value.

3.  Write-downs happen, but don't let them consume your warehouse. As items become obsolete or products are no longer made, you should get rid of the associated raw material inventory that is sitting in your warehouse, or transition it into becoming on-hand replacement parts. Holding onto these items because you don't want to see the loss is costing you space and time that could be dedicated to revenue-generating inventory and activities.

4.  Organization is the key to maximizing your inventory. If you are running out of space and storing items in multiple locations, you are greatly increasing your chances of losing inventory. Don't just put the stock somewhere to get it out of the way. Make sure you are adjusting and allocating space so you can keep track of everything and prevent your inventory from getting damaged.

5.  Make sure you always know what you have. If you don't have a line of sight to your inventory you will face reordering items you already had on hand. Don't lose space to items that have been forgotten and erroneously reordered.

Supply chains are in constant evolution. Make sure your inventory ideals are changing to keep pace with your products. Keep sight into your product lifecycle and make sure you are changing your raw material purchasing behavior long before you stop producing the finished product.

Follett Case Study

Topics: Supply Chain

Dan Grant

Posted by Dan Grant

Daniel Grant is the President of Prime Advantage, a Chicago-based Group Purchasing Organization for mid-market manufacturers.

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