Supply chain inventory strategy: "Reduce inventory cost"
Listed below are successful strategies that we have implemented for some of our clients as part of their inventory reduction programs. These are presented as a guideline, some can be implemented very quickly while others need the proper level of assessment to ensure that the targeted level of reduction is realistic and will not compromise existing service level targets for your business. These strategies are categorises as:
- Using demand or sales customer data, inventory can be stored in a selective warehouse. Constantly review stock profile to bleed down inventory or manage out slow moving inventory via a return to vendor program. Leveraging from agreed buying terms will facilitate this process.
- Managing inventory postponement, where the final selling product is made up of components or sub-assemblies that do not form part of the finished good.
- Work on reducing demand variations will allow planners to manually release work orders for finished goods periodically as a make to order policy.
- Constantly monitor inventory performance and delist the "Dog" types which are not turning and using up space
- Moitoring the lead time variance of imported indent products to managable levels without draining the supply channel. This lead-time should be reduced gradually and with caution as multiple stakeholders are typically involved throughout the inbound supply chain. Some leadtime reductions can have an adverse effect on due to unforseen shipment delays, manage with caution,
- Establish upper and lower leadtime threshold control limits and work within these parameters for air, sea and cross dock consignments.
- Re-evaluate the planning settings in your ERP system as a number of these have been set up initially to only support the first cut calculations for safety stock and safety time, probably from the first data migration process.
- Cleanse ERP and WMS planning settings to ensure that only a single trigger point works for your planning process i.e. safety time as days or safety stock, not both.
- Rationalise your inventory range using multiple customer, financial and inventory datasets such as gross margin, sales volume, EBIT etc to determine whether it will remain as part of the business product portfolio.
- Collaborate with your supply chain partners and eliminate item demand volatility by using share demand data that has closer planned delivery windows.
Supply chain footprint
- Cross docking shipments direct to your customers avoids inventory holding costs and reduces most warehouse processing costs. This would apply to either make to order or make to stock inventory policies.
- Assess the use of storage modules within your warehouse to determine if space is being fully utilised for static storage, namely pallets, pick locations, tote bays and shelving. By changing the type of MH equipment used, aisles can be truncated to allow for greater space utilisation. Ensure that all costs are taken into account prior to changing rack positions or leasing new MHE
- Close satellite warehouses and centralise distribution where possible. The trade-off between inventory level and cost of distribution needs to be established prior to any decision to close sites.
- A Warehouse sale can be an effective way of depleting or removing stock when the establishment costs are lower than the recovery cost.