Inventory Reduction Strategies

Even the best-managed organizations can find themselves with excess levels of inventory. We will review several strategies that you can use to counter excess levels of inventory. Some may not work in your business situation, but read on. I can guarantee that something in the list will help you get those inventory levels down to where they need to be. how to start trucking business

Improve Forecast Accuracy: If done correctly, improving the forecast will lead to lower levels of safety stock. Yes, I understand this can be difficult. The approach works in spite of the difficulty of the effort.

Delay Replenishment Orders: This strategy is a compromise-you are trading excess inventory for more risk. Can you live with an increase in risk? This might be one strategy to consider.

Inventory Attrition: Are the excess items something that can be consumed over time? A commonly used bearing in a manufacturing setting is a good example of a commodity that can use an attrition strategy. Something marked with a certain date or model year is not a good candidate for this strategy. I might be time to scrap those items that are not likely to have demand in the next six to twelve months. (If you inventory moves faster or slower, adjust the date threshold appropriately.)

Substitute for a lower specification item: Offering customers a higher specification product as a substitute for a lower grade product can make sense, particularly if you have excess quantities of the former and none of the latter.

Rework to a Different Specification: Similar in some ways to the suggestion listed above, can you rework a product to satisfy demand for a related product. Can you swap out the hard drive and change a low demand computer into a fast selling item?

Scrap: Most materials have scrap values. Aluminum castings for an obsolete product line still have value for the metal content. There is a very active market for excess plastic parts destined for use as regrind. Paper, steel, glass, copper, electronics-all have well established reverse logistic supply chains ready to pay for your scrap materials. As a side note, consider creating a demand for your waste streams. While not an inventory reduction strategy per se, it is good business.

Return to Supplier and Pay the Restocking Fee: If vendor is willing to buy back excess, be willing to take the restocking fee hit. You will be better off as a result.

Discount/Fire Sale/Product Bundle: These are commonly used approaches in the retail world. They work almost as well in the industrial manufacturing world too. Bundling like items or related products at a slight discount can get that slow moving inventory translated into cash.

Shift to a VMI Strategy: You could also call this a ‘make it someone else’s problem’ strategy. If you have a vendor willing to accept the inventory risk costs and hold inventory for you, either at their facility or yours, a reduction in inventory levels will result. Sure, you will have to pay for this service, but they benefits to the supplier in reduced competitive forces can be used to your advantage.

This list is in no way comprehensive. I look forward to reading your comments and suggestions that you have used to reduce inventory levels.


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