Every company is trying to reduce or eliminate inventory these days. Most of the advice given on this subject is repetitive. Here are a few inventory reducing techniques you may not have heard of, to get you thinking about alternatives. A common theme is to take measures that are specific to your industry, company and product.
“Everyone’s heard the end-of-year rally cry: ‘Lower down days of supply!’” says Bob Davis, a retail industry consultant at SAS, a software company specializing in predictive analytics. “The error with this process is you are attacking the metric itself, not the underlying inventory problems. When you attack the metric you risk dramatically increasing your out-of-stock rate.”
Davis suggests increasing forecast accuracy. “A consistently accurate forecast reduces safety stock and aligns inventory to actual demand,” he says.
Creating correct metrics for inventory classes is also important, according to Davis. “Not all inventories are created equal,” he explains. “Important items require higher customer service levels than lesser-valued items. Aligning inventory so it properly meets a company’s goals can help reduce stock on less-needed items.”
Understanding the root causes that lead to higher inventory levels is important for putting the right policies in place, according to Paul Huppertz, strategy practice partner at The Progress Group, part of supply chain consultancy Crimson & Co.
Excess inventory, according to Huppertz, can generally be traced back to one of a few major areas: forecasting errors; buying spikes; discontinued product lines and returns; and inventory control issues, such as carrying excess inventory to cover accuracy problems.
“When you understand and quantify the root causes, you can then take actions that will give you the biggest impact,” says Huppertz.
For instance, measuring actual lead time or requested vs. actual delivery dates for each purchase order and tracking by supplier provides visibility to suppliers that send orders early. It also identifies suppliers that deliver late or have no consistency. Buyers may order early or carry higher stocks to buffer against this variability.
“This should be simple,” says Huppertz, “but surprisingly many companies don’t track this metric.”
Identifying best practices for company types and cultures is key, according to Lisa Anderson, principal of LMA Consulting Group in Claremont, California. “Collaboration with customers and suppliers is typically a best practice that can help reduce inventory levels,” she says, “but there are different approaches to implementation which can produce vastly different results.”
Sometimes inventory problems are people problems, she adds. Putting the right people in the right jobs can sometimes work magic.
“In one aerospace distributor,” Anderson relates, “we reduced inventory on the top product line by over 30 percent rapidly by finding the already-existing talent within the organization, putting them into an inventory-specific position, providing a few tools, and empowering them for success.”
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