Executive Briefings

Ways to Lower Inventory Costs

Inventory policies drive two types of costs-operating expenses and working capital requirements. The latest "Logistics Cost and Service Report" published by Establish Inc./Herbert W. Davis and Company, indicates that, while total logistics costs as a percent of sales are falling and most individual companies have succeeded in reducing inventory levels; total logistics costs per hundredweight are increasing, and inventory costs as a percent of total logistics cost are increasing. In many organizations, however, the opportunities to reduce inventory costs are often not addressed at all or are not completely exploited. If your organization needs help taking money out of inventory there are strategies you can employ today that will provide payoff. Ralph Cox offers 25 ways including the following ones that focus forecasting and inventory management:

Use Routine Demand Forecasting: Using manually edited arithmetic forecasting models to reduce forecast error will reduce overstocking, backorders, and DC returns from stores, holding inventory levels closer to only that required to support the desired customer service level.
Forecast Events: If one-time demand clutters the sales history, or if one-time demand events are part of the future, then they need to be taken into account in any forecasting done-both in terms of editing them from history and in terms of incorporating future events into the routine demand forecast.
Get Demand Plans from Downstream: Hard information on upcoming needs from customers reduces demand variability, thus reducing the safety stock required for a given customer service level.
Send Demand Plans Upstream: Sharing demand forecasts with suppliers is more indirect, however, in the long run it will serve to reduce the supplier's finished goods inventory and associated costs and, with effective negotiation, perhaps yield lower prices.
Keep In Stock, But Not Everywhere: In multiple DC tier environments, stocking certain SKUs in fewer/upstream facilities as opposed to more/downstream facilities yields obvious benefits. Likewise, within a single tier of DCs, not every SKU deserves to be stocked in every DC.

The key to managing inventory successfully is to continuously measure your performance and look for new ways to improve. For the full list of 25 ways to take better control of inventory and decrease its associated cost, go to:
http://www.tompkinsinc.com

Inventory policies drive two types of costs-operating expenses and working capital requirements. The latest "Logistics Cost and Service Report" published by Establish Inc./Herbert W. Davis and Company, indicates that, while total logistics costs as a percent of sales are falling and most individual companies have succeeded in reducing inventory levels; total logistics costs per hundredweight are increasing, and inventory costs as a percent of total logistics cost are increasing. In many organizations, however, the opportunities to reduce inventory costs are often not addressed at all or are not completely exploited. If your organization needs help taking money out of inventory there are strategies you can employ today that will provide payoff. Ralph Cox offers 25 ways including the following ones that focus forecasting and inventory management:

Use Routine Demand Forecasting: Using manually edited arithmetic forecasting models to reduce forecast error will reduce overstocking, backorders, and DC returns from stores, holding inventory levels closer to only that required to support the desired customer service level.
Forecast Events: If one-time demand clutters the sales history, or if one-time demand events are part of the future, then they need to be taken into account in any forecasting done-both in terms of editing them from history and in terms of incorporating future events into the routine demand forecast.
Get Demand Plans from Downstream: Hard information on upcoming needs from customers reduces demand variability, thus reducing the safety stock required for a given customer service level.
Send Demand Plans Upstream: Sharing demand forecasts with suppliers is more indirect, however, in the long run it will serve to reduce the supplier's finished goods inventory and associated costs and, with effective negotiation, perhaps yield lower prices.
Keep In Stock, But Not Everywhere: In multiple DC tier environments, stocking certain SKUs in fewer/upstream facilities as opposed to more/downstream facilities yields obvious benefits. Likewise, within a single tier of DCs, not every SKU deserves to be stocked in every DC.

The key to managing inventory successfully is to continuously measure your performance and look for new ways to improve. For the full list of 25 ways to take better control of inventory and decrease its associated cost, go to:
http://www.tompkinsinc.com