Looking to cut costs in your supply chain and logistics operations?
Effective inventory management can significantly impact lowering logistics expenses.
Why do many businesses overlook these essential inventory management techniques?
Discover strategies to reduce your inventory costs by watching the video below.
This week, we’re diving into strategies to cut logistics costs, starting with inventory management. Cost reduction is a top priority for many, so we’ll focus on practical tips to optimize inventory and save money. Here’s what to expect from our series.
For those new to the channel, I run Logistics Bureau, a management consulting firm specializing in supply chain logistics. Our core expertise lies in helping clients reduce costs within their supply chain and logistics operations. To provide value, I’m creating a series of videos on cost-saving strategies, beginning with inventory management.
Key Strategies for Reducing Inventory Costs
Conduct a Thorough ABC Analysis
One crucial step is performing an accurate ABC analysis of your inventory. This involves classifying items into A, B, and C categories based on their importance and value. Typically, A items constitute around 80% of the cost of goods sold, B items around 15%, and C items the remaining 5%. While this concept may seem basic, many companies fail to implement it effectively. Analyzing the distribution of your inventory can reveal inefficiencies, such as an overabundance of slow-moving items. For instance, a recent client in Melbourne had a significant long tail of inventory items, which prompted a review of whether all those items were truly necessary. Understanding the validity of your inventory distribution is essential.
Manage Product Life Cycles Efficiently
Another vital aspect is life cycle management. This involves monitoring slow-moving, obsolete, and excess stock, often referred to as SLOB (Slow and Obsolete) stock. Properly managing product life cycles includes forecasting sales, replacing old products smoothly, and managing discontinued lines to avoid excess stock. Efficient life cycle management helps prevent the accumulation of unnecessary inventory.
Optimize Your Distribution Network
Your distribution network plays a significant role in inventory management. For example, a recent client meeting revealed inefficient inventory deployment, where products were being distributed inefficiently across the country. This inefficiency led to increased transport costs, potential lost sales, and back orders. Properly managing your distribution network means strategically placing inventory to reduce transport costs and improve service levels. Consider whether you need full-range distribution centers or if you can centralize certain items to streamline operations.
Re-evaluate Minimum Order Quantities
Finally, review your minimum order quantities (MOQs). Many companies still get this wrong by focusing solely on unit costs, buying in large quantities less frequently. However, this can lead to excess inventory and slow returns on investment. Instead, consider ordering smaller quantities more frequently, even if the unit price is slightly higher. This approach can improve inventory turnover and provide a better return on investment.
Learn more about this topic by watching the complete video above.
Related articles on this topic have appeared throughout our website, check them out:
- 9 Barriers to Optimal Inventory and How to Break them Down
- 3 Common Inventory Management ‘Sins’—And How to Avoid Them
- How to Fix Your MRO Inventory Squirrel Problem?
- Don’t Let Inventory Levels Bloat Your Working Capital
- Inventory Optimisation: How Much Stock is Right for Your Company?
Editor’s Note: The content of this post was originally published on Logistics Bureau’s website dated October 18, 2023 under the title “Saving Logistics Costs – Inventory“.
