8 Effective Ways to Lower Inventory Costs

Inventory cost is an important asset that represents an investment of the company until the item is sold. Usually it includes capital, depreciation, warehousing, taxation, insurance, etc. The main aim for all supply chains is to provide customers with what they want and when they want. Businesses must balance the inventory costs to avoid the risk of not being able to accomplish the customer’s requests in a timely manner.

Inventory management plays an important role in supply chains because inventories that are mismanaged can create major financial problems for a business. Adopting different smart inventory management strategies can help make a lot of difference in your operations. 8 quick and prudent solutions to lowering inventory costs are as follows:

#1: Identify Total Costs
Calculate holding cost and have clarity about real savings that you may get with bulk purchases.

#2: Use Technology
Inventory cost can be reduced significantly by using technology. You can use technology like VMI (vendor-managed inventory) to increase visibility.

#3: Transfer Stocks
Transferring stocks from one location to another will help to avoid unnecessary purchases by reducing inventory costs.

#4: Use Cross-Docking
It is a great way to reduce inventory cost. Consolidating purchase orders from many distribution centers into a single order will help you reduce cycle stock inventory.

#5: Improved Warehouse Layout
Optimizing your warehouse layout and evaluating the potential of using thin aisle handling equipments will help you to lower inventory cost.

#6: Calculate Merge-In-Transit
Arrangements should be made for the components to be shipped from various suppliers and merged at a place located close to the end customer. This helps to prevent the need of traditional warehousing and also helps to reduce the overall holding cost.

#7: Work Together with Partners
Allocate information with suppliers to enhance visibility and lower overall supply chain cost.

#8: Reduce Inventory Holding Cost
Improve space utilization by contracting a leased or public warehouse and using more appropriate storage modes.

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