Or if you’re spending too much on carrying costs for a certain SKU, you might want to bundle it with relevant and popular SKUs to reduce them more effectively. Excess inventory means your warehouse is stocked up on goods that might not even get sold. That’s valuable storage space that could have been used for storing products that are popular with your customers and are more likely to sell.
Luckily, you can reduce lead times by assessing your supply chain processes, improving your vendor relationships, and optimizing your purchase order workflow with a tool like Cogsy. For example, a clothing retailer can track the availability of key items across multiple locations. If a popular jacket runs low at one store, the system will alert the team to restock from a nearby warehouse. This ensures customers always find what they’re looking for without unnecessary stockouts.
How to Manage Automated Inventory
When your warehouse is filled with inventory that you’re unable to sell, you’re wasting storage space. You can maximize your warehouse space by removing excess units of SKUs that are slow to reduce inventory loss sell and then making use of the free space to stock SKUs that sell well. Lean inventory models require very efficient processes, and this includes at the supplier end. If your suppliers can’t deliver the products you need as quickly as you need them, you’re at risk of disappointing customers and harming your bottom line. Many organisations find that making frequent, smaller purchase orders is more flexible compared to the carrying costs of making large orders to fill up the warehouse. Not only does this trim your carrying costs, but the increased flexibility could allow you to adapt and pivot based on changing customer demand and market conditions.
One of the biggest challenges of adopting inventory reduction methods such as the just-in-time model is the need to precisely time your inventory reorders. You’ll need to make sure that you’re reordering just the right amount of inventory at exactly the right time so as to avoid stockouts. In addition to this, inventory automation can help you optimize your reduction process to a significant extent. If you decide to adopt the just-in-time model, for example, you can set reorder points and get notified when inventory levels drop below a certain number. That way, you won’t accidentally forget to replenish your stock and can make do with smaller reorder quantities.
Implement automated replenishment systems
ABC analysis prioritizes inventory items based on their value and importance, allowing businesses to allocate resources effectively. In a direct write-off method, the business records a credit to its inventory asset account and a debit to its loss on the inventory write-off account. To better understand inventory write-offs, we’ll use a real-world example. Because of research on market trends, you have an inventory of red scarves worth $80,000 on hand. But suddenly, red scarves fall out of fashion completely, meaning the value of this inventory has been reduced to zero.
Frequently Asked Questions About Inventory Reduction Tactics
This makes it much easier to achieve high rates of order fulfillment (or service levels) without carrying large volumes of every inventory item. At the same time you can reduce levels of less important items, or simply not stock them at all, reducing inventory investment and saving on warehouse space. Behind every inventory loss prevention or reduction success story identified by the Group lies good loss data. Today, the only way to get this data is through regular cycle counting in-store.
Is inventory shrinkage an expense?
Nobody likes to wait on shipments, particularly when your ability to meet demand relies on quick delivery. You should always pay attention to how long it takes to receive products that you’ve ordered and note when it impacts your customers. If you regularly run into backordered products (see backorder meaning) or lose sales due to missing inventory, that can lead to unsold supplies stacking up in your warehouse. Speak with your suppliers and see where the disconnect is, so you can eliminate warehouse problems and meet demand. To prevent a build up of obsolete stock it’s critical to understand where in the product life cycle each of your inventory items sit (such as growth, maturity or entering decline).
- Inventory reduction is the process of reducing inventory levels to align with consumer demand.
- A retail chain might notice increased demand for summer apparel in specific regions.
- Inventory optimization is the process of balancing stock levels to meet demand while minimizing costs and maximizing efficiency.
- Shrinkage is caused by theft, misplacement, damage, and administrative errors.
- Inventory optimization is rarely considered in product development, consignment inventory models, or the design of the supply chain network.
Another option is using software applications, such as inventory management software (IMS), enterprise resource planning (ERP), or warehouse management systems (WMS). These are all capable of analyzing and processing your inventory data and can automate your inventory planning, ordering, tracking, and reporting. Artificial intelligence (AI), robotic process automation (RPA), and machine learning (ML) are all incredible at optimizing and enhancing the inventory process. They are capable of automating your demand forecasting, inventory optimization, inventory segmentation, and inventory replenishment.
- Reducing inventory could possibly result in losing sales, customers, or market share, should there be any inventory issues or errors.
- For example, Noonday Collection, a DTC accessory brand, grew rapidly in 2015.
- When stock levels drop below predefined thresholds, alerts are triggered to notify the team.
- With that being said, it’s important to remember that this isn’t just moving excess inventory.
- By focusing on high-value items, you reduce losses and allocate resources efficiently.
- Another way it can reduce your inventory costs is by enhancing the quality of your inventory, reducing defects and errors.
- When you can sell 1,000 units at $10, you might be able to sell 2,000 units at $8.
Employee theft
As medtech supply chains become more complex, often through acquisitions, there’s an increasing number of nodes through which each product travels before reaching the customer. This means each node increases the total inventory carried by the organization. Greater supply chain efficiency, with fewer total nodes, can help organizations pursue optimized inventory value.
Safety Stock Management
And the opposite is also true — when you reduce production, manufacturing, utilities, materials, and other related costs decrease. Secondly, EazyStock automatically calculates optimum order quantities based on a range of variables, including demand forecast, MOQs and order cycles. AI-driven tools analyze sales patterns, customer preferences, and regional demand trends.
It also improves the performance and profitability of the inventory system, thereby enhancing the sustainability and competitiveness of your business. A slow and inefficient supply chain can be a major bottleneck for your business, leading to stock shortages, delayed shipments, and frustrated customers. The key to reducing delays and improving efficiency is to ensure a smooth flow of inventory from suppliers to your warehouse and ultimately to the customer. This may seem counterintuitive to the point above, but running sales too often can increase demand variability, lead to warehouse issues, and even cause a bullwhip effect in your supply chain. It also causes many customers to wait to place a purchase until your next sale.