Cutting back your inventory costs

Inventory is an asset, but it is also a liability. Both raw materials and finished goods take up space, with the cost of the space they occupy often a critical overhead for businesses.

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If you could run your business without inventory, you would save on rent, rates, security infrastructure, transportation, stock handling labour, storage units, depreciation and insurance. Together, these expenses are referred to as the carrying cost.

Inventory sits on shelves or lies around in piles, seemingly doing nothing. A shocking number of businesses have little idea how much inventory they have, let alone how much it is costing them. Here are five ideas for getting to grips with it:

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Consignment inventory

You can often offload a portion of your inventory to your retailers or other business partners, as having more stock or materials close to hand is often very convenient for them. Although they don’t pay you up front – instead, they only pay for what they use – your carrying costs and/or space problems are significantly ameliorated. You will want to ensure that you have the right equipment in place to do this ad this may include looking at forklifts for moving your products around. You can contact a Plant Hire Leicester company such as if you are looking for equipment like this.

Set key performance indicators

Monitor everything you can, such as inventory turnover, shelving use, delivery times, fill-rates, write-offs and write-downs. Once you have the stats, you have something to work with and can see the effect of your new practices. To improve your shelving use and stock movement efficiency, consult a shelving specialist about better warehousing solutions. This will help you to achieve those leaner KPIs.

Lead time reduction

Buying – and selling – in bulk has its advantages, but carrying costs are not one of them. If you can smooth out the flows of stock and materials with smaller but more frequent orders, you can safely stock less at any given time. For this to work, it helps if you reduce paperwork and streamline the ordering process.

Perpetual inventory systems

Computerised stock management enables purchase orders to be generated entirely automatically in response to stock levels and new requisitions. Real-time information also brings a host of other benefits.

Forecasting accuracy

Computerised stock management means you can watch every purchase and sale moving in real time. You will always know exactly where the business stands and can quickly identify your best products, anticipate new trends, and experiment with new products. Not least, you can use this new source of centralised information to identify and eliminate obsolete lines and slow performers.

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