The last thing the accounting manager wants to see is too much inventory, since this requires an investment in more working capital. Here are some tips for keeping inventory levels down:
- Consolidate smaller, local warehouses into a single regional warehouse. By doing so, you only need to maintain safety stock at one location, rather than once at each warehouse.
- Centralize slow-moving inventory. If an item turns over very slowly, then it may be cost-effective to store it in just one place (not even in a few regional warehouses). The trade-off here is an absolute minimum amount of safety stock versus possibly higher shipping costs.
- Buy in smaller quantities. This may result in more frequent deliveries, so there may be a cost trade-off. At a minimum, avoid any purchasing “deals” where you buy vast quantities of goods in exchange for a price break (no price break is worth it!).
- Shrink production runs. A major cause of excessive inventory is production runs that greatly exceed the amount of customer orders. If there are no orders, don’t load up the warehouse with extra units. And above all, don’t operate the production equipment just to keep the staff busy. If there is no demand, then do not produce it.
- Shrink the number of product options. Do you really need that product in blue, green, red, and pink, as well as with an optional confabulator? Though marketing will be annoyed, try to stock only one or two product variations. At a minimum, only store a moderate number of sub-units that can be quickly altered at the last minute into a variety of configurations, rather than storing lots of the final configurations.