Everyone aims to save costs, whether it’s our clients or our own businesses, particularly in supply chain and logistics operations.
Effective inventory management can significantly cut logistics expenses. Though some techniques seem basic, many businesses overlook them.
Watch the video below to discover how to lower your inventory costs!
We’re discussing how to save logistics costs, starting with inventory management. Saving costs is a priority for everyone, and in this video series, I’ll share tips to help you reduce expenses. As the head of Logistics Bureau, a management consulting company specializing in supply chain logistics, I’ve found that helping clients cut costs is one of our primary services. Let’s dive into four key areas to reduce inventory costs.
Proper ABC Analysis
A proper ABC analysis of your inventory is crucial. Many companies fail to perform a thorough analysis, missing out on potential savings. The ABC analysis, also known as Pareto analysis, involves categorizing inventory based on the Cost of Goods Sold (COGS). Typically, 80% of the COGS value comes from A lines, 15% from B lines, and 5% from C lines. This distribution helps identify which products contribute most to sales. Recently, I’ve noticed many companies struggle with a long tail of slow-moving SKUs. It’s essential to assess if these products are necessary or if they can be eliminated to reduce costs.
Life Cycle Management
Effective life cycle management is another critical aspect. Identifying and managing SLOB (Slow and Obsolete Stock) is vital. This involves forecasting sales, replacing existing products smoothly, and managing discontinued lines to avoid excess stock. Proper life cycle management helps ensure inventory levels are optimized, reducing unnecessary costs.
Distribution Network Optimization
Optimizing your distribution network can significantly impact inventory costs. Poor inventory deployment leads to issues like lost sales, back orders, and increased transport costs. By ensuring the right products are in the right warehouses, you can minimize cross-country shipping and reduce excess transport expenses. Deciding whether to have full-range distribution centers or strategically placing A, B, and C products can streamline your distribution network and cut costs.
Minimum Order Quantity (MOQ)
Finally, reevaluate your minimum order quantities. Many companies focus on getting the best unit cost by ordering in bulk, which can lead to excess inventory and storage costs. Instead, consider smaller, more frequent orders, even at a slightly higher unit price. This approach increases inventory velocity and offers a better return on investment.
Make sure to watch the full video above for detailed insight on this topic.
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“.
