Thursday, July 24, 2008

Inventory management tips -part 3

Here are some of the most common techniques for lowering inventory levels.
11. Purchase Minimums: Compare the total cost of ownership for purchased products as quoted prices with no minimums to reduced prices with minimums to determine if the reduced prices really provide savings.

12. Implement SKU-specific Purchase Transaction Costs: Purchase transaction costs aren't normally SKU-specific. However, reflecting any extraordinarily low receiving costs associated with specific SKUs will serve to reduce inventory for them. The opposite, of course, is also true.

13. Get Demand Plans from Downstream: Hard information on upcoming needs from customers reduces demand variability, thus reducing the safety stock required for a given customer service level.

14. Send Demand Plans Upstream: Sharing demand forecasts with suppliers is more indirect, however, in the long run it will serve to reduce the supplier's finished goods inventory and associated costs and, with effective negotiation, perhaps yield lower prices.

15. Don't Stock It: Manufacturing or purchasing to order when the acquisition and customer lead time relationships and order quantity relationships allow it is a very direct way to reduce inventory, providing that the acquisition capacity exceeds the potential short-term demand rate.

16. Cross-dock Customer Shipments: With effective use of joint replenishment, the potential increases in inbound transportation costs associated with purchasing to order can be mitigated. Cross-docking customer shipments can facilitate purchasing to order even when the order quantity relationship would have otherwise dictated purchasing to inventory. In a similar manner, aggregating purchase requirements for multiple DCs into a single order and cross-docking to multiple DCs effectively reduces purchase transaction costs and reduces cycle stock inventory.

17. Keep In Stock, But Not Everywhere: In multiple DC tier environments, stocking certain SKUs in fewer/upstream facilities as opposed to more/downstream facilities yields obvious benefits. Likewise, within a single tier of DCs, not every SKU deserves to be stocked in every DC.

18. Extend Payment Terms: When negotiating long- term purchase agreements, getting the best payment terms at a given unit price is the most direct way to increase the portion of inventory funded by the vendor. If improving payment terms can be coupled with increased turnover, then the improvement in working capital effectiveness is significant.

19. Take Advantage of Price/Quantity Breaks: Taking price/quantity breaks into account when purchasing for replenishment seems an obvious way to reduce the inventory investment, but seems to be frequently overlooked. Often this is a result of either not quantifying breaks at the time of sourcing or negotiation, not having an effortless way to take them into account, or through lack of understanding of the impact of purchasing larger quantities at reduced unit cost.

20. Transfer Instead of Purchase: When inventory of an overstock SKU in one location needs to be purchased to replenish inventory in another location, transfers are a smart way to reduce inventory. Be careful that additional warehousing and transportation expenses aren't unnecessarily incurred so the reduction in holding cost does not exceed the cost to transfer.

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