Thursday, July 24, 2008

Inventory management tips- part 4

Here are some of the most common techniques for lowering inventory levels.
Consider Liquidation: Although there will always be a short-term price to pay on the P&L and the balance sheet, when it is absolutely clear that the value to be gained through liquidation-whether through sale at reduced price, sale as distressed product, salvage, or charitable donation-is greater than the most optimistic estimate of future gross margin from conventional product sales, then liquidation is the best decision.

Try Merge-In-Transit: The concept of in-transit product merging-where, for example, two things are shipped from different locations and then married in transit so that they reach the customer as a single shipment-can be seen as a technique for reducing inventory if the need for the customer to simultaneously receive multiple SKUs is taken as a requirement. If the need for simultaneous receipt is a given, then the concept eliminates the need for inventorying the individual SKUs together. To some extent, merge-in-transit represents an extension of postponement beyond the distribution center walls.

Get Help From Friends: Collaborative Planning and Replenishment (CPFR) is an open set of pre-defined business processes and IT/communications standards created to facilitate collaboration between supply chain partners. CPFR can reduce inventories through inventory balance, forecast, demand and other data visibility and associated collaboration in the planning area.

Use Vendor-managed Inventory (VMI): With the appropriate incentives, allowing suppliers to assume the responsibility for replenishment of your inventory, because of their visibility into both their own inventory and production schedule and your demand data, can almost always reduce your inventory.

Implement Vendor Stocking Programs (VSP): Used primarily for maintenance inventories but applicable to all, VSPs require a supplier to commit to an extremely high service level for delivery of specific SKUs within a fixed time at a pre-defined mark-up over cost. VSPs can reduce or eliminate inventories for slow-moving products.

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