Are you aiming to cut costs in your supply chain and logistics operations?
Effective inventory management can play a crucial role in lowering logistics expenses.
Many businesses overlook these essential inventory management techniques.
Check out the video below to discover how to reduce your inventory costs!
How to Save Logistics Costs: Inventory Management Tips
We’re diving into strategies to cut logistics costs, starting with inventory management. It’s a crucial topic because everyone is focused on reducing expenses right now.
Conduct a Thorough ABC Analysis
First up, let’s talk about ABC analysis. It’s essential to perform this analysis thoroughly and understand the results. Many companies overlook this, so it’s vital to get it right. The Pareto analysis, or ABC analysis, divides inventory into three categories: A, B, and C. Typically, about 80% of the cost of goods sold comes from 20% of the items (A lines), while 15% and 5% come from B and C lines, respectively. On the flip side, A lines usually represent around 20% of the SKUs, B lines 30%, and C lines 50%. A common issue is a long tail of slow-moving items. Investigate whether these items are truly necessary, or if you can reduce the range.
Manage Product Life Cycles Effectively
Next, consider life cycle management. This involves managing SLOB stock—slow and obsolete inventory. Effective life cycle management includes forecasting sales, replacing existing products smoothly, and managing discontinued lines. Avoid accumulating excess stock by ensuring that inventory levels align with actual needs and sales forecasts.
Optimize Your Distribution Network
The third point is optimizing your distribution network. Sometimes, products crisscross the country due to poor inventory deployment. This inefficiency can lead to lost sales, back orders, and higher transportation costs. Analyze your network to determine the best distribution strategy: whether to stock A items at all centers or to centralize B and C items. Proper distribution network management reduces excess transport costs and improves inventory efficiency.
Re-assess Minimum Order Quantities (MOQ)
Finally, revisit your minimum order quantities. Companies often buy in bulk to get better unit prices but end up with excess inventory. Instead, consider buying smaller quantities more frequently to ensure faster inventory turnover and a better return on investment. Balance the unit price with the overall cost of ownership and warehouse space.
To get the most in this topic, watch the full video.
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“.
